On bloomberg tv and radio. Typically alongside tom keene and Lisa Abramowicz, im jonathan ferro. Hyde is here this morning. You and i are operating into different time zones. Weve got to work through a brutal here and now on both sides of the landing. The atlantic. Lockdowns are coming to an end on your side of the atlantic, but i wouldnt want to get up early for anyone else. At the moment, i am seeing some Market Action that just speaks to this rotation not having that much longevity this week. Bettern this is much than what tom gives back. Perfect timing. Lets get to the price action this friday morning. We do head towards another week of gains on the s p 500, set to add just a little but of weight to it. Up 0. 25 on the s p. The posture just a little bit more defensive. Small caps underperforming, big tech outperforming. 1. 1920, up about 0. 1 percent. Huge calls coming through on the euro for 22 anyone. Do we have 8 for 2021. Do we have a repeat of what we saw in 2017 . On 15 year to 0. 8553 . ,ets bring in drew matus Metlife Investment Management chief market strategist. Fantastic to catch up with you. Lets talk about the bond market to begin with. Through the last 10 years and the last cycle, and our inability to get yields much higher, our inability in europe to generate any recovery that led to higher interest rates, why is this recovery going to be any different . Drew when i talk to people, i think what is different about this recovery is that everyone is talking about the risk of inflation going forward. It has actually surprised me because i think when we do the mass, we come up with inflation normalizing post this crisis. Have think a lot of people it in their minds that this is an inflationary event longer term, and the period we are living in more closely resembles the vietnam era in the United States that led to inflation picking up. You have a fed that is very aggressive. You have government stimulus, which we already had rounds of and will probably have more rounds of. And then of course, you had a big amount of dislocation in things like the labor market. You combine those factors and people begin to worry a little bit more about inflation than they used to. Jonathan going into the 1980s, the 10 year yield was about 13 . Right now it is 85 basis points. That is a number yield, granted, but where is the concern for inflation . I know it is priced in. It is not in the market right now. Drew i think this is the boy who cried wolf scenario. People have talked about inflation risk. In 2008, we were wrong. Other people talked about it as well. People got into their heads that inflation is this thing that the old people on wall street talk about, but that doesnt really exist. You hate to say this time is going to be different, but i do think there are some reasons to believe inflation might tick higher, but lets just normalize it. The idea that this movement in yields is not part of the movement in yields we saw for the last couple of decades. This is an aberration across the trend, and it means that most likely, the most lightly scenario in my mind is that inflation moves higher, yields move higher. We probably dont go above the precovid highs. At the end of 2019, 10 year u. S. Treasury yields were just below 2 . Even just a normalization is 110 basis points or so. I think that is something that is more realistic or more reasonable to consider. I am not worried about a 4 10 year yield any time soon, if you want to call that being worried. Caroline what inflation rate do you see on the higher side . How hot does it run . Drew i am looking for normalization of inflation, so to percent or so. It could go a little higher for a temporary period of time, but if we see 2 inflation, is the fed going to react . Pretty clearly the answer is no. They have told us no. What worries me, and i think what worries other people about that, is this idea that an organization that really couldnt orchestrate an inflationary push or has had more difficultly pulling down inflation, moving inflation around the way they want, has the ability to kind of maneuver inflation with that fine degree of precision. Letting it run hot for a while sounds great. How do you know when youre supposed to pull back, and how do you know what the lag is in terms of people believing you are finally serious about inflation this time . All of those factors are combining. The things to make a seal about the current environment are the ones making people more concerned about the longerterm outlook for the inflation move. Caroline where is this inflation coming from . Are we importing it . Are we fiscal stimulating it . Drew i think people are going back to the idea that it is a monetary phenomenon. The fed has created a giant balance sheet, but unlike in held more of Bank Reserves and that liquid cash, there is nothing on the others at this time. There are no regulatory changes they can place to make people. Ant to hold more cash people are holding more cash because of covid, because the risks around the economy. I also think from a psychological perspective, the savings rate is very high. People are kind of tired of being in their homes, tired of being locked up. Where are they going to go spend that money when the all clear is given . And is there enough capacity in the places they are going to want to spend that money to actually allow them to spend it . I think the answer is no. Theres going to be a lot of demand for a lot of experiences and things like that. It is going to be whoever wins the bid. Jonathan the turn of the year is a really important time for bookings going into spring, going into the summer. You can imagine the competition for flights to go on vacations if the vaccinations have actually started. Want to check in on the price action for a moment. Equity futures up near session highs, up about 10 points on the s p 500. Had a brief move on the vix to 20, for the first time i believe since february. Sub 20 just briefly. Utures return to the story the most import question right , how the fed responds. They have set up their reaction function really