1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amerie Hordert. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,440 Speaker 2: Terminal and the Bloomberg Business app. We begin this hour, 10 00:00:37,560 --> 00:00:39,879 Speaker 2: which starts kicking off the week higher ahead of a 11 00:00:39,880 --> 00:00:42,440 Speaker 2: massive slate of tech kearning. Savita Subramani with Bank of 12 00:00:42,479 --> 00:00:45,760 Speaker 2: America has a street low seventy one hundred year end 13 00:00:45,760 --> 00:00:48,960 Speaker 2: price Tiger on the SMPN writes the following underlying Girning's 14 00:00:48,960 --> 00:00:52,720 Speaker 2: growth remain strong, but good results are no longer enough 15 00:00:52,760 --> 00:00:55,120 Speaker 2: to move the needle in tech. Savita joins us now 16 00:00:55,120 --> 00:00:57,160 Speaker 2: for more. Savita, welcome to the program. I start with 17 00:00:57,160 --> 00:00:59,560 Speaker 2: a large question, and I imagine it involves a complex 18 00:00:59,640 --> 00:01:01,840 Speaker 2: long gun and you'll have spice for that. But why 19 00:01:01,880 --> 00:01:03,880 Speaker 2: is the outlook for the index right now? In your mind, 20 00:01:04,280 --> 00:01:05,200 Speaker 2: so compromised. 21 00:01:06,080 --> 00:01:09,280 Speaker 3: Yeah, lots of different reasons, but one is what we've 22 00:01:09,319 --> 00:01:11,360 Speaker 3: been talking about, what I've been listening to on the 23 00:01:11,400 --> 00:01:15,480 Speaker 3: show so far. The good news for tech seems to 24 00:01:15,520 --> 00:01:19,600 Speaker 3: be priced in. The companies are no longer rallying and 25 00:01:19,920 --> 00:01:24,880 Speaker 3: outperforming on beats on earnings and revenues. In fact, they've 26 00:01:24,920 --> 00:01:26,880 Speaker 3: sold off on earnings and revenues. 27 00:01:27,319 --> 00:01:28,039 Speaker 4: We've had an. 28 00:01:27,959 --> 00:01:31,920 Speaker 3: Environment where the rest of the market is actually pretty healthy, 29 00:01:32,040 --> 00:01:34,640 Speaker 3: but I think it's all been obscured by the elephant 30 00:01:34,680 --> 00:01:37,760 Speaker 3: in the room, which is megacaf tech and the idea 31 00:01:37,840 --> 00:01:39,119 Speaker 3: that these stocks are going to. 32 00:01:39,040 --> 00:01:41,080 Speaker 4: Continue to lead us to new highs. 33 00:01:41,600 --> 00:01:45,640 Speaker 3: I think is is no longer the case. Look, I 34 00:01:45,880 --> 00:01:48,760 Speaker 3: like tech, I think tech is the future. But I 35 00:01:48,760 --> 00:01:50,880 Speaker 3: think right now we're in an air pocket. And we've 36 00:01:50,880 --> 00:01:53,280 Speaker 3: been talking about this all year. You know, the idea 37 00:01:53,360 --> 00:01:56,880 Speaker 3: that we're in an environment where we know that Chad, 38 00:01:57,000 --> 00:01:59,400 Speaker 3: you know, we know AI, We are bullish on AI. 39 00:01:59,600 --> 00:02:02,040 Speaker 3: We know that companies are spending a ton of money. 40 00:02:02,520 --> 00:02:06,240 Speaker 3: Ism is above fifty, well above fifty. You know, capex 41 00:02:06,360 --> 00:02:08,880 Speaker 3: is strong, the economy is strong. 42 00:02:08,720 --> 00:02:12,480 Speaker 4: Inflation is pretty healthy, maybe even overheating a little bit. 43 00:02:13,320 --> 00:02:16,280 Speaker 3: But the idea that we're going to see that same 44 00:02:16,440 --> 00:02:19,399 Speaker 3: leadership from the ballast of the market, I just think 45 00:02:19,480 --> 00:02:20,359 Speaker 3: is very. 46 00:02:20,120 --> 00:02:21,160 Speaker 4: Hard to paint. 47 00:02:21,800 --> 00:02:24,120 Speaker 3: On top of that, you've got an environment where the 48 00:02:24,160 --> 00:02:29,240 Speaker 3: consumer has been chugging along, defying all expectations, and maybe 49 00:02:29,240 --> 00:02:32,880 Speaker 3: that continues, but this year, I think what we've seen so. 50 00:02:33,080 --> 00:02:35,320 Speaker 4: Far is a little bit less bullish. 51 00:02:35,400 --> 00:02:38,359 Speaker 3: So for example, if you look at layoffs in January, 52 00:02:39,280 --> 00:02:42,360 Speaker 3: they were primarily in high paying jobs, in tech jobs. 53 00:02:42,760 --> 00:02:47,680 Speaker 3: It's been an environment where the highest, the higher income 54 00:02:48,880 --> 00:02:53,240 Speaker 3: cohort of the smp sorry of the US economy is 55 00:02:53,280 --> 00:02:56,200 Speaker 3: not necessarily failing as healthy as they were a couple 56 00:02:56,280 --> 00:02:59,960 Speaker 3: of years ago, whereas lower income is now getting a boost. 57 00:03:00,080 --> 00:03:02,720 Speaker 3: So I think that's healthy in terms of broadening, but 58 00:03:02,800 --> 00:03:05,760 Speaker 3: it's not necessarily you know, kind of the same story 59 00:03:05,800 --> 00:03:07,440 Speaker 3: we've seen for the last three years. 