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Speaker 2: Joining us in the last forty eight hours the Great
Speaker 2: Bullmarket Pinata Edward. You heard Denny Chiness. How are your
Speaker 2: Denny research? How the last forty eight hours been? When
Speaker 2: I believe you just shifted probabilities? Absolutely have your roaring thesis?
Speaker 2: Well has it been?
Speaker 3: I got to be a bit of a realist, given
Speaker 3: what is going on. I'm still sticking with sixty percent
Speaker 3: for what I call the Roaring twenty twenties. However, I
Speaker 3: had given twenty percent to a melt up because things
Speaker 3: kind of I've had that potential. Still it's not a
Speaker 3: high probability, and twenty percent to melt down or recession
Speaker 3: kind of a bucket for everything that could go wrong. Well, now,
Speaker 3: just five percent for a melt up that's very unlikely, am,
Speaker 3: and thirty five percent for things going wrong, which they are.
Speaker 2: Amazon does a thirty seven to forty two billion dollar
Speaker 2: bond offering Damien tells me it's going to be six
Speaker 2: phone calls. Heath Terry brilliant over at City Group publishes
Speaker 2: and reaffirms ai viability in revenue, in profit, in getting
Speaker 2: things done. With all this, I agree with it. Kep
Speaker 2: X synthesize in as you mentioned, spreads have a move
Speaker 2: the bond market screaming stability. These other news items screen
Speaker 2: fold them into your roaring twenties theme.
Speaker 3: Well, I mean, we've we've done pretty well with a
Speaker 3: thesis so far. We've got a few more years here
Speaker 3: left in the decade. I think this will pass.
Speaker 4: You're short selling yourself, folks.
Speaker 2: It's the Yardeni and campooral low of October a few
Speaker 2: years ago, and in Ralph and comportant, Thank you, Niled
Speaker 2: it continued, thank you very much.
Speaker 3: So look, I think in the short term we clearly
Speaker 3: have an issue with the strait of our moves. It's
Speaker 3: it's it's hard to get optimistic here unless we see
Speaker 3: some tankers actually going through there without any incident. I
Speaker 3: know the President would sounds like he wants to declare
Speaker 3: victory here pretty shortly, but you know, I think I
Speaker 3: think our and lost the war. They just don't really
Speaker 3: know it, and they're not acting like it. The problem
Speaker 3: with this country is that it's a terrorist state with
Speaker 3: a terrorist organization that basically spreads terrorism around the world,
Speaker 3: and they're professional terrorists, and so it's very hard to
Speaker 3: kind of beat them just by blessing them with the bombs.
Speaker 5: And back in December, you correctly, I'm going to give
Speaker 5: Ed a softball here. He correctly called for an underway
Speaker 5: position in the Max seven and the baskets now down
Speaker 5: in six point three percent year to date. I'm curious,
Speaker 5: do you see further weakness in US textocs right here
Speaker 5: right now? Or is this a buying opportunity.
Speaker 3: Well, I think it's becoming very bifurcated. The companies that
Speaker 3: still have moats, the companies that you know are basically
Speaker 3: competing in still fairly stable marketplaces, I think are fine.
Speaker 3: The problem for the Magnificent Seven is that they used
Speaker 3: to be kind of like the Game of Thrones. You know,
Speaker 3: it was like seven independent kingdoms that had moats and
Speaker 3: didn't really bother each other. But ever since AI, they're
Speaker 3: competing like mad and it's you know, it's a AI
Speaker 3: arms race.
Speaker 2: We're ready continue with that, your denty doctor, your DENTNY
Speaker 2: of your Denny research, can't say enough about his research.
Speaker 2: It's going exceptionally value your Denny report that you get
Speaker 2: from him, literally on a daily basis. Damian says, are
Speaker 2: in time king with edit YARDNNY. We'll move forward here
Speaker 2: in a bit too further discussion of what we saw
Speaker 2: in the Secretary of Defense's press conference here a bit ago,
Speaker 2: but it is about the Martin markets. Here's the summary
Speaker 2: for those of you across this nation waking up. The
Speaker 2: Vicks was thirty five. That is painful. We've come in
Speaker 2: dramatically to a twenty four point five point seven with
Speaker 2: red and green on the screen, but a decidedly better
Speaker 2: tape today than what we witnessed in the last forty
Speaker 2: eight hours.
Speaker 4: With the market opening, Alexis christopherus.
Speaker 6: All right, thanks very much, Tom, and investors continuing to
Speaker 6: try to assess how long this war with Iran will
Speaker 6: go on and what its global impact will be, especially
Speaker 6: on the oil market. So we have a mixed start
Speaker 6: here to the morning. The S and P five hundred
Speaker 6: down three points at sixty seven to ninety three, Dow
Speaker 6: Jones Industrial Average down about twenty five points, but the
Speaker 6: Nasdaq and the green right now by about forty two points,
Speaker 6: so Russell two thousand is a just fractionally. We've got
Speaker 6: Brent crude at ninety one forty four, the barrel down
Speaker 6: seven and a half percent, WTI crewed down about to
Speaker 6: seven percent now to eighty eighth four the barrel, and
Speaker 6: the Bloomberg dollar spot indecks at eleven ninety seven eighty
Speaker 6: four spot gold by the way, bouncing back up one
Speaker 6: and a half percent at fifty two to fifteen the ounce,
Speaker 6: and Amazon returning to the bond market, selling the debt
Speaker 6: and as many as eleven tranches ranging from two to
Speaker 6: fifty years. It's the latest in a series of jumbo
Speaker 6: bond sales by hyperscalers as they gear up to invest
Speaker 6: in what else but AI. That's your Bloomberg opening bell report,
Speaker 6: Tom and Damien.
Speaker 2: Alexis, thank you so much again, Ready green in the screen,
Speaker 2: nas deck with a little bit of the bid twenty
Speaker 2: four point twenty five and.
Speaker 4: The viks ed you're denning with us.
Speaker 2: Always associated with Professor Tobin at Yale, but before that
Speaker 2: high above Cayugas Waters at Cornell University, as our prosad
Speaker 2: is one of the great optimists of International Economics. His
Speaker 2: new book out of Cornell is The Doom Loop on
Speaker 2: the Economic Order. He even gets Game of Thrones to
Speaker 2: the first chapters. It's serusely doing and economics you, more
Speaker 2: than anyone I know ed, pushes against the concept of
Speaker 2: a doom loop. What do you say to the people
Speaker 2: that feel the gloom feel the doom?
Speaker 3: Well, you know, there are a fair amount of perma
Speaker 3: bears out there, and a lot of people listen to
Speaker 3: the perma bears, and that perma bears very often sound
Speaker 3: very logical. The problem is they don't provide a balance.
Speaker 3: And perma bears will get you out at the top
Speaker 3: of the stock market, they'll get you out in the middle,
Speaker 3: they'll get you at the bottom at the bottom. You'll
Speaker 3: never be in the stock market if you'd have a
Speaker 3: pessimistic attitude. Also, politics sometimes gets in the way of
Speaker 3: clear and clear headed investing. The market tends to go
Speaker 3: up as long as earnings are going up, as long
Speaker 3: as the economy is doing well, and that's been the
Speaker 3: case for a long long time. So I have this
Speaker 3: view that corrections and bear market start buying opportunities rather
Speaker 3: than reasons to panic.