clearly on rates. I am trying to work things out, and just extrapolate it out, but do you think we could face a year of style issue where we go through a full cycle, a full recovery without ever putting . Ates up drew i think it is possible. One of the things it is easy to lose sight of is most forecasts, including our own, had a recession in 2021. We were preparing for a recession in the later stages of 2019 because we saw one coming a year and half out, not because , obviously. If you look at margins, the way the labor market was behaving, it also jested that something was going to begin to fall apart in the later half of 2020, and by 2021, we would be staring a recession in the face. I dont think this is a cycle. This is a shock. The cycle we are in probably reset a little bit. Recession. Having the recession in the labor market do what it is going to do. I think the next Economic Cycle could be Something Like the 1990s. Going to be improvements in productivity. Ofnk of this, thing of all the technological advances that happened during world war ii. Is a big shock to the global system that required big movements in technology, big changes or experimenting with things or figuring out how things worked, and doing it at very rapid pace. Oft comes out of this, a lot the changes that take place are going to be productivity boosting. I think we need to really think about the positives sometimes. Caroline put my money to work then, true. Where in the portfolio are you adding . Drew look, dont fight the fed is a good adage. Across, weyou look are a fixed income oriented portfolio, so we are taking our cues from the fed, taking our cues from where we think things should be going, but we are also not losing sight of the fact that i think some of the ideas being put forward our may be getting a little head of a little ahead of themselves. People are going to go back to the office. There is an efficiency there are people going to offices. There is some lack of efficiency there, but theres also more benefit than not to going into office and interacting with people on a daily basis, and seeing those interactions and what they turn into. Part of that experimentation process. I think for a long time, people were like, why do we need to go into offices. What value does it have. I think everyone working from home the last eight months can give you an idea of what the benefit is a going into the office. Jonathan and im sure some of those stories are very personal. Drew matus of metlife, thank you. The vix dropping below 20 for the First Time Since february. We are back above that level once again. Advancings p 500, 0. 28 . The close wednesday, high yield spread just off of those levels of early november, 4. 09. 409 basis points. That is the spread in high yield. A little later on the politics in washington, d. C. , ed mills of Raymond James. Thety futures advance 10 on s p 500, up 0. 3 . His is bloomberg ritika with your first word news, im ritika gupta. President trump says he will really push power if the Electoral College confirms joe bidens victory, but he is signaling he may never formally concede defeat and could skip the inauguration. The president is still calling for Election Results to be overturned despite no evidence of widespread fraud. The u. K. And the eu are ready to aftert face brexit talks Prime Minister johnson said there are substantial and important differences to be breached, i sentiment echoed by the eu chief negotiator michel barnier. Both sides are leading on the other to make a move if a decisive deal is to be reached. Covidhad 570 new cases of in the past 24 hour alone, the first since the pendant began. The spike comes before a request for tokyo bars and restaurants to close early starting friday. 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. Im ritika gupta. This is bloomberg. Our official forecast is that the u. S. Economy will have returned to the precovid level of gdp in q2 of next year, but i think that has to be considered in light of this burgeoning caseload around the country. That is clearly going to weigh on that forecast. Jonathan that was the citi speakingief economist to bloomberg. The story around the economy, the shortterm and the longterm. In many ways we have been trying to disentangle the shortterm from the longterm. Shortterm is going to be brutal, choppy. A lot of cases picking up in the United States. Hospitalizations, things we dont like talking about, we dont like seeing. Comfortterm is the trade. Can you draw a line between the two . I think that is what Catherine Mann is getting at in the short to mediumterm. Caroline i thick we are not pressing in enough the pain we are about to go through, the hard winter that joe biden has talked about. The fact that we are back at a record high on the nasdaq, the economy is not reflected by the stock market. The kshaped in particular. Jonathan we are starting to see it in jobless claims. Claims next thursday will be watched very closely. Lets get to the price action ahead of the opening bell, about one hour and 11 minutes away. A record high off the record high. The s p 500, we come back. We add about 10 points, up about 2 coming into friday for the benchmark. To fx market, eurodollar 1. 1927. The small caps underperforming and big tech outperforming. A bit of a bid into the bond market. Subtle move lower by about three basis points on the 10 year to 0. 8553 . I am pleased to say we can have mills in the conversation now we can have ed mills in the conversation now, Raymond James washington policy analyst. The president was asked if the joetoral college confirms bidens victory, if he would leave, and he said, i will, and you know that. Ed by december 8, all states should certify their lets and their Election Results. On december 14, the Electoral College meets in the state capitals. By december 23, those are transmitted to d. C. If they are not thereby then, the government starts asking for it. January 6 next year, with a joint resolution by congress, the Electoral College meets in d. C. To ratify the results. If one individual has 270 Electoral College votes, that individual will become the president of the United States. All indications point at this time that it is going to be joe biden. Jonathan just to be clear, when are the georgia runoffs . 