Morning. This bloomberg surveillance. More than a decade since the last one, s p Global Rating the gene the top rating for u. S. Of america. Fitch follows up after the close yesterday with this quote, the written downgrade of u. S. Reflects the expected physical deterioration over the next three years. The erosion of governance relative to aa and aaa rated peers. Whether it is justified, and if it matters, are two different questions. Lisa i would agree as this is the second Major Company to downgrade u. S. From aaa rating. The response arbitrary and based on outdated data. That is janet yellen. Larry summers the idea that it is a decreased default risk is absurd. Here is the question, is there Something Real behind this in terms of how much Interest Rate expenses are going up and like a convention there is on capitol hill . Jonathan theres governance issues u. S. Has that is inconsistent with other aaa rated peers like germany. Lisa i would agree because we were talking about u. S. Possibly defaulting on debt even though there is not a fiscal issue. It raises serious questions. Fitch first raised this issue back in may. It stuck two is because even as u. S. Government worked with the debt ceiling. This highlights the ongoing concern that this will be an issue every year Going Forward. Jonathan equities negative. 75 on s p. On the bond market. The market fallout, can we called this far out on the screen . Lisa as we did notice that said had to do not buy it. I read one, it is an excuse to sail and capitalizes with the gains especially in light of the main data out of china and certain sectors across the world. I buy that more than i do this because the move has been always the same. Go into treasuries. The exact opposite if you expect a decrease default risk. Jonathan secretary yellen, whichs decision does not change with americans, investors, people around the world now. Treasury securities remain the worlds safe and liquid asset, and American Economy is fundamentally strong. How did this will go down . Annmarie is going down differently depending on who you ask. Republican is going to point to biden and save the president and legislate of agenda he is on has added more money to the market that is increase inflation. Now you have this downgrade. Democrats are going to show brinkmanship and chaos that sometimes happen on capitol hill. That is Something Interesting about the downgrade. It comes after they were able to come to is a consensus on raising the debt ceiling but what fitch is looking at is going to 10 is there is not a lot of consensus about appropriation and because the a Government Shutdown and fitch seems to be evoking with a and americans see all the time. There is constant 11 hour deals being done in washington. It is not important for the Fiscal Health for u. S. Jonathan they reference that directly, governments issues the last two decades has manifested in repeated debt limit standoffs and lastminute resolutions. Is there any reason to believe the last minute standoffs and anytime soon . Annmarie absolutely not. This happens time and time again. Remember when s p downgraded u. S. 2011, they also did reach an agreement on the debt ceiling, yet they were still downgraded because this brinkmanship is the concern even though fitch did point to what the charges terry treasury secretary tried to get across to the american people, u. S. At this moment has good momentum and Economic Health but it seems fitch is incredibly concerned with the brinkmanship in washington. Going into an Election Year is going to get much worse. Lisa the comments i have read have a say it does not matter to markets, politics, to a lot of people who are shrugging it off is saying why are you doing this, on the other hand, u. S. Interest rate payments have increased by about 50 the past year to nearly 1 trillion a year. Looking at likelihood of increased default risk based on the brinkmanship alone. Is anyone in d. C. Who does care, does not necessarily agree with janet yellen and thinks it is a big deal . Annmarie republicans do and im sure well hear from more of them as the weeks go on. The issue politically with the downgrade, people are shrugging it off, treasury secretary is call it arbitrate them and others are puzzled because the timing and why it is happening on the with the need to looks good, the fact is, this president , Biden Administration will own a downgrade on their watch, this headline will not be used in every campaign ad and we know time and time again the economy consistently ranks top of americas mind they had to the polin box. Jonathan we will catch up with you in the next hour. We talked about the governance issue being inconsistent with peers who were rated aaa by fitch and others. Also the debt burden, and consistent with peers elsewhere. U. S. Debt burden set to reach about 100 of gdp by 2025. Take the median of others in aaa bucket, it is 39 . It is night and day. Lisa especially at a time of raising Interest Rates. Rapid pace that the fineness and are increasing is going to raise eyeballs especially today when we get refinancing plan from the Treasury Department. What do people do . They buy treasuries. That is the haven trade. You have resilience and robust growth that is outpacing some of the other nations to have smaller debt loads. Jonathan it is all we had a visceral reaction. I believe that the American Economy u. S. Debt market as a special place in our market universe, it is the sun and everyone else orbits the sun. Theres nothing else out there. For a lot of people u. S. Is never going to default so why