Speaker 5: Well, and you talk about the economy doing well in
Speaker 5: all seriousness, does economic did they even matter at this point?
Speaker 7: I mean, look at last week's payrolls.
Speaker 5: I mean, the market looks straight through that for like
Speaker 5: three seconds, and then tomorrow we're going to get a
Speaker 5: CPI print that, by definition, after the last week's events,
Speaker 5: is already stale.
Speaker 7: So you know, talk to.
Speaker 5: Us a little bit about the economic touch points that
Speaker 5: you're going to be most focused on here.
Speaker 3: Well, Look, I think that the economy still matters, because
Speaker 3: earning still matters. One of the I used to be
Speaker 3: just an economist and also a strategist, and being a
Speaker 3: strategist is a lot easier. All you got to do
Speaker 3: is forecast pe time Z, and that's very easy to do.
Speaker 3: Getting it right, of course, is the challenge, but it's
Speaker 3: still it's still those two variables, and the earnings outlook,
Speaker 3: I think remains quite strong because I think the economy
Speaker 3: will remain resilient.
Speaker 2: I mean, in.
Speaker 3: Twenty twenty two, we had an oil price shock and
Speaker 3: the economy made through it just fine. I think I
Speaker 3: think the data that the stock market is looking at
Speaker 3: is not just the employment numbers that they're looking at,
Speaker 3: the productivity numbers. And that's really the bullish story is
Speaker 3: that the productivity is making a huge comeback.
Speaker 5: And we began our conversation Tom mentioning that you had
Speaker 5: upped your probability from a market meltdown from twenty to
Speaker 5: thirty five percent for the balance of this year. You know,
Speaker 5: my question is this. You know, when I think of meltdown,
Speaker 5: I think of something on the order of a systemic
Speaker 5: liquidity shock. And this is a different sort of shock
Speaker 5: than we've witnessed, you know, in two thousand and another.
Speaker 5: You know, kind of what funding and financing metrics are
Speaker 5: you most focused on here? Like, what kind of a
Speaker 5: liquidity shock do you think can happen?
Speaker 3: Well, clearly, when you look at history, you find that
Speaker 3: more often than not, it's a shock in the credit
Speaker 3: system that causes problems for the stock market, and you
Speaker 3: get a financial crisis because of FED tight and something
Speaker 3: blows up and that becomes a credit crunch. It's credit
Speaker 3: crunch is the cause of recessions this time around. I
Speaker 3: think we have to recognize remember that the Fed's are
Speaker 3: awfully good at playing whack a mole in the credit markets.
Speaker 3: You know, as soon as something blows up, they move
Speaker 3: in pretty quickly. March at twenty twenty three, we had
Speaker 3: a banking crisis. There's only three banks that it was
Speaker 3: solved over the weekend.
Speaker 2: Yeah, I got fifteen ways to go here. But let
Speaker 2: me just go to the experience I mentioned earlier, this
Speaker 2: modest drawdown we had in nineteen eighty seven. In my memory,
Speaker 2: I don't have it in front of me, folks, is
Speaker 2: what a rebound from October twenty seventh to the end
Speaker 2: of the year December of nineteen eighty seven. I remember
Speaker 2: the sweat in August of nineteen ninety eight, and off
Speaker 2: we went to the race to the rage of nine.
Speaker 2: What's different now in tech versus the collapse of March
Speaker 2: of two thousand and one earnings.
Speaker 3: We had a lot of dot coms back then that
Speaker 3: they weren't making any money. We had a lot of
Speaker 3: telecom companies that were solar financing, so they're kind of
Speaker 3: creating their own magic. Until these companies, these seven started
Speaker 3: to kind of finance each other, we didn't really have
Speaker 3: that issue. But they're huge cast generators. I think their
Speaker 3: expenditures are going to prove to be very profitable, So
Speaker 3: I'm not particularly worried about the earning side of the
Speaker 3: text story.
Speaker 2: It's part of the show this morning, commercial free the
Speaker 2: conversation too important, ed your Donndnesfendari coming on here in
Speaker 2: a moment. Damien sas Are and Tom Kane with Alexis,
Speaker 2: Christopherus and Michael Barr across this nation on YouTube. What
Speaker 2: a couple of days on YouTube. Thank you so much.
Speaker 4: For this new digital distribution.
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Speaker 2: for all that we do here in the New York
Speaker 2: Morning Damien Sasaur with ed your Denny.
Speaker 5: So and we talk about the Roaring twenties theme. We
Speaker 5: talk about, you know, the potential for market mail down
Speaker 5: and market meltop. Talk to me about your stagflationary nineteen
Speaker 5: seventies redux theme, red reducts, reducs, ducks, it's reduced.
Speaker 4: We call that reducts.
Speaker 5: I mean, I mean the stag fleationary. You know, you
Speaker 5: know that word's coming back. So tell to us a
Speaker 5: little bit about you're seeing there.
Speaker 3: Yeah, there is a certain amount of deja vous all
Speaker 3: over again. You know, every time we've had oil shocks
Speaker 3: in the past, we've typically gotten recessions and bear markets.
Speaker 3: The one near term exception was what happened in twenty
Speaker 3: twenty two. We got a bear market, but we didn't
Speaker 3: get a recession. I don't think we're going to get
Speaker 3: a recession this time. The recessionary expectations have gone up,
Speaker 3: but the US is much less energy intensive, and all
Speaker 3: by the way, we're an exporter, yeah, of oil and gas,
Speaker 3: which is a huge difference for what happened in the
Speaker 3: nineteen seventies. On the other hands, shutting the Strait of
Speaker 3: Hermus is a radically different historical development just hasn't happened before.
Speaker 3: And so my short term caution bearishness is totally predicated
Speaker 3: in this geopolitical development. I want to see some tankers
Speaker 3: get through the strait without giving a shout out.
Speaker 5: Well, I mean you just mentioned that, and that's where
Speaker 5: I was going to go. I mean, golf traffic is
Speaker 5: basically all or not right. I mean, there's nothing going through.
Speaker 5: And you know, and we just saw last week US
Speaker 5: Treasury Secretary and Scott Bess and basically slamming you know,
Speaker 5: JP Morgan for putting out research about maritime insurance and
Speaker 5: things of that nature.
Speaker 7: You know, how focused do you on some of those
Speaker 7: alternative data sets?
Speaker 5: You know, kind of trying to gauge out, you know,
Speaker 5: whether or not shipping you know, companies even want to
Speaker 5: you know, pass through the street of removes now, and
Speaker 5: it's funny to back it.
Speaker 2: I mean, who knows it's funny you ask that.
Speaker 3: One of the reasons I'm I'm very positive on AI
Speaker 3: is because we're using it all the time, and we've
Speaker 3: become real fans of Claude and so Claude is is
Speaker 3: in our staff now and we're toying around. We're just
Speaker 3: asking Claude to follow the shipping lanes in the Strait
Speaker 3: and there there's actually data, so but we only started
Speaker 3: doing it yesterday, so I do it. The other thing
Speaker 3: is I also want to see the data on drones.
Speaker 3: I mean, it's fine for the president, you know, to
Speaker 3: declare that we're almost there, almost mission accomplished, but that's
Speaker 3: not going to be the case unless the drones stopped
Speaker 3: flying into the neighbors, into the straits, into you know,
Speaker 3: aiming at our ships.