5, or inber january, sorry. Jonathan so we have genuine a fifth and january 6 as best we have january 5 and january 6 we have january 5 and january 6 as two key dates. Do you see republicans staying their current course going into the runoffs in georgia . Ed i think when you look at the runoffs, there are a lot of reasons why the current stance is potentially helpful to the republican incumbents, and is potentially really harmful for the republican incumbents. They are walking a fine line. Those incumbents are campaigning on the idea that there victory is a check on the biden adminstration, but theres a lot of republicans not willing to accept that there will be a biden adminstration. If the incumbent republicans, senator perdue and senator loeffler, are not seen as adequately standing up to president trump, will the Republican Voters who showed up on november 3 show up again in january . I think that is a real open question. Democrats have similar issues. Will the individuals who showed up for the president ial race show up again in january . We view those races as a tossup because i think we need a few more weeks to have this fleshed out a little bit more, to get a true sense as to where those elections are headed. It is a possibility that democrats will have a majority in the senate. I dont think you can dismiss that at this point. Caroline what does that mean for policymaking . If it is a binary event there is a democratic senate, and terms of who can be put up for confirmations, who can get confirmed, who is leading these regulatory agencies, who is leading these cabinet agencies, but legislation goes on the floor. There is an opportunity once a year to pass what is known as a budget reconciliation bill. That usually has been done for taxes, but back in 2010, that was done for the end of obamacare, the Affordable Care act. That change student loans. The democratic agenda can pass the senate with a simple majority vote. It does not need filibuster reform to get those major pieces of legislation and regulatory changes through. If there is a democratic senate, the market has to pay a lot more attention to the legislative side than they would be if republicans are able to salvage one or both of those seats in georgia. Caroline the clients you are speaking to, do you think they are factoring this in . Ed i think there are some factoring this in. I think the conventional wisdom is that the most likely outcome is a republican senate, and i think in a probability percentage, that is true. I think what we are reacting to right now is we did have a delay for certification of Election Results, but the market has largely moved on from the president ial election. We are now focused on the other macro issues in terms of what is happening with covid, and ultimately who biden is selecting for his cabinet. Pic of janete yellen earlier this week, that is what the market is focusing on, what leadership does joe biden bring to the presidency if the assumption is correct, and what the next four years would look like there, versus probably under appreciating the potential for changes should the democrats pick up both of those senate seats. Jonathan the market so far likes what it sees and hears. Great to catch up. Happy thanksgiving to you, sir. Hope you had a good one. The difference in the georgia runoffs is the difference between maybe Something Like billion in stimulus and closer to 2 trillion. That range is huge. Caroline binary, as ed just called it. I feel at this is something that et has got comfortable that there will be cogs turning in congress. But i wonder whether it is being priced in enough at the moment. Jonathan i think participants want to turn the volume down on washington, d. C. And turn the volume up on a smooth vaccination rollout. That is the hope for 2021. From london and new york come alive on bloomberg tv and radio, coming up on this program, the u. S. Economy q4 is and over. Q1 hasnt started. The outlook in the short term with dan alpert of westwood capital. This is bloomberg. G. Are you frustrated with your weight and health . Its time for aerotrainer, a more effective total body fitness solution. announcer aerotrainers ergodynamic design and four patented air chambers create maximum muscle activation for better results in less time, all while maintaining safe, correct form and allows for over 20 exercises. Do the aerotrainer super crunch. The prestretch works your abs even harder, engaging the entire core. Then its the back extension, super rock, and lower back traction stretch to take the pressure off your spine and stretch muscles. Planks are the ultimate total body exercise. Build your upper body with pushups. Work your lower body with the aerosquat. The aerotrainer is tested to support over 500 pounds. It inflates and deflates in less than 30 seconds using the electric pump. Head to aerotrainer. Com now. Now its your turn to lose weight, look great, and be healthy. Get off the floor and get on the aerotrainer. Go to aerotrainer. Com, thats aerotrainer. Com. Jonathan from london and new york, this is bloomberg surveillance. Alongside Caroline Hyde this morning. Tom keene and Lisa Abramowicz taking another day off. We will see them on monday. The equity market standing down a barrel. The s p, the nasdaq, and the russell. The counterintuitive story for many of you hoping we would get that vaccination the big boost in cyclical appetite. This morning, tech leads. On the week it was the small caps come on the session it is tech. The russell basically unchanged. Still a defensive posture. Yields are lower on the long end. We come down does go basis points on the 10 year 2. 85 accurate on 30 year, south of 160. Is it technical or fundamentals that are keeping a lid on yields. The fundamentals, the data not great when you look at jobless claims. They are moving in the wrong direction. Retail sales last week movin