60 00:03:08,040 --> 00:03:11,120 Speaker 1: I'm just curious, is your seventy one hundred expectation just 61 00:03:11,160 --> 00:03:13,120 Speaker 1: that tech has further to sell off and the rest 62 00:03:13,200 --> 00:03:16,119 Speaker 1: of the market can keep up performing or chugging along here, 63 00:03:16,120 --> 00:03:18,400 Speaker 1: but it won't be enough to offset those losses. 64 00:03:19,360 --> 00:03:20,240 Speaker 4: Yeah, exactly. 65 00:03:20,320 --> 00:03:23,120 Speaker 3: And I think we've kind of seen that in you know, 66 00:03:23,160 --> 00:03:28,440 Speaker 3: in certain weeks where you have really negative tech moves, 67 00:03:28,840 --> 00:03:33,320 Speaker 3: you haven't necessarily seen the market hold up as well. Ideally, 68 00:03:33,600 --> 00:03:36,200 Speaker 3: we get to the end of the year and you know, 69 00:03:36,240 --> 00:03:39,440 Speaker 3: we're at a point where the concentration risk in tech 70 00:03:39,600 --> 00:03:42,360 Speaker 3: is lesser and you can kind of set yourself up 71 00:03:42,360 --> 00:03:45,840 Speaker 3: for a healthy twenty twenty seven in terms of broadening, 72 00:03:45,920 --> 00:03:49,560 Speaker 3: in terms of you know, kind of cyclicals just outperforming. 73 00:03:50,680 --> 00:03:53,400 Speaker 3: But I think this year we're still in an environment 74 00:03:53,440 --> 00:03:56,880 Speaker 3: where tech is contributing the lion's share of earnings. They're 75 00:03:56,920 --> 00:04:02,120 Speaker 3: no longer rallying on good news. We're seeing capex penalized, 76 00:04:02,160 --> 00:04:04,280 Speaker 3: and we talked about this earlier in the year as well. 77 00:04:04,320 --> 00:04:07,440 Speaker 3: You're still in an environment where the pot where you're 78 00:04:07,480 --> 00:04:10,800 Speaker 3: getting positive returns on your CAPEX if you're a big 79 00:04:10,840 --> 00:04:15,880 Speaker 3: tech company, but those returns are thinning, and the idea 80 00:04:15,920 --> 00:04:18,120 Speaker 3: that we're going to pay such a high multiple for 81 00:04:18,240 --> 00:04:23,000 Speaker 3: mega cap tech today is hard to sell if your 82 00:04:23,040 --> 00:04:26,799 Speaker 3: returns on invested capital are actually starting to get depressed. 83 00:04:26,920 --> 00:04:29,719 Speaker 1: Saviina, I just wonder the sort of counter argument to 84 00:04:29,720 --> 00:04:33,160 Speaker 1: this is what happened with Meta and Alphabet late last 85 00:04:33,240 --> 00:04:35,680 Speaker 1: year when they announced a lot of capex and they 86 00:04:35,680 --> 00:04:38,280 Speaker 1: were punished severely for it, and then they delivered these 87 00:04:38,320 --> 00:04:41,480 Speaker 1: incredible earnings on an ongoing basis, and once again their 88 00:04:41,520 --> 00:04:43,800 Speaker 1: stocks outperformed. Why are we not set up in the 89 00:04:43,800 --> 00:04:47,000 Speaker 1: same way if people are just getting nervous and they 90 00:04:47,160 --> 00:04:52,520 Speaker 1: see still see companies delivering well beyond any expectations. 91 00:04:53,560 --> 00:04:57,280 Speaker 4: Yeah, I think that it's partly positioning, right. I mean, 92 00:04:57,320 --> 00:04:58,719 Speaker 4: you look at when. 93 00:04:58,600 --> 00:05:01,640 Speaker 3: Tech sells off, then you see it kind of comeback 94 00:05:01,760 --> 00:05:05,360 Speaker 3: because investors are like, Okay, these companies aren't broken. I 95 00:05:05,400 --> 00:05:08,080 Speaker 3: still want them as core holdings in my portfolio. Maybe 96 00:05:08,120 --> 00:05:09,800 Speaker 3: I'm going to add a little exposure. 97 00:05:10,320 --> 00:05:12,080 Speaker 4: So I think liquidity has. 98 00:05:12,080 --> 00:05:16,800 Speaker 3: Been a big driver of tech really holding up better 99 00:05:17,080 --> 00:05:20,480 Speaker 3: than one might expect. 100 00:05:21,000 --> 00:05:23,440 Speaker 4: Liquidity has been amazing. 101 00:05:23,480 --> 00:05:26,000 Speaker 3: I mean, if you think about it, last year, this year, 102 00:05:26,040 --> 00:05:30,919 Speaker 3: we've had pretty low, pretty low levels of volatility in 103 00:05:30,960 --> 00:05:34,560 Speaker 3: the market. We've had you know, a shock or two 104 00:05:34,760 --> 00:05:37,520 Speaker 3: in terms of geopolitics, but the market has held up 105 00:05:37,560 --> 00:05:41,440 Speaker 3: quite well. And I think that starts to change today 106 00:05:41,640 --> 00:05:47,440 Speaker 3: because if you think about inflows into equity markets, we're 107 00:05:47,480 --> 00:05:52,480 Speaker 3: at a point where asset allocations are pretty pretty healthy. 