Speaker 2: And in March thirty one, I believe it's another end
Speaker 2: of the quarter if we can get there, and then
Speaker 2: into April and JP Morgan reporting and off we go
Speaker 2: to the Q one earning season. What does Edger Denny
Speaker 2: c with a broader sense of use of cash.
Speaker 3: Well, you know, right now, the earning story has been
Speaker 3: phenomenally strong, and that's really what's been driving the market.
Speaker 3: The valuation multiple, you know, got up to about twenty two.
Speaker 3: It's come down because of this pullback so far, which
Speaker 3: is it's not a correction yet, but I think it
Speaker 3: has that.
Speaker 4: Why are we this is too important?
Speaker 2: Since when are we hysterical about your Denny pullback that,
Speaker 2: as you state, is not a correction as we learned
Speaker 2: it in school.
Speaker 3: Well, you know, a pullback is a drop that isn't
Speaker 3: a correction. A correction is ten to twenty percent decline.
Speaker 3: A bear market is more than twenty percent. I happen
Speaker 3: to think that there is a thirty five percent the
Speaker 3: probability of things going badly, and that would lead to
Speaker 3: a correction of ten to fifteen percent. I'm actually amazed
Speaker 3: by the resilience of the economy, of the not just
Speaker 3: the economy, but the stock market.
Speaker 2: The stock market.
Speaker 3: Wants to believe that all will be well, very very shortly.
Speaker 3: We saw this amazing reversal also in the price of oil,
Speaker 3: as though you know, what were we thinking there's plenty
Speaker 3: of oil out there. Well, there is plenty of oil
Speaker 3: out there. We just got to get it, get to it.
Speaker 2: Damian quick one in here, quick one.
Speaker 5: Well, I mean ed what you sound It sounds like
Speaker 5: you're talking about just cleaner positions, right, And I mean,
Speaker 5: if this is really what this amounts to, where you
Speaker 5: basically we are giving a lot of you know, risky
Speaker 5: investors the opportunity to kind of you know, pair back
Speaker 5: their positions and clean them so to speak. Does that
Speaker 5: mean we might look for another leg higher into the
Speaker 5: you know, second half of this year. And can we
Speaker 5: really even see that?
Speaker 3: Well, I haven't given up on seventy seven hundred by
Speaker 3: the end of the year. I can so yeah, I'm
Speaker 3: I'm arguing that it's not necessarily going to be a
Speaker 3: few more days of the war, but it could be
Speaker 3: a few more weeks. And that again, I have this
Speaker 3: tendency to look at solofsa's buying opportunities rather than reasons
Speaker 3: to panic.
Speaker 2: Thank you for coming in my pleasure always. You can't
Speaker 2: say enough about it, folks. I enthusiastically support the work
Speaker 2: of doctor or Denny. We protect the copyright of all
Speaker 2: of our guests. Please don't call us to get his research,
Speaker 2: go to your Denny Research for his fabulous daily synthesis
Speaker 2: of economics. Stay with us more from Bloomberg's Surveillance coming
Speaker 2: up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: Part of what we do here is a conversation with
Speaker 2: interesting experts. Damian Sasaur in time King Now with Patrick
Speaker 2: Murphy and the title is Executive Director Geopolitical Advisory at
Speaker 2: Hillco Global. That barely describes his public service. After serving
Speaker 2: in the Army in Iraq with the eighth Congressional District
Speaker 2: in Pennsylvania, he was known to move the puck like
Speaker 2: Markau of the Philadelphia Flyers up the ice for King's
Speaker 2: College years ago. Has lectured at West Point, I should
Speaker 2: say taught at West Point and has a really legit
Speaker 2: army career, and of course was a former Undersecretary of
Speaker 2: the Army. Honor to have you this today, without question,
Speaker 2: our conversation of the day. As you look at the
Speaker 2: media portrayal of this one of our competitors called it
Speaker 2: a conflict. I went nuts because Vietnam was a conflict.
Speaker 2: This war as you look at the coverage, you sit
Speaker 2: there and you say, what are we getting wrong? What
Speaker 2: it informed Damien Sasawur, Alexis, Christophers and myself. What's the
Speaker 2: thing we're getting wrong about this war right now in
Speaker 2: our coverage?
Speaker 8: Well, the video doesn't match the audio, Tom Damian Alexis
Speaker 8: and that they could say, Hey, we decimated the Iranian navy.
Speaker 8: Fifty ships are now under the sea, but the strait
Speaker 8: is still a choke point. There are ships not going through.
Speaker 8: You look at seven countries have been counterattacked by Iran
Speaker 8: on sixty five percent of those attacks are an Abu
Speaker 8: Dhabi and Dubai. Yesterday it was an oil tanker that
Speaker 8: was hit. The day before it was the Dubai International Airport.
Speaker 8: They're hitting civilian targets. There are people dying in that region.
Speaker 8: And I hear about the resolve of not letting Iran
Speaker 8: get a nuclear weapon and we should never have let
Speaker 8: them have a nuclear weapon. But the reality of it
Speaker 8: is we had a nuclear deal done that we walked
Speaker 8: away from.
Speaker 2: How do we I shouldn't say how I'm editorialize and
Speaker 2: excuse me, folks. Is the White House listening to the Pentagon?
Speaker 8: Of course they're listening to them. And God gave us
Speaker 8: all two ears, two eyes, and only one mouth for
Speaker 8: a reason. But I think great generals like General Colin
Speaker 8: Powell is one of my role models who I get
Speaker 8: to know. We followed after Vietnam what's called the Powell doctrine,
Speaker 8: where you have a clear mission, you use overwhelming forced
Speaker 8: accomplishment mission, and you have a clear extra strategy.
Speaker 9: There is no extra strategy here.
Speaker 8: The mission is yet let's deestimate the Iranian ballstic missiles, etc.
Speaker 8: I get it, but you can't necessarily do that with
Speaker 8: just airpower. And they keep saying it's not gonna be
Speaker 8: a protractive war. Well, why was the eighty second airyone just.
Speaker 9: Put on alert? The light entre unit that I serve
Speaker 9: with an evasion in Iraq?
Speaker 8: Why is it that you know every military expert will
Speaker 8: say you can't win this thing by airpower. And again,
Speaker 8: my brother's in the Air Force. I have a lot
Speaker 8: of respect for airpower, but you can't win regime change
Speaker 8: or wars just by airpower alone.
Speaker 5: Well, Patrick, I love that you're focused on logistics, because
Speaker 5: when I'm driving up the Palsaden and State Parkway to
Speaker 5: visit you and my good friend John melconnup at West
Speaker 5: Point and we're sitting there gaming out what this really
Speaker 5: looks like. And we're talking about you know, golf traffic
Speaker 5: down one hundred percent since the conflint began and two hundred.
Speaker 7: Vessels effectively trapped there.
Speaker 5: You know, President Trump is talking about US Navy escorts,
Speaker 5: So logistically speaking, will that work? I mean, will that
Speaker 5: really get you know, firms who have suspended transit through
Speaker 5: the straight up ore moves to like like NYK and
Speaker 5: to two EOSK to start you know, shipping again.
Speaker 7: Is that is that? Is that gonna work?
Speaker 9: Yeah? I mean listen, we say it in kind of gotten.