weatherbeaten anything other than aaa will it be anything other than aaa. Lisa Fund Managers came out overnight is it are we actually going to adjust anything as the arbor portfolio because of this . No, not a chance. Rating agencies have not boasted their credibility the fast 20 years. Jonathan terry haines joins us now. We have seen little more these before. Can you tell me whether it is justified . Terry the issues you have brought up is valid about Interest Payments and the rest. I will start their. Politically it is bad news for biden. I question fitch across the board and the timing. Fitch is older than the debt ceiling. They were founded three years before the first debt ceiling law happened. Now they are be staring themselves to complain about the process through which u. S. Appropriates money and. Deals with its debt. Whatever else is going on, i think there is a motivation that is less pure the people want to talk about. The economists, lots of the same people complaining about fitch, are the same people that were entirely silent through the money printing and fiscal bloat era. Think they are more concerned that might be ending for good. I think overall this is not going to be worth very much. Lisa there is concern over how much the budget is ballooning in debt versus gdp, how much Interest Rate expenses are going up. To that idea they went from 600 billion 200 trillion a year is shocking given Interest Rates going up. To 100 trillion dollars a year is shocking given Interest Rates going up. Is anyone talking about remitting this or bringing in because that could cut benefits . Terry no, they have not talked about it for decades and they will not talk about it. The concerning news every year when spending is fix is the same thing. On book spending tends to be more or less status quo with minor adjustments. The outlook obligations, whether the Student Loan Debt or housing, are humongous. That is never dealt with. It is not going to be. Theres no percentage for any of these politicians to want to take it on. Theres no percentage for the white house to address it forthrightly and explain to the public why it is a bad thing, buy it and also attacks on them. Why it amounts to a tax on them. Lisa you said it would be politically damaging to President Biden to the election, it comes at a time with indictment of former President Trump, people thinking a runoff between biden and trump, would end up with abiding winning biden winning. Do you question that the echo terry i never thought he was a shoe in at the time and a student not today. You can go back to her three months ago where Different National polling and see that trump was either between biden was running neck and neck with him. That is still true. The indictments for meat mean markets have a lot less certainty about what the outcome is going to be. I think theres going to be more trepidation in this and this goes on for a well as a silent market negative. Jonathan theres a sense that we have lost sight that is as if its the country create to go to federal charges comes conspiracy to the u. S. , for sperry to obstruct a special proceeding, these things come up and people in this country, many of them shrugging their shoulders. How serious are some of the charges . Terry the charges are quite serious. To prove them is difficult. You have the world where trump is indicted, you got a slight reach in biden matter where slurge in the biden matter whereby the seams have been involved in his sales business which is directly contradictory to what he has been saying for years. That is a problem. You have a situation with prosecution is selfaware itself where the indictment where trump has the right to speak publicly about the election or to claim closely there have been outcome to terminator fraud, but now were going to start prosecuting based on what he did about that. The prosecutors going to have to establish motivation and it seems a few good men code red examination, cross examination. If youre going to have to get the state of mind at a time where you know the white house had different advisors telling the president one thing. How to get to the bottom of that . Difficult. Jonathan terry haines, thank you. Equities down by 0. 7 . Bob michele of jp morgan coming up later. Live from new york city, good mo the first time you connected your godaddy website and your store was also the first time you realized. Well, we can do anything. Cheesecake cookies . 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Jonathan there is a feeling the clinical followup will be larger than the market fall out. Political fallout will be larger than the market fall out. U. S. Stripped of his aaa rating by fitch more than a decade after s p Global Ratings. Heres the market fall out. It is muted stuff. We are down by zero. 7 of the s p 500. The bull market, would you have a clue that anything is happened based on the mood this morning . 10 year 10. 