108 00:05:52,560 --> 00:05:56,000 Speaker 3: Inequities maybe not as healthy as they were in the 109 00:05:56,080 --> 00:06:01,280 Speaker 3: tech bubble, but we've got you know, less cash outside 110 00:06:01,279 --> 00:06:05,919 Speaker 3: of equities except for in retiree balance sheets. And I 111 00:06:05,960 --> 00:06:08,120 Speaker 3: think the idea that you're going to continue to see 112 00:06:08,120 --> 00:06:13,560 Speaker 3: that machine of cash risking up and going after tech stocks, 113 00:06:13,320 --> 00:06:18,240 Speaker 3: that narrative to me just seems like it's less less 114 00:06:18,360 --> 00:06:21,400 Speaker 3: likely in the years to come. I do think there 115 00:06:21,440 --> 00:06:24,160 Speaker 3: is one one pocket of the market that is going 116 00:06:24,240 --> 00:06:28,680 Speaker 3: to catch a very strong bid, and that is inflation 117 00:06:29,080 --> 00:06:30,600 Speaker 3: protected equity. 118 00:06:31,279 --> 00:06:32,320 Speaker 4: And here's the idea. 119 00:06:32,440 --> 00:06:35,159 Speaker 3: If I'm a retiree and I've got, you know, like 120 00:06:35,279 --> 00:06:38,640 Speaker 3: seven trillion in cash just sitting there, It's been sitting 121 00:06:38,640 --> 00:06:42,320 Speaker 3: there since the FED started hiking interest rates, that cash 122 00:06:42,480 --> 00:06:46,800 Speaker 3: right now has a negative real return. Cash is the 123 00:06:46,800 --> 00:06:51,760 Speaker 3: worst place to be during periods of higher inflation. So retirees, 124 00:06:51,839 --> 00:06:54,080 Speaker 3: I think, are going to start to look for inflation 125 00:06:54,240 --> 00:06:57,039 Speaker 3: protected income. Are they going to get it in tech? 126 00:06:57,680 --> 00:06:59,800 Speaker 3: Not necessarily. I think they go back to things they 127 00:07:00,120 --> 00:07:04,240 Speaker 3: used to own, like reeds and utilities MLPs, you know, 128 00:07:04,320 --> 00:07:07,760 Speaker 3: kind of the yieldier cyclical areas of the market that 129 00:07:07,839 --> 00:07:11,840 Speaker 3: can actually grow with inflation and keep up and return 130 00:07:11,960 --> 00:07:14,840 Speaker 3: capital to retirees. 131 00:07:14,200 --> 00:07:15,840 Speaker 4: Who need income basically. 132 00:07:15,960 --> 00:07:18,400 Speaker 3: So I think that's one area of the market that 133 00:07:18,560 --> 00:07:22,600 Speaker 3: hasn't moved as much as it should and that's where 134 00:07:22,600 --> 00:07:26,280 Speaker 3: we would really be, you know, very bullish. So I guess, 135 00:07:26,320 --> 00:07:28,240 Speaker 3: just to put a point on it, if you had 136 00:07:28,280 --> 00:07:30,840 Speaker 3: to pick an index, it would be large cap value, 137 00:07:31,040 --> 00:07:35,880 Speaker 3: yieldier kind of cheaper stocks that offer some inflation protection. 138 00:07:36,880 --> 00:07:40,320 Speaker 2: Stay with US mul Bloomberg Surveillance coming up after this. 139 00:07:49,640 --> 00:07:51,600 Speaker 2: So here's the lass. This morning, the US at around 140 00:07:51,640 --> 00:07:54,320 Speaker 2: pausing strikes for a third straight night. The Trump administration 141 00:07:54,520 --> 00:07:57,920 Speaker 2: Benign reports the breaking attacks is due to falling stock 142 00:07:58,000 --> 00:07:59,960 Speaker 2: piles of a defense missiles. 143 00:08:00,720 --> 00:08:02,720 Speaker 5: That's right when it comes to what's going on when 144 00:08:02,720 --> 00:08:04,880 Speaker 5: it comes to Iran. We have seen this before. The 145 00:08:04,920 --> 00:08:08,800 Speaker 5: president has taken pauses, but we've as seen actual diplomatic discussions. 146 00:08:09,120 --> 00:08:09,480 Speaker 4: Right now. 147 00:08:09,520 --> 00:08:12,480 Speaker 5: The reporting is really lending hand to the fact that 148 00:08:12,960 --> 00:08:16,200 Speaker 5: we just have depleted too many of our munitions and 149 00:08:16,240 --> 00:08:19,680 Speaker 5: they're concerned, especially when it comes to the Patriot missile system. 150 00:08:20,000 --> 00:08:23,240 Speaker 5: At the same time, we also have the fact that 151 00:08:23,360 --> 00:08:26,160 Speaker 5: this president potentially is a little bit nervous as well 152 00:08:26,200 --> 00:08:28,880 Speaker 5: as where oil prices were near one hundred dollars a 153 00:08:28,880 --> 00:08:31,320 Speaker 5: barrel is when we decided to take this tactical pause. 154 00:08:31,560 --> 00:08:35,000 Speaker 5: So there's a lot of potential issues going into this decision. Well, 155 00:08:35,000 --> 00:08:37,600 Speaker 5: one thing is for sure, there is still a conflict 156 00:08:37,679 --> 00:08:39,720 Speaker 5: right now when it comes to the Strait of her 157 00:08:39,720 --> 00:08:41,920 Speaker 5: Most in the Middle East, no vessels are getting through 158 00:08:41,920 --> 00:08:43,880 Speaker 5: the Strait of her Most. And the discussions i Ron 159 00:08:43,960 --> 00:08:46,200 Speaker 5: is having right now, they say with Amon is just 160 00:08:46,240 --> 00:08:47,479 Speaker 5: about of control. 