Speaker 8: You know, was helping lead the army amateurs talk strategy,
Speaker 8: experts talk logistics, and the logistics there in that region
Speaker 8: in the Strait is there's about five to twelve six
Speaker 8: thousand minds underwater mines that Iran has that might be
Speaker 8: in that water right now, five thousand not not and
Speaker 8: again they may went out sea. And you know beside
Speaker 8: the you know, there are almost six thousand bustic missiles
Speaker 8: and there are ten thousand drones that they can you know,
Speaker 8: produce a month, so you know it's not And again,
Speaker 8: our military is the best military world I don't doubt that,
Speaker 8: but we should be humble in our greatness and not
Speaker 8: just in cert our young men and women in harms way.
Speaker 8: We just lost our seventh service member and another dignified transfer.
Speaker 8: I mean, I've been there at Doingver Air Force Base, Welcomar,
Speaker 8: you know, troops home that gave the ultimate sacrifice. It
Speaker 8: is heartbreaking for those families, and I'm glad the presidents,
Speaker 8: you know, I give him credit that he that he
Speaker 8: showed up. But you know, I can't help, but was
Speaker 8: this war necessary when we were at the one yard
Speaker 8: line with the piece deal in Geneva just a weekend prior, you.
Speaker 5: Know, Patrick, I just like to expand on that, you know,
Speaker 5: sticking with logistics here. Just last week we heard US
Speaker 5: Treasury Secretary Scott Besson slam JP Morgan chief commodity strategist
Speaker 5: Natasha kind of a for basically making irresponsible comments about
Speaker 5: maritime insurance and about you know, three hundred and fifty
Speaker 5: two billion of coverage needed to you know, protect these
Speaker 5: ships in order for people to start chipping again.
Speaker 7: Mean, what are your thoughts on that.
Speaker 5: You know, how does that play in to you know,
Speaker 5: the bottleneck, the supply bottleneck that's coming through the market data.
Speaker 9: Listen. That's why I said my opening comment was the
Speaker 9: audio is not matching a video.
Speaker 7: That's right.
Speaker 8: An oil tanker was just blown up yesterday. I mean
Speaker 8: UAE is getting sixty five percent of these attacks.
Speaker 9: And why is that?
Speaker 8: Because they're probably the least defendant and they're going after Civilly.
Speaker 8: And you know, as I mentioned that Dubai International Airport
Speaker 8: and or oil tanker.
Speaker 9: Yesterday, it is shut down. It is a choke point.
Speaker 8: And when you talk about twenty percent of the world's
Speaker 8: oil natural gas goes through there, that is a problem.
Speaker 9: And people in America.
Speaker 8: Yet, when I got gas yesterday in the Jersey turn
Speaker 8: bike ride coming up here, I was at paid four
Speaker 8: point fifty.
Speaker 9: You know, I didn't get the ninety three. I got
Speaker 9: ninety four.
Speaker 8: I got the ninety one to save a couple cents
Speaker 8: per galling and I'm doing pretty well for myself. But
Speaker 8: I'm cheap, right, And Americans already last year had a
Speaker 8: thirty percent increase in electricity bills. It's going to get worse,
Speaker 8: and people don't understand electricity is based the power that
Speaker 8: you get is from National Gas. That's what power is
Speaker 8: at the anchor of our electrical.
Speaker 2: Grids across the nation this morning and particularly to Pennsylvania
Speaker 2: and Patrick Murphy with us, a former Congressman from the
Speaker 2: eighth district. He is a geopolitical advisory at Hillcote Global
Speaker 2: and of course the former Undersecretary of the Armor. I
Speaker 2: want to go to your wheelhouse of what you taught
Speaker 2: at West Point and your service to the nation, and
Speaker 2: that is my entire knowledge. Here is Tom Cruise in
Speaker 2: a movie with Jack Nicholson.
Speaker 9: Oh, I figure that was one of my favorite movies.
Speaker 2: You are in the judiciary part of the army, and
Speaker 2: you've got an immense respect for the process of law
Speaker 2: there versus outside and all that. How do you adjust
Speaker 2: an executive, How do you adapt to an executive that
Speaker 2: can do this on a whim versus legislative authority.
Speaker 8: Yeah, for two hundred and fifty years we've had in
Speaker 8: America that was a limited federal government. That was the
Speaker 8: whole point of our government when we broke away from England.
Speaker 8: And you're right, I did spend six years in the
Speaker 8: army before it became a judge, avicate my law degree
Speaker 8: and taught consci law at West Point. That Constitution is
Speaker 8: the bootboard of our country. This is not a TPS
Speaker 8: report from Office Space. This is a document that we
Speaker 8: take a blood oath in the military to support and
Speaker 8: offend that Constitution against all enemies, barn and domestic. And
Speaker 8: that's a constitution that has been annored by this Congress.
Speaker 8: I blame the Congress for ignortons. I believe that Congress
Speaker 8: that is just basically said, mister President, you want tariffs,
Speaker 8: you know laterally kind of thing you want.
Speaker 2: Yeah, And by the way, what's your advice to Senator
Speaker 2: Fetterman and others who maybe at the margin would like
Speaker 2: to get a little bit of a decision tree back here.
Speaker 8: Yeah, I would like the first step maybe have some
Speaker 8: courage and a backbone to stand up to a co
Speaker 8: equal branch of government, the executive branch that they've taken over,
Speaker 8: support and defend that Constitution too. And they all represent
Speaker 8: in Pennsylvania's case, twelve million Americans that want them to
Speaker 8: do right by our men and women in uniform, to
Speaker 8: follow the power, follow the power doctrine, to have a
Speaker 8: clear mission and what is that? And use overwhelming force
Speaker 8: and have a clear excess strategy. We all know there's
Speaker 8: no strategy here. We all know that it is real
Speaker 8: tough to go in and take out the Venezuelan leader
Speaker 8: without Congress standing up, you know, and to do it
Speaker 8: and violation and not just the Constitution, but the War
Speaker 8: Powers Act that you know says that within sixty days
Speaker 8: you got to bring it the Congress.
Speaker 9: Otherwise you have to get out.
Speaker 8: They haven't gotten approval from Congress, and Congress continues to
Speaker 8: have no backbone.
Speaker 2: Across this nation. Patrick Murphy with us with Elko Global
Speaker 2: and of course the former Undersecretary of the Army with
Speaker 2: Damian Saso this morning.
Speaker 5: Damien, Yeah, you know so, Patrick, you know you mentioned Venezuela.
Speaker 5: I think you need to kind of group that together
Speaker 5: here with Ryan and talk to us about what this
Speaker 5: means for the upcoming meeting with Xijian Ping, you know,
Speaker 5: I mean, you know, we had a guest on earlier
Speaker 5: who was basically saying that this that the President Trump
Speaker 5: might be incentivized to extend the war that much further
Speaker 5: in order for him to have more leverage when he's
Speaker 5: meeting with President Chiesian Ping, you know, talk to us
Speaker 5: a little bit about the calculus what this means for
Speaker 5: the US negotiations with China.
Speaker 8: Chima loves the fact that we're going back to Middle
Speaker 8: East and nowhere to be die tied.
Speaker 9: Down down there.
Speaker 8: It is not in our financial rites when you look
Speaker 8: at you know, as as Tom mentioned, you know, the
Speaker 8: greatest greatest defenseman in the Flyers' history is Mark hal
Speaker 8: but I say the greatest hockey forever is probably Wayne Gretzky.
