And u. S. Steel rejecting 7. 25 million from cleveland. Most stocks actually higher. We are going to speak to the chairman and ceo later on in the show. From new york, im alix steel with guy johnson. Welcome to Bloomberg Markets. You look at the markets, the story is the dollar. The dollar index. Guy the question im asking today, if you were sitting on a beach somewhere enjoying yourself, what are you missing . Many would argue not much. But under the circumstances, there are some really big trends developing here. You talk about the real yield. I think that is a huge story. Should be hugely negative for stocks in the u. S. Economy. Plus this china story, for how long . Alix how seriously can you take any of these issues right now . A lot of people are going to wind up on the beach. The equity market is literally going nowhere. But i do wonder to the real yield question, if that is a strong dollar story, that will have repercussions elsewhere. Guy and you come back off your holiday, off the beach, what do you do with that . That effect is going to ripple throughout the global economy, a massive effect on the emerging market, trade. People are talking about moving the eurodollar up. Is that really going to be the case . I dont know. If you are on the beach i think there are some key things you want to see. Alix i think that guy is projecting a little bit, he wants to be on the beach. Guy my entire family have left me and gone to the beach. Im not entirely sure that im the one thats not missing out. Alix that brings us to the question of the day. What is the real problem . Real estate, real yields, or Something Else entirely . I feel like im stacking the deck going to lose first. What do you think . First of all, im depressed im not on the beach. I would lean that really yields is front and center in the u. S. Because those rates keep climbing higher. The chinese economy and the Property Market keep faltering, that is going to bleed in. I think people are really more worried about the rates taking off. Guy i can totally understand that and i think wall street at this point fancies the china story. But when cracks start to appear in the fence, is that going to be the big problem . Because history tells us that when china moves significantly, it doesnt make ripple effects. I remember the devaluation. That was massive. Im old enough to remember that. You were in college. Ira reid, its fine. I would agree with that. I would even go back even further to 2009 because when you look at the Global Financial crisis, one of the reasons a lot of people say the 2000 nine recovery was way faster than expected was because of how much china actually invested in their infrastructure, some kind of investment but did have global implications. If you ask now they will say that china readthrough isnt as strong as it was in 2008, 2009. If there is this kind of property slowdown, this property collapse, that really isnt this isolated story or whatever that may be, there is this kind of bigger plunge coming. The Chinese Government are going to support the markets but the implication for the rest of the world might not be as potent as it used to be. I would make the argument that it is less what is happening now and more how china deals with it. What they allowed to fail. I dont think we have a clear answer on that yet. Guy guy and how far it goes before they make that decision. At the moment, they seemed reticent to make that decision. These things have a tendency to get out of control very quickly. You go from a probably company into the alternative Asset Managers in the shadow space. Then you start having the banks causing problems. That happens pretty fast. Alix it does, which brings us to the other part, the real yield problem. If that starts happening quickly, where does that create the biggest Pressure Point . I think it starts to hit the economy. The u. S. Economy is slowing. If the u. S. Is starting to slow and the labor market is cracking further, we were talking the other day, things can go fast. Shorts can start covering crazy rates and you can see rates go down. I think theres a lot of uncertainty ahead, and we cant guarantee that everything, even if the orders come in, that things are going to be ok in china and it will cause more problems. Guy the 20082009 taught us how it is connected to the financial system. Lets go to your wheelhouse and talk about stocks. Stocks seem to be pricing that is whole malarkey is going to be a real phenomenon. What, malarkey . Guy lets assume that we are on holiday, we can do whatever we want. That this is going to come to an end pretty quickly. How long can stocks tolerate these positive real yields . They can tolerate them for a while. I always look back to 2022. The carnage is already kind of in the rearview mirror. Resiliency or recovery, either one of the scenarios are better than a whole recession. Therefore you have a bookcase built into the stock market submitting of people are still improving on their margin. The bigger risk is things like labor or topline slowdown that you are not seeing much progress on either end. Guy you think we need to see a negative shock to get start to go down, or just a slow grind . One of those is more likely at this point . A slow grind of real yields. I say that because you are already seeing a pullback in the stock market. Think of one of the bare cases of last month, there was almost too much green on the screen. Perhaps that technical correction, that pullback seasonality of august and september, it is already there. The real yield part isnt. Alix what is interesting to me as we are all operating on the assumption the real yields go higher. Exactly. Youve talked to a few investors, they are alike, i want to buy these real yields. There is a voracious demand to lock in these rates and we should all think about wednesday with minutes. Theres a lot of focus on will the fed lay their reaction . Inflation keeps