161 00:08:47,120 --> 00:08:47,720 Speaker 4: Of the waterway. 162 00:08:47,800 --> 00:08:48,440 Speaker 2: So which one is it? 163 00:08:48,480 --> 00:08:48,800 Speaker 5: Right now? 164 00:08:48,880 --> 00:08:51,600 Speaker 2: You've got markets, You've got midterms. I think they're wanted 165 00:08:51,640 --> 00:08:53,640 Speaker 2: two of the same thing right now. One informs the 166 00:08:53,679 --> 00:08:56,000 Speaker 2: other to some extent. And then you've got stock piles, 167 00:08:56,000 --> 00:08:58,840 Speaker 2: And stock piles have lingered as a reason an issue 168 00:08:58,880 --> 00:09:02,000 Speaker 2: shaping how we approach this particular conflict. It's linger for 169 00:09:02,040 --> 00:09:03,119 Speaker 2: the last five months. 170 00:09:02,920 --> 00:09:04,880 Speaker 1: And it's not exactly a question of whether they have 171 00:09:05,000 --> 00:09:07,480 Speaker 1: enough munitions to actually keep going. There was a Wall 172 00:09:07,480 --> 00:09:10,120 Speaker 1: Street Journal article that I thought was really telling about 173 00:09:10,120 --> 00:09:13,240 Speaker 1: General Kin, General dan Kin going to the White House 174 00:09:13,360 --> 00:09:17,720 Speaker 1: and saying, look, longer term, there are low inventories in 175 00:09:17,760 --> 00:09:21,520 Speaker 1: particular of air defense and interceptors, and that longer term 176 00:09:21,559 --> 00:09:23,839 Speaker 1: this could present a problem for the United States and 177 00:09:23,880 --> 00:09:26,600 Speaker 1: even the medium term should there be a conflagration in 178 00:09:26,640 --> 00:09:27,480 Speaker 1: the region. 179 00:09:27,200 --> 00:09:28,120 Speaker 4: Or anywhere else. 180 00:09:28,240 --> 00:09:30,880 Speaker 1: At a certain point, that is a risk that is 181 00:09:30,920 --> 00:09:33,720 Speaker 1: weighing on the side of maybe not taking action, especially 182 00:09:33,760 --> 00:09:36,400 Speaker 1: if there isn't a clear outcome that can be accomplished. 183 00:09:36,480 --> 00:09:38,920 Speaker 2: Turbermarcus of All for Research Rights in the following he says, 184 00:09:38,920 --> 00:09:42,200 Speaker 2: a durable diplomatic helfram is even harder to envision this time. 185 00:09:42,240 --> 00:09:44,640 Speaker 2: We wouldn't felt anyone who prefers to tune this all out. 186 00:09:44,720 --> 00:09:47,320 Speaker 2: They're not alone, but we do suspect it'll get worse 187 00:09:47,360 --> 00:09:49,679 Speaker 2: before it gets better. They're not alone. It's my word's 188 00:09:49,720 --> 00:09:51,480 Speaker 2: not Tobin's. I'm sure he agrees to hope and welcome 189 00:09:51,480 --> 00:09:54,280 Speaker 2: to the program. It's important for us in financial markets 190 00:09:54,320 --> 00:09:57,520 Speaker 2: to try and get an understanding of what this president 191 00:09:57,559 --> 00:10:00,240 Speaker 2: is sensitive to and what why shape out come. In 192 00:10:00,280 --> 00:10:01,800 Speaker 2: the Middle East. This is the reporting from the New 193 00:10:01,880 --> 00:10:05,400 Speaker 2: York Times. Among the worries is that expanded hostilities could 194 00:10:05,480 --> 00:10:08,520 Speaker 2: dangerously drain the diminished stock part of our defense munitions 195 00:10:08,880 --> 00:10:10,640 Speaker 2: in the Middle East. Tobin, how much way should we 196 00:10:10,640 --> 00:10:12,439 Speaker 2: put on that reporting over the weekend. 197 00:10:13,720 --> 00:10:16,080 Speaker 6: I think it's a very significant consideration, and one that 198 00:10:16,080 --> 00:10:19,199 Speaker 6: we've been talking about since May, if not before, is 199 00:10:19,480 --> 00:10:21,880 Speaker 6: you know, a factor that could cause a de escalation 200 00:10:22,120 --> 00:10:25,800 Speaker 6: in mid May before we got what I think was 201 00:10:25,840 --> 00:10:28,599 Speaker 6: the sort of final turn towards the negotiation of the 202 00:10:28,720 --> 00:10:32,040 Speaker 6: MoU we were flagging both spiking bond yields, you know, 203 00:10:32,040 --> 00:10:34,040 Speaker 6: which then topped out around four point six seven on 204 00:10:34,080 --> 00:10:35,920 Speaker 6: the tenure you know, levels that we've breached and are 205 00:10:35,920 --> 00:10:40,320 Speaker 6: still near even after the rally yesterday, and the depleting 206 00:10:40,360 --> 00:10:43,559 Speaker 6: stockpile of air defense musicians munitions is two things that 207 00:10:43,640 --> 00:10:47,240 Speaker 6: could essentially force some kind of a you know, a 208 00:10:47,480 --> 00:10:50,360 Speaker 6: durable diplomatic turn, a de escalation, a deal. 209 00:10:50,920 --> 00:10:51,880 Speaker 7: And I think those two. 210 00:10:51,760 --> 00:10:54,080 Speaker 6: Factors are still very very live and are driving a 211 00:10:54,080 --> 00:10:55,439 Speaker 6: lot of what we saw at the end of last. 212 00:10:55,280 --> 00:10:58,400 Speaker 5: Week, but alive for how long, Tobin, until the President 213 00:10:58,440 --> 00:11:01,520 Speaker 5: decides that it's time to escalate or do you actually 214 00:11:01,640 --> 00:11:04,360 Speaker 5: see a diplomatic off ramp at this moment? 