We are on radio and television ,fx tuesday and were looking at markets. Teachers are 25 and or substantially lower than 24 hours ago, dow futures 160 in the vix was in 18 level. Away from the markets, foreignexchange is a litmus paper for the system this morning. Lisa the dollar is front and center and has been but giving but getting back a little bit of it. When we talk about dysfunction in washington, d. C. Is the dollar. The currency of the nation, are we at a breaking point . Tom its a theme we will go through today and lisa has an edge on what im doing. Each pair and the triangulation of foreignexchange speaks to what we see in the bond market. We will do it in the data check today. Lisa you buried the lead. We had an argument about much gloom as warranted, something that always happens in this time of year. It feels different to me. I think yield space feels difference different because there is a backdrop of what it means if you have rates that can keep climbing potentially to 7 in the face of strength . Does that lead to weakness in stocks . Tom jamie dimon looks out at the least likely outcome but its a gloomy outcome of much higher Interest Rates. Jonathan ferro is on assignment. In 7 00 hour, he will be talking with the former Prime Minister of the united king, gordon brown. His book is how we extract ourselves from these postcovid challenges. Lisa especially at a time when we are readjusting to rates. Can we get to a new rate regime of higher rates without something breaking and people keep asking that question and the answer is yes and now people are saying if it keeps climbing from here, we still so confident that nothing will break . Tom lets go to the bond market. I want to know if i see a real yield out to 2. 17 , if i see the 400 51 on the 10 year yield, what do spreads tell us . Our corporate spreads giving away . Lisa a little bit, particularly in the risky sphere. The premium is increasing that investors are charging over benchmark rates. When do risk assets fully adapt to this idea of higher yields . Do rates really matter for stocks . If so, its not priced in this has basically been the theory when yesterday, seven magnificent tech stocks did not up rhonda in the face of the highest yields did not respond in the face of the highest yields in a long time. Tom today, we lean on foreignexchange. Futures at 23 and the vix 17. 59. We were higher earlier on the twoyear and oil doesnt give me much. 92 on brent and foreignexchange, the yen is 1. 49. That blended Major Trading partners. Give me that chart if you would. The bloomberg dollar index goes back to the financial crisis in 2007. This has been the great missed call in the street. Everyone is looking for weaker dollar but its up 5. 7 since mid july and then back, back, back. Lisa is the data for today. It includes a lot of information about the Housing Market which people would say is broken. We get some u. S. Price index data throughout the morning. This will come out at 9 45 a. M. , the s p case schiller index. It has reached a high of pricing. We are seeing declines that we havent seen going back to 2012 and we get Consumer Confidence data in the was treasury auctioning off twoyear notes, 48 billion of those at 1 00 p. M. President biden will join the picket line for uaw workers in detroit. He has gotten the support of them the day before the former President Trump goes to the same area to recruit the same boats. At 1 30 p. M. Eastern, the fed governor Michelle Bowman will speak after we heard from Neel Kashkari who expects one more hike by the end of the year. There is this bias where higher for longer but maybe that the risk is still to the upside in terms of how high rates have to go. Tom we will talk about that a bit later this morning. Russell costeridge is with blackrock. The bears are out in force and we are not down that much in the equity market but bonds are moving. What are you doing . Good morning. We are kind of holding steady. I think there were a couple of things going on. You have seasonal weakness. We have it every year this time of year and so far its about what youd expect but as lisa mentioned, there are some other issues. Two things you have to be aware of. We are back in two an environment like 2022 at least temporarily where you are punished for high volatility, lowquality assets. The market is rewarding consistency. If you are a smallcap stock, youre getting penalized. Focus on going up in quality. Clearly we are in an environment for much of the last two years were bonds of not work as a hedge. What has worked is the dollar. In an environment where people are scared of the fed, scared of what they will do tom did i lose russ . Lisa as you talk about being more cautious, what that means in an era where bonds are not the cautious that. I think it means you have to think about where else in your portfolio you will get that its. For 20 years, bonds were remarkably good. You got incredible riskadjusted return to portfolio and we havent been in that environment for at least two years. In an environment where the fed is the closest, the factor thats most disrupting markets, the dollar can be an effective hedge because is negatively correlated with stocks. The other thing to think about is whats the volatility in your pro for leo and look for quality, look for companies that are generating consistent revenue and consistent margins. The magnificent seven did well yesterday despite the fact that rates were surging. Part of the reason is that most of the names in that group generate tremendous cash flow. They are not the ones most at risk. The ones most at risk of the early growth names for their cash flows 10 years and in the future. Tom i lost my audio. Lisa hes talking about the leverage dollar fund. There is the idea that the dollar is the best hedge against equity volatility. Are you saying that it will ignore and possibly being even better bet regardless