falling, we might have to cut back on rates just to normalize, stay at neutral. Things could change on a dime. We see a lot of discussion on what are the triggers that would make them cut rates. I dont think it is a oneway train higher by any means. Guy the other thing we havent talked about is what is happening with the quiddity. I dont know if you can relate liquidity to holidays, but i think you can. Liquidity is drying up. And that is going to be a significant problem that we are going to watch throughout the summer and ultimately into the fall. If we are talking about the real problem for the equity market, i was always told the more the quiddity equities go up, less the quiddity go down. That story is just beginning to develop as well. Alix volume is also really dismal. I was reading over the weekend, it is going to be a lot harder to go higher from here when it comes to the equity market. Sentiment is also getting more on the Positive Side now. Anything can kind of because they didnt they shake out. We could put that into the equation. You do put that into the equation. I think plumbing matters here. Guy plumbing matters. It does. You got malarkey, i got plumbing. The technical plumbing matters. If you look at the positioning, people are long on the s p 500, the most bullish in years. Alix we appreciate the fact that you guys are on beach list. Our question of the day, what is the real problem . Real estate, or real yields . We are going to put that questioned the chief investment strategist at sanction securities. This is bloomberg. Todays the day you graduate from Southern New Hampshire university. Ive been waiting for this day my whole life. The fact that i get to walk across the stage and get my degree, its honestly unreal. Dont ever stop. 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Call 1800miracle and schedule baby, only on game nights. You know you are retired right . Am i . Ya save 50 on the sleep Number Limited Edition smart bed. Plus, 36 month financing on select smart beds. Shop now only at sleep number. Clearly, the fight that you are seeing developers missing Interest Payments on their bonds as people concerned, but more than anything, weve been in this situation going back 10 years to when people are panicking about the big china cliffs and suddenly growth is going to collapse. And some markets are just naturally reluctant to believe that this time they could be happening for real. Alix that was rbc capital markets. Lignins speaking them bloomberg lignos spooking him speaking on bloomberg earlier. What is the real problem, real estate or real yields . What do you think . I do think both of them, they both have a problem within the economy, particularly for the banks. Really diving into the banks for the regionals. Im really not that worried about commercial real estate because it is really a small block of office in select areas. Im more concerned about yields and trying to explain this to individual investors, because we dont think we talk in real terms necessarily all the time, but if you start approaching 5 on the backend of the curve, that is going to start detracting from equities. Particularly from clients that are retirees that have seen zero Interest Rates, that can finally lock in a government riskfree rate around 5 . That would be really challenging. Technically, we are both looking at the 30 year, and the 10 year, they both look like they broke into the upside and we are going to trend higher. I guess im a little bit more in the yields camp. Guy good morning, by the way. Mary ann thank you. Guy has this rally run out of steam, the rally weve seen over the last few months . Do you want to be exiting that trade, may be getting into the bond market . Mary ann if you are a trader, you may want to exit. If you are an investor, no. As you pointed out your last segment, this is very seasonal for markets to peak in the summer. Have a correction into the fall, make an important bottom in october. So why do i have this confidence it is a correction and not a top . Earnings look like they are frothing. They are one of the best leading indicators for markets. The estimate revision ratios, more analysts raising their number than lowering their numbers. And that number has been rising. Traditionally, that number goes down as you go to the back half of the year. So i do think that there is positive underpinnings for the market, but with the s p up 50 , nasdaq of 30 , you really want to digest some of those gains. What ive learned throughout my years with the markets is you can retrace one third to one half of a move and still be in that same trend. Alix i feel like weve been waiting for that to unfold. To the question of the day, you said you are focusing on the real yield situation. What about the dollar, though . Im wondering, that is not the trend that we thought was going to happen, a fair shake out from that. Mary ann it is up a little bit. When you really look at the longterm trend in the dollar, it is still down. What is important for currencies is they stay kind of stable. You dont want a currency going up a lot were down a lot, you want it to be stable. Im really not concerned about the dollar, but i do like with the dollar goes down because i do think it helps earnings for the multinationals. Guy yep, the multinationals certainly get a big factor of the thinking to see how the rest of the world is going to be affected by that stronger potential and how the economies are going to be performing. Europe, the case in point. The emerging market is another one, which takes us to china. Are you worried about the headlines you see coming out of china . This is the worlds secondbiggest economy. If it stumbles, what are the effects going to be . Mary ann this is how we are looking at china. As you reported last week, when you look at the cpi, it is now down into negative territory. I think negative three tems of 1 . People are talking about deflation