215 00:11:05,760 --> 00:11:08,319 Speaker 6: Well, yeah, I mean it's easy to just stop shooting, 216 00:11:08,400 --> 00:11:11,120 Speaker 6: which is what both sides have done for now. I think, 217 00:11:11,160 --> 00:11:13,520 Speaker 6: you know, Iran telling Lee is saying they're going to 218 00:11:13,520 --> 00:11:16,360 Speaker 6: stop strikes on US bases as long as the US 219 00:11:16,360 --> 00:11:19,600 Speaker 6: strikes stop. But I don't see any indication that they're 220 00:11:19,600 --> 00:11:22,559 Speaker 6: going to stop strikes on ships if necessary to try 221 00:11:22,600 --> 00:11:25,920 Speaker 6: and force them to accept their leadership in the Strait. 222 00:11:26,400 --> 00:11:29,160 Speaker 7: So you know. I mean, we already saw the best 223 00:11:29,200 --> 00:11:30,839 Speaker 7: attempt to finesse. 224 00:11:30,480 --> 00:11:32,920 Speaker 6: The differences between the US and Iran on control of 225 00:11:32,920 --> 00:11:35,720 Speaker 6: the straight of horror moves in the MU and it 226 00:11:35,840 --> 00:11:38,400 Speaker 6: immediately fell apart. So it's it is challenging for me 227 00:11:38,440 --> 00:11:41,679 Speaker 6: to see what a permanent solution could look like unless 228 00:11:41,679 --> 00:11:45,040 Speaker 6: the US just becomes willing to accept Iran's assertion of 229 00:11:45,040 --> 00:11:47,240 Speaker 6: control over the street, and thus far we really have 230 00:11:47,320 --> 00:11:48,280 Speaker 6: not been doing that. 231 00:11:48,600 --> 00:11:51,880 Speaker 5: There's other reports out, especially about late Center Lindsay Graham 232 00:11:52,040 --> 00:11:54,280 Speaker 5: in this footage that's now starting to come out from 233 00:11:54,320 --> 00:11:57,240 Speaker 5: a documentary he was filming, and he allegedly told Jake 234 00:11:57,320 --> 00:12:00,079 Speaker 5: Sullivan that I not believe Trump's envoys Jared Kushner, Er 235 00:12:00,080 --> 00:12:03,400 Speaker 5: and Steve Wickcoff could manage the negotiations because of what 236 00:12:03,520 --> 00:12:06,520 Speaker 5: he considered conflict of interest. Do we have the right 237 00:12:06,640 --> 00:12:08,040 Speaker 5: personnel at the table? 238 00:12:09,720 --> 00:12:14,319 Speaker 6: Well, it's been a very kind of multifactorial process all 239 00:12:14,360 --> 00:12:16,960 Speaker 6: through the diplomatic track. We have these multiple third countries 240 00:12:17,160 --> 00:12:19,599 Speaker 6: mediating The messages coming into the White House seem to 241 00:12:19,640 --> 00:12:22,360 Speaker 6: be going not just through Wickoff and Kushner, but also 242 00:12:22,400 --> 00:12:25,560 Speaker 6: through Rubio, through Vance, who's been very frontally involved at 243 00:12:25,600 --> 00:12:26,280 Speaker 6: various stages. 244 00:12:26,520 --> 00:12:27,880 Speaker 7: So I don't really see any of. 245 00:12:27,840 --> 00:12:31,680 Speaker 6: The diplomatic challenges as being just down to the composition 246 00:12:31,720 --> 00:12:34,440 Speaker 6: of the negotiating team. I think basically the challenge is 247 00:12:34,440 --> 00:12:37,200 Speaker 6: how far apart the two sides are substantively, and whether 248 00:12:37,280 --> 00:12:39,120 Speaker 6: or not they can come together absent more pain for. 249 00:12:39,120 --> 00:12:39,840 Speaker 7: One side or the other. 250 00:12:40,160 --> 00:12:42,880 Speaker 1: Tobin. This administration is seeing a real loss and popularity 251 00:12:42,920 --> 00:12:45,959 Speaker 1: as a result of the Iran War. At the same time, 252 00:12:46,200 --> 00:12:50,000 Speaker 1: Democrats don't have a significant popularity when it comes to 253 00:12:50,120 --> 00:12:53,600 Speaker 1: the view of how they would handle the situation of Iran. 254 00:12:54,000 --> 00:12:57,000 Speaker 1: What is the democratic proposal and how to extract the 255 00:12:57,080 --> 00:12:59,480 Speaker 1: United States and create some sort of status quo in 256 00:12:59,480 --> 00:12:59,920 Speaker 1: the region. 257 00:13:00,880 --> 00:13:03,679 Speaker 6: Oh, I certainly would not say that there's a kind 258 00:13:03,679 --> 00:13:06,760 Speaker 6: of a cohesive democratic strategy at this point. 