Speaker 8: You passed the park where people are going to be?
Speaker 8: Where are people going to be to sell our American
Speaker 8: goods in Asia? Fifty percent of consumers earn Asia. Why
Speaker 8: are we focused on the Middle East and not strengthen
Speaker 8: our relationships and do what we need to do to
Speaker 8: make sure that's there.
Speaker 9: Okay, this is.
Speaker 2: Critical on Damien brings up China, and I go back
Speaker 2: to Admiralstvetez, who has been such a supporter of my
Speaker 2: work with Elliot Ackerman the Marine writing twenty thirty four,
Speaker 2: which is They're wonderful book, my book of the Summer
Speaker 2: a couple of years ago. Folks, where unintended consequences get
Speaker 2: you into mess is our military, I want to call
Speaker 2: you a congressman. Is our military Patrick Murphy, exhausted by
Speaker 2: the multiple platforms of being in Asia, having to transfer
Speaker 2: to the Middle East? And yet, as Damien says, worrying
Speaker 2: about China and Taiwan, do you sense a military exhaustion
Speaker 2: at this point?
Speaker 8: No, in a sense that yes, No, they're not exhausted period.
Speaker 8: Our military is the best of the world, and they
Speaker 8: are motivated, and they're not motivated necessary to go into
Speaker 8: unnecessary wars to motivated to do the job that they
Speaker 8: were trained to do.
Speaker 9: But has our military been weary.
Speaker 8: After the longest wars in American history over twenty years,
Speaker 8: over two decades in Iraq and Afghanistan. And what's between
Speaker 8: Iraq and Afghanistan Iran. So that's where our troops and
Speaker 8: our efforts are right now, with over five thousand strikes
Speaker 8: in the last eleven days. And it is not making frankly,
Speaker 8: our country and certainly not our economy stronger. And you know,
Speaker 8: I know, obviously Damian mentioned Venezuela, but how about the
Speaker 8: tough talk about Cuba. You know, we had a pistio,
Speaker 8: we had a nuclear deal with Iran. They got rid
Speaker 8: of the nuclear program. We walked away from it. Then
Speaker 8: they got you know, ambitions again, we walked away from
Speaker 8: a pistol on Cuba. And now President Trump gets there
Speaker 8: and you know, he says, there's state sponsor of terrorism.
Speaker 8: Right now, Again, I am not I don't lose sleep
Speaker 8: that the toll was killed, but the new I told who,
Speaker 8: the new Supreme leader. It was his father and his
Speaker 8: wife that were killed and that attack that Saturday. So
Speaker 8: again are they gonna And he's known as being even
Speaker 8: more hard less exactly right.
Speaker 9: So I just have Odjeda.
Speaker 8: And it and it ticks me off when a lot
Speaker 8: of these political leaders in Washington ce cent.
Speaker 9: Our young men and women of Harm's Way and they
Speaker 9: never served.
Speaker 2: And Davian the Secretary of Defense the key quote that's
Speaker 2: going out across media right now quote our most intense
Speaker 2: state of strikes inside Iran is Tuesday, which is today.
Speaker 5: You know, you know, Patrick, I have to ask you,
Speaker 5: and you know this may be outside of your remit,
Speaker 5: but if you had to take the temperature on the
Speaker 5: ground and some of these other Gulf nations like Barrain
Speaker 5: and Cutter and and and the UA, et cetera, and
Speaker 5: how many of them do you really if they had
Speaker 5: to pick a side between the US and around you know,
Speaker 5: what side do you think they'd take?
Speaker 8: I mean, I do think they would take the United
Speaker 8: States because we have we have decades, not centuries of
Speaker 8: our worders are bond and we're not there to take
Speaker 8: their land, We're not there to take their oil. But
Speaker 8: our ambitions right now are a little out of whack,
Speaker 8: and our tough talk is a little about.
Speaker 9: Out of whack.
Speaker 8: Where we have to respect the world of law, we
Speaker 8: have to respect other country's sovereignty.
Speaker 2: I look forward to speaking to you again. Patrick Murphy,
Speaker 2: thank us so much. Executive director Geopolitical Advisory at Kilcoke
Speaker 2: Global and former Congressmen of the eighth District of Pennsylvania
Speaker 2: and former Under Secretary of the Army.
Speaker 9: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube in an unusual interview with
Speaker 1: one of our favorit people, joining us in studio, Andreas Sudermann.
Speaker 2: Chairman of the board of directors at vantebelt Is as well,
Speaker 2: and the back of an envelope, I think of German malaise.
Speaker 2: I think of these key elections in Paris. A lot's
Speaker 2: going on in Europe as well. How does Brussels, given
Speaker 2: the arc of domestic politics in Europe, adapt to a war.
Speaker 10: Well, that's a tough question to answer.
Speaker 8: Tom.
Speaker 10: By the way, thanks for having me this morning. I
Speaker 10: think Brussels at the moment is less of a factor here.
Speaker 10: I think it's the national capitals, as you.
Speaker 11: Said, that need to get their act together.
Speaker 10: And there has definitely definitely been a wake up call
Speaker 10: over the past eighteen months since President Trump got elected
Speaker 10: for the second time round, and the Europeans know they.
Speaker 11: Need to shape up.
Speaker 10: But exactly how they're going to do it and how
Speaker 10: joined up they're going to be, that's still up in
Speaker 10: the air.
Speaker 2: The image of a French aircraft carrier with seven destroyers
Speaker 2: around it, I mean, with the submarine sinking of a
Speaker 2: boat in the Indian Ocean, I mean, what is the
Speaker 2: symbolism to Europe of the French moving east to the
Speaker 2: Middle East.
Speaker 11: I think that's very significant.
Speaker 10: I think also the offer by President Macron to make
Speaker 10: the Force Fraut potentially available in forward deployment for allies.
Speaker 10: I mean, that's that's a big development that happened.
Speaker 11: What was it two weeks ago?
Speaker 10: You know, we've talked about it, but I think one
Speaker 10: can't talk about it enough. The Germans doubling their defense
Speaker 10: budget very quickly and you know, moving away from their
Speaker 10: balanced budget orthodoxy.
Speaker 11: I think there's a big move.
Speaker 10: All of that's happening right now, but it's not in
Speaker 10: a joined up manner, and I think that's what we're
Speaker 10: waiting for. That's why you asked about Brussels. But Brussels
Speaker 10: isn't going to be the factor. He it's the national
Speaker 10: capitals and domestic politics that got to determine.
Speaker 2: That I should mention the ship Damien Sas or the
Speaker 2: Charles de Gaulle. Mean, yeah, how could there be how
Speaker 2: could there be any other ship named the French fleet Andreas.
Speaker 5: Markets are clearly reacting to the Middle East conflict, but
Speaker 5: relative to past events, I mean, the price action just
Speaker 5: appears to be, you know, quite needed. To me, I'm
Speaker 5: curious to hear your thoughts on that. You know, do
Speaker 5: you see potential for the current conflict to fantastasize into
Speaker 5: a full blown varshock. And I guess you know, do
Speaker 5: you see any risks of the plumbing underneath these financial
Speaker 5: markets right here?
Speaker 10: Of course, it could totally spiral out of control. I mean,
Speaker 10: we don't, we don't know, you don't know. I think
Speaker 10: nobody really knows. The markets are certainly not discounting it.