of some of the circus going on in washington, d. C. . In the timeframe we are talking about yes. I dont think you state long with the dollar until the end of time. One thing about this environment is your hedges are changing. Back in march and april, we were worried about another banking crisis. Since the summer, the dollar has worked so it for more dynamic folio. Right now, an environment with the fed is what investors are most concerned about. The dollar is effective them i would guess that the market will look past some of the shenanigans in washington and focus more on what the fed is doing than whats happening on capitol hill. If we are worrying about rates higher, the dollar is likely to be negatively correlated with stocks. Lisa whats your opinion on the jamie dimon call for 7 rates . Is the risk on the upside for benchmark rates and that eventually will cause to the rally . That will disrupt markets. We have a levered economy and i have respect for jamie dimon but thats not obvious. The economy is slowing, inflation is decelerating and i think there is some recognition by the fed that if you tighten financial conditions much more coming you will do real damage to the economy. Since the feds last hike, real rates have gone up quite a bit and the dollar has gone up and we are seeing more contraction in credit and lending. I dont see us going to 7 . Tom a blistering short note this morning. This is talking about the fed put coming back. Its how the fed responds like Alan Greenspan 20 years ago. What you are suggesting is the fed has more power to change the dialogue if they get the data and if they choose. I think thats right. I would also say between the renewed bond vigilantes we thought were gone and clearly have come back and the dollar and we are seeing in lending markets some of that tightening the fed was concerned about slowing the economy but its already happened outside the feds actions. Tom i look at the correlations today and it will be a Foreign Exchange tuesday, no question about it. Which major pair is your closest study this morning . I think the pairs that generally we think about are the ones that are represented in the dxxy, the large pairs like the euro and the yen but what we are thinking about is the rate differentials and if we continue seeing an environment where justified or not, the concern is the fed will keep going, that will favor the dollar on a lot of these developed market crosses. Tom thank you so much. That gets us started this morning. Which pair are you looking at, lisa . Lisa i have been looking at the euro with the question about how far and how deep it could weaken and reverses the dollar. In general, its fascinating the dollar is the haven call regardless of the fact that the u. S. Is the epicenter of big political drama. At what point does this create a difficult moment for the rest of the world . Tom on euroyen, you take dollaryen or euroyen and you triangulate which pair gives you the most information. Right now i would say its dollaryen. Lisa you take a step back and there is this feeling that suddenly, we have to readjust for a higher for longer regime and maybe this will not kill inflation. If you have that kind of regime, everything will have to reset higher including in japans of people was still game out what they have to abandon. Tom end of september, we will get some data and we have the shut down is important. They are starving for data. We get the jobs report and lets ins assume the shutdown gets fixed and we get an inflation report. We will learn more going into october than we know right now. Lisa the idea that we maybe wont get some of the date is a real concern. How much does that affect the fed . Tom how much does it affect us . Have you seen the Mortgage Rate . I think it will be a new high for 30 year mortgage. Lisa can we call this a Housing Market at this point . Tom i think it is the price of what weve seen. It is an amazing tuesday and here to synthesize it is emily roland in the 7 00 a. M. Hour. Stay with us, bloomberg. If youre trying to get a view of the whole organizational Financial Health and youre trying to do that through multiple systems, that makes it very, very cumbersome. Its not just tech, its not just people. Its how they Work Together to provide that experience to the customer. As a finance organization that is what you want to do. I havent talked to leadership, ive talked to all of congress saying its a responsible and inexcusable you would let Government Shutdown. It is also irresponsible and inexcusable to not cut all of the spending. They are using our budget and keeping it in pandemic spending. We are no longer in a pandemic, why are they still spending at those levels . Tom a republican candidate, the debate is tomorrow night . Lisa yes. We will get shut down updates throughout the morning here. As we look at the markets, we will also dive into some very careful analysis of the budget. We will do that in a moment. Equities are down 22 on the s p 500 which is more than yesterday. Were you surprised by the little uptick yesterday . Lisa driven by the big tech which was really surprising. Do they care about rates being higher . They were hitting multigenerational highs and you stocks kept grinding it out especially tech stocks. We used to think they were intraday sensitive. Tom i will go back to fiscal 101, the real rate is five point 27. 5. 20 7 . I saw owner delinquencies on loans which moved. There is a tangible bad news there. Lisa my actual fear is that people are basically so sick of talking about recession that they have taken the bad outcomes off the table and everyone has bought into the idea the economy is rebuilt is resilient even as people start to feel the strains of higher rates in a more material way and it will become a surprise after a year of getting the recession call wrong. Tom that pushes up against soft landing which is last weeks story. The yen is out near 1. 