happening in china, and what we put in the note today is what we are thinking about is if china is truly seeing deflationary pressures, to those actually now become a positive for other economies in the world, including the u. S. Since weve been fighting inflation . Can china actually help the inflationary problem that we have here . That is my positive spin. But yeah, there is concerns. You are seeing the economy slow down significantly. From an economic standpoint, yes, it could have some negative impact, but it could also have a positive impact with the cpi number printing negative. Guy when we sort of rely on china to help jumpstart the global economy, the fiscal spending we have now in the west, particularly the u. S. , i almost wonder if that, to your point, is helping any trickle down from china at the day. Guy we were talking about this on friday. Alix he got covid. It was Renee Fleming instead. Guy sounds like a prenice time anyway. The u. S. Economy has been driven by the federal government right now. The u. S. Government is doing the heavy lifting. You do wonder where we are going to be. And theres an election coming. I dont know, how sustainable is that trend going to be, and does it ultimately point to higher yields . There are so many things to spin off of that. But the u. S. Economy and by extension, the world, feels like it is being driven by the federal government at the moment. Guy what do you think about that . Mike tilson in Morgan Stanley is like if we dont get the fiscal impulse the same way next year, that is going to be a drag on stocks. But that rollout on stimulus will be there for 5, 10 years. Mary ann thats always been writing about. When you look at other legislation that biden has passed, and a lot of people leave out all the military spending that we are spending to support ukraine, and that is over 1 trillion more. And it is not just going to happen in one year. This is going to come and the economy over a period of time. This is going to really be a positive for the u. S. Economy, but when you combine that with zero Interest Rate ended Balance Sheet that had ballooned by the fed up to 9 trillion, that is a tremendous amount of liquidity. And i think what that structurally does longterm is the United States is no longer in a deflationary environment. We are in an inflationary environment that has the potential to go into an inflationary environment, which means yields have actually bowed. Guy the president does say that maybe that was the wrong title for that piece of legislature. He suggested maybe he should have come up with something a little bit better. But if we all think about washington, name something and you get the exact opposite. Great to catch up. Joining us from sanctuary security. So i had, tesla cutting prices in china, sending talks stocks tumbling over international concerns. Details in the start up next. This is bloomberg. Alix 22 past 7 00 on the west coast. The top tech stories from the bay area and beyond. Silicon valley starts with a nice, pretty morning. It is a happy day in san francisco, looks nice. But maybe not if you have company over in china. Tesla cutting prices yet again. It is surprising because first week of july we have disagreement between test land all of the domestic and the eeevmakers that they would cooperate and stop cutting prices. And you know that the language in the agreement is super clear, it is not binding. Tesla has cut prices, used the lever of price cuts in the first half of the year often not just in china, other jurisdictions. This is the two variance of model y. Longrange is cut by about 4. 5 percent, the Performance Model by 3. 8 , and the concern out there globally is is this restarting the price war for evs . Guy so why are they doing it. That didnt last long. Why are we now back to price cuts . That didnt last long. The agreement that was disclosed by the chinese automakers is nonbinding but her tesla, is consistent. They told elon musk in particular about being willing to sacrifice the bottom line, profitability, because cutting prices impacts margins, in order to protect growth. Tesla has a target of growing 50 on an annual growth rate basis yearoveryear. Every time you cut price there is evidence it works. Guy if its a signal that the chinese economy is slowing is there a macroeconomy in this . Alix for are they just buying locally these . Theyre both very good points. Read the bloomberg terminal this morning in the last four or five days. Youre getting concerned about the chinese economy and its impact on Financial Markets here in the u. S. A lot of the psychology and concern has shifted toward china at the back end of last week, but there are many more domestic players in china, more brand than many of us in north america are not familiar with. Theres more choice. It is a fiercely competitive market. But theres a psychology to that as well. If you see tesla cut prices, the concern is that in china, those domestic prices follow suit. Look at the notes this morning that if tesla does it there, they might do it in europe. Ford and gm may respond. If you are investor in the stocks, a consumer, great. Alix the most important, where does this leave elon musk with whatever surgery needs to have for the cage match . Because lets be honest, it is really about the cage fighting. Silicon valley starts its morning blasting itself is elon musk going to fight Mark Zuckerberg in a cage match . Alix this is every and ask this question. The latest day that zuckerberg has been posting on threads saying lets move on, its not going to happen. If mosque is ever serious, he knows where to find me but he is going to focus on his mixed martial career with those who take it seriously. X posted over the weekend that he had an mri, his spine si fine, but he has a shoulder injury rubbing his ribs. He needs surgery, months of recovery. Guy definitely going to have to wait. Great stuff. We are still here rais