0. The move was yesterday is your guess is as as we get lisa the fitch noises going to be a political cultural but we are looking at a real situation where the u. S. Has the refinance choice of dollars of debt at a time or Interest Rate expenses are surging. When did this become a problem for congress and for president ial candidates that are not proposing to cut such security or other things that will be dead in the water . Jonathan here are the numbers. Treasury Department Said to increase its net borrowing estimate for July September quarter to 1 trillion. It is much larger than a lot of people thought. Were going to find out later where on the curve some of the issuance is going to land. Lisa 8 30 a. M. To get the announcement we work through it with Michael Mckee. How much does that push up along and yields we should use moved to they have moved to the highest levels in years . Normalization, what is normal look like in a different Interest Rate environment . This government keys borrowing more money. Jonathan we have fantastic lineup of guests to dig through. Chris verrone joins us around the table in new york. Good morning. Not a quiet summer, not a quiet start to august. This talk about the market fallout. Does it matter . Chris i was thing about the difference between the downgrade yesterday and i think august 5 2011 the downgrade. The yield to set up was different. Like kate was falling into the 2011 downgrade yields was falling to the 2011 downgrade. The trend is up right now. I understand the reaction is muted but you have a gripper in grace the last couple weeks a ripper in rates the last couple weeks. You go back to the cpi print july 12 and yields traded to 370 made the move back. They are 402 this morning. 30 year yields have moved also. The surprise will be yields up in the direction of the trend. Jonathan the market interest backdrop the market backdrop and economic backdrop between 11 was a different. But there was a conversation, he said if they get downgraded from aaa to aa, it would not be treasuries that people sell, itll be other stuff to make space for treasuries. Is that dynamic in play . Chris im a were getting the 2011 call wrong remember getting the to 11 call wrong. I really do think this time around it does mean yields up here. I would emphasize that led to an easier centralbank, easier Monetary Policy response. You had to eat two or qe3 that came out of that. It did not think theyll be the Monetary Policy response from this. You speak of all of the thing since the 3 cpi print a couple weeks ago, commodities have ripped here. Commodities up, rates of, and you delete . Like to see around the equity market after a very strong start of the year. Lisa could you imagine if jay powell comes out to talk about the fitch downgraded . Jonathan is a different time. Lisa i am wondering if you spent Going Forward and were talking about the Political Risk with terry haines who said he does expect this to get price in more with move away from certain u. S. Assets given the uncertainty around the political backdrop. Do you buy that argument . Is that one of the reasons you see yields going higher . Chris it is a question of where you go. The dollar response has been fairly muted the last 12 hours. I do think bitcoin has rallied a bit. If there is another difference may be from the 2011 experience versus today, look at the chinese and japanese, they are big net sellers are treasuries and they have been for the last year. That was not the case in 2010 period. There is a different dynamics. Im almost hesitant to compare this incident with 2011. Think they are different. Think the outcome will be different. Lisa we have been talking for the past a blood how it seems like risk assets are not noticing couple of months, how seems like risk assets are not noticing. Because people are kind of getting a little uncomfortable here and started to wonder whether this guild space going to create something more significant. Chris we look at how strong the first half of the year was, it is really only rivaled by other years in history, 95 was strong, 98, and 87. Look at 9598 the strength continued in second half. 87 we know is the opposite. Bond yields ripped in the summer of 1987 and you get this uncomfortable set up yields are up and equities are up. Im not saying that is what is happening but i find it curious we get yields up big and stocks up big, something tends to become unsettled quickly. Jonathan is that technical or is it somehow linked to fundamentals . Better outlook on the cycle . Chris heres how i try to answer that are put the puzzle pieces together. Written rates are rising and cyclicality is still up outperforming companies a message that economic utility is the robots. When i see defensives outperforming as yields goes up, that is a different message. Yields is she telling us something about the change. Are telling us something is about to change here. Euros of the defense is working is not compatible. Yields up with divisive workings is not compatible. We are trying to put these pieces of the puzzle together. We put out a list last week, 13 science commodity three inflecting. The break out in the scum or socks have been compelling commerce stocks have been compelling. It is all have been basically says the 3 cpi print in early july. Also coincident with Janet Yellens trip to china. You wonder what the deal mapping brokered. May have been brokered. The debt commodities and theyre acting like chinese are going to put their foot on the pedal. Jonathan this conversation for a break. Thank you. It is good to see. Equities down. 75 on s p. Plenty more on this downgrade from page of the u. S. Credit ratings. John ryding coming up. Let Innovation Refunds help with your erc tax refund so you can improve your business however you see fit. Rosie used part of her refund to build an outdoor patio. Clink dr. Marshall used part of his refund to give his practice a facelift. Emily used part of her refund to buy. I run a wax museum. Let Innovation Refunds help you get started on your erc tax refund. Stop waiting. Go to innovationrefunds. Com you really got the brows. To that. Four 8621 going into the adp jobs report a little bit later on this morning. That comes at 815 eas