Speaker 10: Otherwise you'd have seen much, quite right, a much stronger
Speaker 10: reaction downward. And it is really surprising that the markets
Speaker 10: have been so sanguine. I have to say I agree
Speaker 10: with the The biggest risk to the plumbing is the
Speaker 10: potential hazards in the private credit space.
Speaker 11: Totally sorry, I'm being right.
Speaker 2: We want.
Speaker 5: Tom waiting for that to I mean, come on, continuation vehicles, deteriorating,
Speaker 5: COLO demand, come on.
Speaker 2: And you don't know this, but on Damien's screening is
Speaker 2: a countdown clock, given Iran, given the president, given the press,
Speaker 2: coind of what's coming up? Tom?
Speaker 4: When are we gonna talk about private credit?
Speaker 10: But let's talk about these principles first, right, I mean,
Speaker 10: I was having that conversation with a friend of mine
Speaker 10: the other day. I said, look, I grew up a banker,
Speaker 10: right in the eighties, you know, I saw how loans
Speaker 10: are being made to mid and small sized corporates, commercial paper. Absolutely,
Speaker 10: I know how how much due diligence went into all
Speaker 10: of that, and why because the risk the capital of
Speaker 10: the banks are at stake. That's right, right, that is,
Speaker 10: it's real money. Right now, you move this kind of
Speaker 10: off balance sheet with everything that's happened post Great Financial Crisis,
Speaker 10: and who whose money is now at risk? It's sort
Speaker 10: of anonymous savers, right, So how do you think the
Speaker 10: due diligence compares relative to a bank that extends these
Speaker 10: loans on their own balance sheet? And it's going to
Speaker 10: be subpar.
Speaker 5: More concerned with what's going on in be credit some
Speaker 5: of these credit instruments as opposed to what's going on
Speaker 5: in the Middle East.
Speaker 7: I mean, I think that's what you're saying saying.
Speaker 11: Here, Well, well, we'll know after the event. Certainly the
Speaker 11: market should be concerned about that. Absolutely.
Speaker 2: How large are those shadows? I mean you you guys
Speaker 2: are way too young to remember this, but I remember
Speaker 2: going on in October, I think Thursday with a martini
Speaker 2: in May and oh, portfolio, what is that? What's the
Speaker 2: fear that you have now of it? Is that pure leverage,
Speaker 2: is it?
Speaker 4: What's the unknown unknown.
Speaker 2: Of private credit?
Speaker 10: Andreas well, I don't know. I'm not smart enough to
Speaker 10: know the unknown unknowns. But what I can tell you
Speaker 10: is I'm slightly less concerned than I was, and I
Speaker 10: was concerned in two thousand and seven, eight and nine,
Speaker 10: because ultimately the transmission mechanism of this going wrong initially
Speaker 10: is going to be probably consumers savers and not not
Speaker 10: systemically into the banking system. Now, as you say there
Speaker 10: might be unknown unknowns, I mean, you know, one of
Speaker 10: our competitors in Switzerland had loans on the balance sheet
Speaker 10: nobody knew about, and so that was an unknown and
Speaker 10: who knows what banks have done that nobody knows about,
Speaker 10: But right now there's no evidence of that.
Speaker 5: You know, one of the big buyers in that market
Speaker 5: are insurance companies, right, I mean long duration buyers. And
Speaker 5: you know to me, I mean I look at insurance and.
Speaker 7: You know that stuff very well.
Speaker 11: Yeah, insurance talks.
Speaker 5: So that's when I'm thinking, I mean, and I'm wondering
Speaker 5: if you have any thoughts there. I mean, demand from
Speaker 5: insurers for you know, thirty year paper for long duration
Speaker 5: papers kind of gone down as you've moved into the
Speaker 5: private credit market, right that short duration you know, that's
Speaker 5: short duration stuff. You know, talk to us about the
Speaker 5: potential for asset liability mismatching in the insurance industry. I
Speaker 5: mean the insurance industry. By the way, Tom, for all
Speaker 5: your for all our audience listening, is one of the
Speaker 5: best performing sectors in the SMP this year.
Speaker 7: So I'm just curious to hear your thoughts there.
Speaker 2: Well.
Speaker 10: As you know, I worked for a Lance for a
Speaker 10: long time. I was on the asset management side, but
Speaker 10: clearly they found out some of the some of their
Speaker 10: investments to to audience global investors from I was Leading
Speaker 10: and PIMCO, And you're right, I think in the in
Speaker 10: the twenty tens, when into switched low, they went to
Speaker 10: ultra long now to my surprise, entire surprise, though, they
Speaker 10: didn't manage that transition extremely well. So they didn't really
Speaker 10: take the hits that you might have expected as interest
Speaker 10: way its rose, and so that speaks to their ability
Speaker 10: to manage risk on their balance sheet. So I've also
Speaker 10: seen the insurance stocks do really, really well, really well,
Speaker 10: so that there's no real evidence at the moment that
Speaker 10: they're not managing this appropriate. So so I'm kind of
Speaker 10: kind of bullish on insurance.
Speaker 2: We are three minutes away here folk from a press conference.
Speaker 2: General Kine is always timely, but with some headlines here,
Speaker 2: I wonder if there'll be a delay. The Pentagon press
Speaker 2: briefing room with the two Flags prepares for this press conference.
Speaker 2: Andrea Sertterman with his chairman of the Board of Directors,
Speaker 2: Vuntable with us. I want to talk to you about
Speaker 2: the voice of the elites. I advinced no words about this.
Speaker 2: Lawrence Fink of Blackrock single handedly saved Davos this year.
Speaker 2: Larry got upset. He said, we got to continue this
Speaker 2: in some form, you know, the gossip leguard maybe would
Speaker 2: go from ECB over the world economic form. Where's the
Speaker 2: new voice of the elites moving forward the next one year,
Speaker 2: two years, five years. Does it need to be reconstructed?
Speaker 10: Of course, But I mean that start with a presupposition
Speaker 10: that But you know what actually the elite is? Now
Speaker 10: that's an interesting question, isn't it. I mean, is the
Speaker 10: is the elite political? Is it moneyed? Is it new moneyed,
Speaker 10: old moneyed? I think the definition applies differently to different
Speaker 10: countries and different political systems.
Speaker 11: I mean, you might.
Speaker 10: Argue that, I think people will have different views as
Speaker 10: to what the elite today in the United States is.
Speaker 10: For example, I'd be interested if you have an answer
Speaker 10: for that.
Speaker 7: Tom, what's kind of asking what's an emergency market?
Speaker 2: Right?
Speaker 7: What's the difference between an emerging and a developed market?
Speaker 5: You know what is you know, what is a you know,
Speaker 5: middle income economy versus an advanced economy?
Speaker 7: Right?
Speaker 5: I mean it's what's a wealthy individual resil relative to
Speaker 5: a middle income household? I mean, you know, I guess
Speaker 5: you know, elite. He has many different I guess meanings
Speaker 5: to make different people.
Speaker 10: It's very different. It's very difficult. It's very interesting to
Speaker 10: see that. You know, in the late twenty tens, it
Speaker 10: was expected that the the the elite that expressed important views,
Speaker 10: be it on societal issues or economic issues, would be
Speaker 10: the leaders of large corporations, right, And that's changed quite
Speaker 10: a bit in the past few years.