49. Look for Jonathan Ferros interview in the next hour. Right now, without question, our interview of the day on our debt, or deficit our deficit. She is the president of the committee for a responsible federal budget and an equivalency to what we see at the congressional budget office. Yesterday, somebody said lets bring back citizen bulls. Weve done this before. Than the politicians ignore those commissions. Is that where we are heading . I actually do hope we are bringing back the commission because one thing is certain is our partisan politics will not resolve this issue let alone really confront the huge fiscal issues of the things we should be talking about. The policies that we are about to shut down the government over are just a tiny fraction of the government. What we have is a situation where politicians in the moment we are facing record levels of debt, Interest Payments being as much as defense spending the next two years, long list of risks are our politicians are promising not to do the things we have to do to fix the budget. I think the idea of a Fiscal Commission could help insulate the lawmakers from the hard choices and the difficult politics but as you pointed out last time, Simpson Bowles did not even get a vote. We need to build in a process where is to have a vote and an expedited process insulated from the poisonous politics on this issue. Tom the primer for all of us on this was brenner and bernsteins debt and the deficit 34 years ago. What they said was everybody calm down, you are conflating family accounting which is what we all use versus the accrual of the federal budget. Is this budget like what they know or is this budget out of control . This budget isnt like a Family Budget because they have the ability to tax but it also isnt a budget were any of the signs are saying dont worry about things. For years, we had people sing Interest Rates are so low, dont worry, we have a Printing Press and we can borrow what we want and print money. Now we so that fiscal policy help kick off inflationary situation we are in. Even though Interest Rates are low for a long time, now that they are higher and we have a much greater debt because we did borrow so much in the past decades, not just for covid when it made sense to borrow but when the economy was strong. Now with every increasing Interest Rate, our Interest Payments grow dramatically. Now we are in this dangerous situation that people are saying dont worry there is not a problem. I would also make the point that fiscal responsibility, where we have been used to be was about an economic threat, slowing growth living is unprepared. But now its more than that. It has really expanded into a National Security threat. Our fiscal vulnerabilities are also air geopolitical vulnerabilities and we have to think about this on the broader stage in terms of the risks we have created. Lisa is there any party or a member of any party having a responsible discussion about some of the aspects that need to get change in the budget to get to a more responsible budget . There are. There are members of the group in the house called bipartisan fiscal reform and many members of both parties were talking about the issues with the problem is, you cannot go out on your own and say i will tell you the truth, you have to fix social security, medicare and we will have to raise higher revenues. They cant do it alone. There needs to be a bipartisan space where people can talk about this. I also turns the idea of a Fiscal Commission to create the safety of a bigger block saying its time to level with the american people. It would be interesting what happens in the president ial campaign. You just had a bit of nikki haley talking about the issue. Shes been bringing it up a we have a situation where both former President Trump, President Biden art promising not to fix entitlement. That will play what with the public but is not the truth. We are heading toward insolvency in those programs and we will have acrosstheboard cuts if we dont do something to fix them. Its important we have Truth Tellers during this campaign to reach a mandate to address this way to address this in an honest way. Tom we saw ms. Haley talking with alix steel and it was a simplistic analysis of this asset. Both republicans and democrats in washington want to bring this back to basically home ec 101. How will we do this outside of commission . Is the Committee System you were weaned on, does the Appropriation Committee still appropriate like in our youth . The budget process is plain out broken. Its not entirely surprising. We put in place budget rules in the 1970s and congress slowly figures out how to go around them. You reach a point where they are no longer working. Our budget process needs a huge overhaul. The Senate Budget committee didnt even bother to put out a budget this year. They just skipped it and both of those committees should be able to go forward with work after you put the budget out. We will have to do a Major Overhaul and look things like what kind of fiscal requirements are there, how do we commit to budgets being put out. There is a problem in avoiding the default a few months ago but we have to deal with the debt ceiling in 2025 again and i dont think it will be the same feeling. I make we had to reform the debt ceiling and we probably need to put in place Something Like automatic continuing resolutions so we are not talking about Government Shutdowns. To your question, no, none of this works anymore in the budget rules are broken and gimmick and we will have to make a big effort to fix the budget process and change it into Something Different that starts to function again. Tom thank you maya mcginnis. I cant say enough about the importance of this. We will look at this particular from groups like that and the congressional budget office. Caseshiller housing data, negative statistics, wow. Lisa w