259 00:13:06,880 --> 00:13:07,040 Speaker 4: You know. 260 00:13:07,080 --> 00:13:10,760 Speaker 6: I think the position from most Democratic leaders is the 261 00:13:10,800 --> 00:13:13,520 Speaker 6: problem is that we're in this situation already. You know, 262 00:13:13,520 --> 00:13:15,960 Speaker 6: we're starting this war with a mistake at this point. 263 00:13:16,040 --> 00:13:18,040 Speaker 6: There's no kind of cleaner, easy. 264 00:13:17,840 --> 00:13:19,320 Speaker 7: Way out of it. Which I think it's true. 265 00:13:19,400 --> 00:13:21,720 Speaker 6: You know, if they have the luxury is the opposition 266 00:13:21,760 --> 00:13:23,440 Speaker 6: party of just being able to point to the president 267 00:13:23,440 --> 00:13:25,920 Speaker 6: and say, look at how badly he's managing this conflict, 268 00:13:25,960 --> 00:13:28,160 Speaker 6: and I think that message is working just fine with voters. 269 00:13:28,440 --> 00:13:31,480 Speaker 6: But you know, if you know, God forbid, we're still 270 00:13:31,520 --> 00:13:33,520 Speaker 6: in the middle of this, you know, two and a 271 00:13:33,520 --> 00:13:35,600 Speaker 6: half years from now, and a Democratic president comes in 272 00:13:35,640 --> 00:13:37,720 Speaker 6: and has to try and uncrack the egg. 273 00:13:37,720 --> 00:13:38,920 Speaker 7: I think that'll be really challenging. 274 00:13:39,080 --> 00:13:43,040 Speaker 1: How does this really factor into congressional support for increases 275 00:13:43,080 --> 00:13:46,320 Speaker 1: in budgets, for creating some sort of backstop to support 276 00:13:46,360 --> 00:13:48,480 Speaker 1: the military. And this really raises some real questions. 277 00:13:48,480 --> 00:13:49,000 Speaker 4: Operationally. 278 00:13:49,080 --> 00:13:51,200 Speaker 1: It's one thing, and this happens every single cycle, whether 279 00:13:51,200 --> 00:13:53,480 Speaker 1: it's Republicans or Democrats. If they don't like the policy, 280 00:13:53,600 --> 00:13:54,720 Speaker 1: they won't vote for it. 281 00:13:54,840 --> 00:13:55,959 Speaker 4: But at a certain point, how. 282 00:13:55,920 --> 00:13:57,959 Speaker 1: Do you end up with some sort of cohesive policy 283 00:13:57,960 --> 00:14:00,200 Speaker 1: that can gracefully extract the United States while all so 284 00:14:00,880 --> 00:14:06,559 Speaker 1: having the resources to restock the ammunition stockpiles. 285 00:14:07,160 --> 00:14:09,679 Speaker 6: Yeah, on the defense funding front, I think we're in 286 00:14:09,720 --> 00:14:12,440 Speaker 6: for a relatively unexciting outcome. I mean, we've seen these 287 00:14:12,520 --> 00:14:14,880 Speaker 6: very large numbers thrown around the President proposing a total 288 00:14:14,920 --> 00:14:16,520 Speaker 6: budget of one point five trillion dollars. 289 00:14:16,559 --> 00:14:17,920 Speaker 7: We're not going to come anywhere closet to that. 290 00:14:18,120 --> 00:14:19,760 Speaker 6: I think the base defense budget we're going to get 291 00:14:19,760 --> 00:14:22,040 Speaker 6: a basically status quo outcome kind of low single digit 292 00:14:22,320 --> 00:14:25,920 Speaker 6: growth that's out of the biparisan negotiations that will. 293 00:14:25,800 --> 00:14:27,280 Speaker 7: Eventually kind of pick up in the Senate. 294 00:14:27,600 --> 00:14:31,080 Speaker 6: Then they're using reconciliation to get through a really quite 295 00:14:31,320 --> 00:14:33,800 Speaker 6: modest slug of money in the sixty sixty five billion 296 00:14:33,840 --> 00:14:36,000 Speaker 6: dollar range, and I think that's all that they're going 297 00:14:36,040 --> 00:14:37,560 Speaker 6: to get. You know, I don't think that they're also 298 00:14:37,640 --> 00:14:39,920 Speaker 6: going to get a bipartisan supplemental in addition to that 299 00:14:39,960 --> 00:14:42,280 Speaker 6: reconciliation bill. I don't think they have the votes to 300 00:14:42,320 --> 00:14:45,720 Speaker 6: move a bigger number through reconciliation. So, you know, we 301 00:14:45,720 --> 00:14:47,760 Speaker 6: can all see the problem now in terms of the 302 00:14:47,760 --> 00:14:50,560 Speaker 6: defense industrial base, the adequacy. 303 00:14:50,000 --> 00:14:52,280 Speaker 7: Of our munition stock files. 304 00:14:52,400 --> 00:14:55,080 Speaker 6: But getting the funding to like really structurally change that 305 00:14:55,120 --> 00:14:56,160 Speaker 6: I think will be very challenging. 