Speaker 11: It's changed quite a bit, and that elite has become
Speaker 11: less noisy. Let's vocal.
Speaker 2: Can I do an audible into the press conference? I
Speaker 2: still haven't recovered from Harry Kane going from Tottenham to
Speaker 2: Baron Munich.
Speaker 12: But good for him. He's finally won trophies. I mean
Speaker 12: right now in a renegotiation. It's amazing. I mean, tell
Speaker 12: us the response of Munich.
Speaker 2: To the Harry King going there, Well, I'm successfully getting
Speaker 2: it done.
Speaker 10: I'm not a Bayern Munich fan. I'm an Arsenal and
Speaker 10: Burdsad Dortmund fan.
Speaker 11: So that's what we got.
Speaker 10: And we got whooped by Bayern Munich a couple of
Speaker 10: weeks ago. No, but Harry Kane did exactly the right thing.
Speaker 10: I think what would be really interesting if Brian re
Speaker 10: signed him and for how long, because Byan have history
Speaker 10: to basically end contracts in the early thirties of a player. Now,
Speaker 10: it is true that strikers picked the type of striker
Speaker 10: that Harry Kane is having longer careers and certainly longer
Speaker 10: careers than wingers. So let's see, I would if I'd
Speaker 10: have to bet two year contract.
Speaker 2: Okay, this has been I'm so sorry it's too short here,
Speaker 2: but we're waiting for a press conference. We've got to
Speaker 2: get a Lexis in with market reaction.
Speaker 9: And thanks for having.
Speaker 2: So put it on a calendar. We'll get our team.
Speaker 5: I think when you define a lead at somebody who
Speaker 5: graduated from Vandervalt University and played the middle linebacker for
Speaker 5: the high school.
Speaker 7: I mean that would be my definition.
Speaker 4: That would How are they doing in March Man, it's
Speaker 4: not going to be.
Speaker 2: Thank you, Thank you so much, Chairman of the board
Speaker 2: of directors at Vauntable.
Speaker 9: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Courtney Rosenberger Gelman, who joins us from Statiga, she has
Speaker 2: to put up with Dan Clifton. Ow Boy, that alone
Speaker 2: is a heavy lift to say the least. Courtney, do
Speaker 2: we have an oil lobby in Washington.
Speaker 4: We certainly do.
Speaker 13: We have a very strong oil lobby who has been
Speaker 13: in contact with the administration. You know, had of the
Speaker 13: June strikes that we had on Iran, so they have
Speaker 13: been involved throughout this entire process.
Speaker 5: Courtney talked to us a little bit about not just Iran,
Speaker 5: but the impact of Iran and venezuel on President Trump's
Speaker 5: upcoming meeting with Chijinping. I mean, do these two events
Speaker 5: change the calculus at all for the upcoming negotiations between
Speaker 5: the US and China.
Speaker 13: The way that we're thinking about them is it's about leverage.
Speaker 13: So I don't think it's kind of a coincidence that
Speaker 13: the President is saying a four to six week timeframe
Speaker 13: for this event, and March thirty first April first would
Speaker 13: be about four and a half weeks into the US
Speaker 13: and Israeli strikes on Iran, and we do think the
Speaker 13: administration wants to have as much leverage going into those
Speaker 13: talks as possible because what they're trying to do is
Speaker 13: they're trying to show China, you know, we can remove
Speaker 13: your proxies, we can remove your sources of cheap oil,
Speaker 13: so that goes to Venezuela and Iran, and also showing
Speaker 13: we're trying to kind of consolidate Western security. So that
Speaker 13: also goes to some of the rhetoric that we saw
Speaker 13: earlier this year on Greenland as well. This is about
Speaker 13: getting leverage ahead of twenty twenty seven off of concerns
Speaker 13: that China might be more aggressive in their posture when
Speaker 13: they do have the capabilities with Taiwan well Courtney.
Speaker 5: You make a very very interesting point there. That's an
Speaker 5: incentive one might argue for President Trump to make sure
Speaker 5: that the conflicting that Iran actually extends a little bit
Speaker 5: longer than anticipated from hearing you correctly. And look, oil
Speaker 5: supply disruptions have ruined many of president's here, and you know,
Speaker 5: for me, you know, we have midterms coming up, so
Speaker 5: I'm curious to hear your thoughts on which local races,
Speaker 5: which primaries do you think you're going to you know,
Speaker 5: catch your attention here as the focus shifts. But more importantly,
Speaker 5: you know, how do you think the markets are reacting
Speaker 5: to Iran and whether or not they're going to reward
Speaker 5: or penalize the Trump administration.
Speaker 13: Yeah, so I would say, you know, when we're thinking
Speaker 13: about this, certainly there's there's a case for the president
Speaker 13: having as much leverage as possible. But I do think
Speaker 13: that there is that four to six week deadline here.
Speaker 13: Again he wants to have the leverage going into the meeting.
Speaker 13: And there also is, to your point, the lack of
Speaker 13: political capital here. You know, most polls have this underwater,
Speaker 13: including with independence who are key to the midterms. We've
Speaker 13: seen betting market odds for a democratic suite search, you know,
Speaker 13: ten fifteen points. Over the last month, we've also seen
Speaker 13: all our thematic baskets leverage to a democratic administration start
Speaker 13: to search as well. So it does seem like the
Speaker 13: market is increasingly pricing in Democrats off of concerns with
Speaker 13: the president is too concerned with foreign policy, not concerned
Speaker 13: enough of affordability.
Speaker 2: For where you said, and the cacophony of a presidential
Speaker 2: press conference, which is its own piece. Thank you to
Speaker 2: all of our team for companies that Cohen and I
Speaker 2: thought was brilliant today with Nathan Hager. But Courtney, is
Speaker 2: there a cogent energy policy in this nation right now?
Speaker 13: I think that the energy policy is produced as much
Speaker 13: as possible because that is key to national security. It
Speaker 13: is not just a US energy policy. I think we're
Speaker 13: increasingly going to hear about a US MCA energy policy.
Speaker 13: So USMCA is up for review in July. We anticipate
Speaker 13: that Mexican energy reforms, which have not been implemented to
Speaker 13: either the US or Canada's standards, are already key to
Speaker 13: these negotiations.
Speaker 2: Okay, this is a core question, Daman. We're going right
Speaker 2: back to the University of Kentucky with Courtney Rosenberg and
Speaker 2: Courtney just as simple as I can. Why is the
Speaker 2: price of oil in tex U sort of kind of
Speaker 2: like the same as the price of oil and Abu
Speaker 2: Dhabi discuss oil is one price?
Speaker 13: Yeah, I mean there's been a decent kind of gap
Speaker 13: between WTI and Brent, which I do think is notable.
Speaker 13: But I think that that goes towards the administration's argument
Speaker 13: of energy security, where the US is less exposed and
Speaker 13: less susceptible because we produce so much. Certainly we are
Speaker 13: kind of at the mercy of the global prices, but
Speaker 13: the US is best positioned, in our view, out of
Speaker 13: many of these other countries relying on energy imports.
Speaker 2: Courtney, thank you, thank you, thank you. Thrilled to have
Speaker 2: you with us today. With Jason Trennard. It's Strtiguous Research Partners,
Speaker 2: Courtney Rosenberger, Gellman.