306 00:14:56,160 --> 00:14:58,800 Speaker 2: This always of serreal just been thrown across trading flaws 307 00:14:58,960 --> 00:15:01,720 Speaker 2: the world over. When Tobin Marcus said, if we're talking 308 00:15:01,720 --> 00:15:04,200 Speaker 2: about this in two and a half years, can you 309 00:15:04,200 --> 00:15:06,200 Speaker 2: imagine two and a half years still talking about this? 310 00:15:06,600 --> 00:15:10,120 Speaker 2: Stay with us more Bloomberg surveillance coming up after this. 311 00:15:19,440 --> 00:15:21,880 Speaker 2: Vindcy Panx has been busy. She runs the following over 312 00:15:21,880 --> 00:15:24,960 Speaker 2: a stile for policy. Just as in politics, conflict often 313 00:15:25,000 --> 00:15:28,640 Speaker 2: begets gridlock. As such, rates are likely to remain on hold, 314 00:15:28,680 --> 00:15:31,120 Speaker 2: at least for some time longer. Lindsay joins us now 315 00:15:31,160 --> 00:15:33,160 Speaker 2: for more Lindsay, welcome to the program on hold, Dan, 316 00:15:33,360 --> 00:15:35,840 Speaker 2: but just describe what the debate might sound like that 317 00:15:35,920 --> 00:15:37,960 Speaker 2: starts tomorrow and concludes on Wednesday. 318 00:15:38,520 --> 00:15:40,160 Speaker 8: Well, I think Mike really laid out a lot of 319 00:15:40,160 --> 00:15:43,080 Speaker 8: the factors. When you look at the latest inflation data, 320 00:15:43,160 --> 00:15:46,520 Speaker 8: the disinflation data, I think that clearly swings the pendulum 321 00:15:46,520 --> 00:15:49,560 Speaker 8: into the Dubvish camp, giving them credence for the fact 322 00:15:49,600 --> 00:15:52,120 Speaker 8: that price pressures may abate into the end of the year, 323 00:15:52,200 --> 00:15:54,560 Speaker 8: if we do see the impact of tariffs fall off, 324 00:15:54,880 --> 00:15:57,480 Speaker 8: and if we can see some sort of normalization in 325 00:15:57,520 --> 00:16:00,400 Speaker 8: the energy market. On the flip side, even with this 326 00:16:00,560 --> 00:16:04,040 Speaker 8: recent cooling from peak levels, inflation is still double the 327 00:16:04,080 --> 00:16:08,720 Speaker 8: Fed's intended target, and with the risk of upside pressure 328 00:16:08,800 --> 00:16:13,680 Speaker 8: further rising tensions overseas resulting in additional upside pressure and 329 00:16:13,800 --> 00:16:18,040 Speaker 8: energy costs. This puts the FED, the more hawkish members 330 00:16:19,000 --> 00:16:22,000 Speaker 8: at an easy position that we should take this more 331 00:16:22,000 --> 00:16:25,360 Speaker 8: aggressive action and reverse some of that policy easing that 332 00:16:25,400 --> 00:16:27,840 Speaker 8: we saw into the end of last year. So, as 333 00:16:27,880 --> 00:16:32,000 Speaker 8: I suggested, this ongoing conflict, this clear divide between the 334 00:16:32,040 --> 00:16:35,360 Speaker 8: hawkish and more Dubbs members, is likely to result in 335 00:16:35,440 --> 00:16:39,680 Speaker 8: policy simply remaining steady on hold for the next several meetings. 336 00:16:40,000 --> 00:16:41,560 Speaker 1: Lindsey, what do you make of the point that Krishna 337 00:16:41,640 --> 00:16:44,480 Speaker 1: Guhau is making earlier, which is the fedword to hike 338 00:16:44,600 --> 00:16:47,760 Speaker 1: rates at this meeting, that the market would price in 339 00:16:48,160 --> 00:16:50,760 Speaker 1: three or four rate hikes immediately, that they would shoot 340 00:16:50,760 --> 00:16:52,760 Speaker 1: first and ask questions later. Do you think that that's 341 00:16:52,760 --> 00:16:55,560 Speaker 1: the likely path of travel should they move this week? 342 00:16:56,160 --> 00:16:58,600 Speaker 8: Well, I think it depends on the communication that accompanies 343 00:16:58,680 --> 00:17:01,280 Speaker 8: that decision. But if they're there's a lack of communication 344 00:17:01,360 --> 00:17:04,360 Speaker 8: and the Fed simply comes out makes that aggressive move 345 00:17:04,440 --> 00:17:07,879 Speaker 8: higher without any guidance, any forward guidance for what we 346 00:17:07,920 --> 00:17:11,080 Speaker 8: can expect going forward, I think the market would anticipate 347 00:17:11,119 --> 00:17:14,040 Speaker 8: that the FED has shifted their line of thinking to 348 00:17:14,200 --> 00:17:17,760 Speaker 8: the prospect that inflation is rising, it's not under control, 349 00:17:18,000 --> 00:17:21,760 Speaker 8: and if that's the case, it would be unlikely that 350 00:17:21,920 --> 00:17:26,679 Speaker 8: one rate hike would quell that concern and convince the 351 00:17:26,680 --> 00:17:29,119 Speaker 8: Committee that inflation was back on a pathway to that 352 00:17:29,160 --> 00:17:30,159 Speaker 8: two percent target. 353 00:17:30,320 --> 00:17:33,080 Speaker 1: Lizzie it's incredibly unusual. And you know this very well 354 00:17:33,119 --> 00:17:36,119 Speaker 1: that when you see an increase in energy prices to 355 00:17:36,200 --> 00:17:38,840 Speaker 1: this degree in the face of a shock, that you 356 00:17:38,920 --> 00:17:42,080 Speaker 1: get a sudden real expansion in the labor market, that 357 00:17:42,080 --> 00:17:45,120 Speaker 1: you see a real acceleration in terms of job creation. 358 00:17:46,000 --> 00:17:46,440 Speaker 8: How do you. 359 00:17:46,440 --> 00:17:48,800 Speaker 1: Understand that, because that is exactly what's happened this year, 360 00:17:48,840 --> 00:17:50,160 Speaker 1: and it's incredibly unusual. 361 00:17:50,920 --> 00:17:53,280 Speaker 8: It is because typically when we think about the economy, 362 00:17:53,320 --> 00:17:57,040 Speaker 8: the fastest way to derail the US consumer is by 363 00:17:57,080 --> 00:18:00,800 Speaker 8: sustained heightened energy prices. And as the consumer based economy, 364 00:18:00,840 --> 00:18:03,000 Speaker 8: if the consumer isn't happy and healthy out in the 365 00:18:03,000 --> 00:18:06,560 Speaker 8: marketplacee spending, we can't expect much expansion or much growth 366 00:18:06,600 --> 00:18:09,119 Speaker 8: then from the broader economy. But you're right, we're not 367 00:18:09,200 --> 00:18:12,679 Speaker 8: necessarily seeing that. We're continuing to see this pressure at 368 00:18:12,680 --> 00:18:16,000 Speaker 8: the pump higher energy prices, but the economy is still 369 00:18:16,040 --> 00:18:19,440 Speaker 8: expanding now certainly not at an overly robust pace by 370 00:18:19,440 --> 00:18:22,960 Speaker 8: any means, but we maintain this decent pace, and as 371 00:18:22,960 --> 00:18:24,919 Speaker 8: we look out to the second quarter, we're likely to 372 00:18:24,960 --> 00:18:28,920 Speaker 8: continue around this two is ish percent with still stable 373 00:18:28,960 --> 00:18:32,600 Speaker 8: conditions in the labor market. Again, we have lost some momentum, 374 00:18:32,840 --> 00:18:35,560 Speaker 8: but the average pace around one hundred thousand per month 375 00:18:36,000 --> 00:18:40,359 Speaker 8: does suggest that the latest pathway of higher energy prices 376 00:18:40,400 --> 00:18:43,960 Speaker 8: has not yet derailed the consumer or the broader economy. 377 00:18:44,200 --> 00:18:46,080 Speaker 5: Lindsay, do you expect dissenters this week? 378 00:18:47,480 --> 00:18:50,320 Speaker 8: I think it depends again on that rate decision. If 379 00:18:50,359 --> 00:18:52,879 Speaker 8: for some reason we see the Fed come out and 380 00:18:52,960 --> 00:18:56,159 Speaker 8: decide to make a policy move, absolutely I would expect 381 00:18:56,200 --> 00:18:59,119 Speaker 8: to see some dissensions. However, if we see the Fed 382 00:18:59,240 --> 00:19:03,120 Speaker 8: take the more steady pathway maintain the current level of policy, 383 00:19:03,119 --> 00:19:07,200 Speaker 8: as I expect, the descents may be rained in if 384 00:19:07,240 --> 00:19:11,040 Speaker 8: there is a very ample conversation around a potential move 385 00:19:11,080 --> 00:19:13,439 Speaker 8: in one direction or the other down the line. 386 00:19:13,480 --> 00:19:15,920 Speaker 5: We've been having this conversation all morning and Blake Glenn 387 00:19:15,920 --> 00:19:18,200 Speaker 5: of RBC was talking about it that he actually thinks 388 00:19:18,280 --> 00:19:21,960 Speaker 5: the dissenters, if they hold, could help Kevin Worsh. Do 389 00:19:21,960 --> 00:19:23,320 Speaker 5: you think that gives them him cover? 390 00:19:24,520 --> 00:19:27,480 Speaker 8: I think right now Kevin Worsh very much would like 391 00:19:27,600 --> 00:19:30,919 Speaker 8: to steer the monetary policy ship to a lower interest 392 00:19:31,000 --> 00:19:34,280 Speaker 8: rate environment. But I think right now he recognizes that 393 00:19:34,280 --> 00:19:37,439 Speaker 8: that's a more medium to longer term outcome given the 394 00:19:37,520 --> 00:19:41,080 Speaker 8: level of inflation. Given still the upside risks. I think 395 00:19:41,119 --> 00:19:44,240 Speaker 8: at best, worsh can expect to hold policy study, and 396 00:19:44,320 --> 00:19:48,320 Speaker 8: along the way, simply downplay any prospect for interest rate hikes, 397 00:19:48,640 --> 00:19:51,320 Speaker 8: even if the conversation begins to move in that direction. 398 00:19:52,280 --> 00:19:55,800 Speaker 2: This is the Bloomberg's Events podcast, bringing you the best 399 00:19:55,840 --> 00:19:59,360 Speaker 2: in markets, economics, antiopolitics. You can watch the show live 400 00:19:59,480 --> 00:20:03,240 Speaker 2: on Bloomberg weekday mornings from six am to nine am Eastern. 401 00:20:03,560 --> 00:20:06,920 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 402 00:20:06,920 --> 00:20:09,560 Speaker 2: you listen, and as always, on the Bloomberg Terminal and 403 00:20:09,640 --> 00:20:10,880 Speaker 2: the Bloomberg Business app.