Speaker 9: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern on Applecarplay
Speaker 1: and Android Auto with the Bloomberg Business app, or watch
Speaker 1: us live on YouTube shouldn't care.
Speaker 2: And of course the physicists from Voden always and forever.
Speaker 2: My basic take is the bond market is Damien alluded
Speaker 2: to really is taking war? Well?
Speaker 4: Is that a good summary?
Speaker 14: It is from a spread perspective, right, But the issue
Speaker 14: that I have here is that there's a high correlation
Speaker 14: between bonds and equities at this point, meaning that bond
Speaker 14: prices are going down, equity prices are going down. So
Speaker 14: there's a high correlation market, meaning that typically whenever equities
Speaker 14: take a hit like what we're seeing with the shock
Speaker 14: with oil, typically bonds are there for a reasonable hedge.
Speaker 14: So this high correlation that we have today with bond
Speaker 14: prices going down, yields going up right, and equity prices
Speaker 14: going down, means that people don't really have a very
Speaker 14: effective hedge. So what they end up doing is they
Speaker 14: try to move towards cash. So the question then becomes
Speaker 14: is liquidity okay in the market? Liquidity's okay in the market,
Speaker 14: we can trans I mean, people can move cash around.
Speaker 14: And then the third is contagion, So we're not seeing
Speaker 14: widespread default risks and contagion really rippling through the markets
Speaker 14: at this point. So far, this is being viewed as
Speaker 14: an inflation shock. It's not yet turning into a growth scare.
Speaker 14: That's the tipping point that we have to watch.
Speaker 2: I'm going to get the breaking news out of the way.
Speaker 2: Amazon's going to call up Morgan Stanley trying to move
Speaker 2: thirty seven to forty two billion dollars of paper. Maybe
Speaker 2: it's outside your remit, but maybe it's not your thoughts
Speaker 2: on another big tech with a big bond deal.
Speaker 14: Look, this has been an ongoing trend, right you know,
Speaker 14: We've seen a lot of the big technology companies coming
Speaker 14: to the markets. There's a lot of funding for CAPEX.
Speaker 14: We see this broadly as a very big CAPEC cycle.
Speaker 14: This is something that we were talking about last year.
Speaker 14: The last time we saw a CAPEC cycle like this
Speaker 14: was the nineteen nineties. Typically, when you get this type
Speaker 14: of investment from a CAPEX led growth cycle, you tend
Speaker 14: to get higher productivity. That's exactly what we're seeing right now.
Speaker 14: That should raise higher real term growth and should high
Speaker 14: and should raise potential growth. So I think this is
Speaker 14: part of the cycle where investments are being made, and
Speaker 14: I think that these investments are going to pay off
Speaker 14: and the outcome of this is going to be from
Speaker 14: higher productivity.
Speaker 5: Well, Jimmy, you call this an inflation shock, and I
Speaker 5: got to just think back to the pandemic. I mean,
Speaker 5: I got to believe central banks and governments and officials
Speaker 5: have learned a lot from that experience, you know, and
Speaker 5: I think you know you mentioned in some of your
Speaker 5: work standing RePOP facilities and FX swap lines and all
Speaker 5: the tools that are available to central banks to help
Speaker 5: protect against you know, what is effectively of our shock.
Speaker 7: My question is can it still happen? And what are
Speaker 7: you looking at?
Speaker 5: What indicators, what signals would you be most focused on
Speaker 5: to sort of give you a little bit of advance
Speaker 5: notice that things are getting really bad up?
Speaker 4: Yeah, no, And it's a really good point.
Speaker 14: I mean, look, central banks are well prepared with FX
Speaker 14: swap lines and repo facilities, you know, to handle a
Speaker 14: lot of liquidity shocks that they weren't in the past.
Speaker 14: So what I'm going to look at first and foremost
Speaker 14: is is rebel markets. If markets are functionally well functioning, well,
Speaker 14: that's really the primary source of leverage. That means leverage
Speaker 14: markets are going to be okay. I would look at
Speaker 14: people have whenever there's a shock in the markets. There's
Speaker 14: always demand for dollars because a lot of debt, particularly
Speaker 14: in emerging markets, is dollar based debt, meaning that people
Speaker 14: need those dollars to pay off their debt. So therefore
Speaker 14: they tend to conserve dollars or buy dollars in advance.
Speaker 14: So typically you get stronger dollar and then sometimes I
Speaker 14: could create a shortage or a squeeze in the dollar markets.
Speaker 14: We're not seeing that right now. This is good news.
Speaker 14: I want to highlight some things that are good news.
Speaker 14: Right We're not seeing these liquidity shocks.
Speaker 2: News on the show.
Speaker 7: You know, we need it sometimes.
Speaker 2: Jim Karen with good news continue.
Speaker 14: So so the liquidity shock is not happening, The broad
Speaker 14: widespread contagion across markets being making this a systemic event
Speaker 14: is not happening. But the correlation shock is happening. And
Speaker 14: that's really a debate on the inflation metrics right now
Speaker 14: that you know, I guess we'll find out more tomorrow,
Speaker 14: but you know, with CPI, but that's going to be
Speaker 14: the issue.
Speaker 7: Well, Jim, talk to us a lot a little bit.
Speaker 5: You had mentioned previously about the correlation and being stocks
Speaker 5: and bonds prices up, you know, I mean, sorry, prices up,
Speaker 5: prices down, and they go together. It doesn't matter. So
Speaker 5: how do you build balanced into portfolios? And what assets
Speaker 5: what seaf haven assets I guess are most attractive to
Speaker 5: you in this environment. And by the way, we all
Speaker 5: know what a few of them are. We're talking about gold,
Speaker 5: the Swiss frank but they're expensive. So you know, how
Speaker 5: do smart investors' institutions really look to diversify in this environment?
Speaker 14: Yeah, so you said the magic word diversification, right, So
Speaker 14: a lot of the things that we're putting together in portfolios,
Speaker 14: and the way that we went into this is we
Speaker 14: had defense sector related assets invested in. So from the
Speaker 14: equity markets, we tend to invest in baskets of equities
Speaker 14: that will look at AI defense. Even some of the
Speaker 14: financials have actually actually been pretty have actually been pretty attractive.
Speaker 14: The broad broadening of the markets of cyclicals, small caps,
Speaker 14: mid caps that had been doing well recently taking a
Speaker 14: little bit of a shock, But we think it's a
Speaker 14: buying opportunity.
Speaker 4: That's the way that you do it.
Speaker 14: You don't really think about it as owning bonds versus stocks.
Speaker 14: You really think about it as diversifying your portfolio into
Speaker 14: high quality into defensives and in income related assets.
Speaker 2: Jim Karen with Morgan Stanley, and we continue all sorts
Speaker 2: of good people coming up. I believe that your Denny
Speaker 2: scheduled here on the equity markets. You mentioned tomorrow's report. Folks,
Speaker 2: it's not Jobs Day, it's not the Fed. But between
Speaker 2: three eleven and three thirteen we get a mountain of data.
Speaker 2: Is the guestimate bouncing your economics off the skills of
Speaker 2: Jim Karen, and that we have a new entrenched inflation.
Speaker 14: So inflation is going to be higher than what we
Speaker 14: thought maybe two weeks ago.
Speaker 2: Right.
Speaker 14: So when I look at the oil markets, and oil
Speaker 14: is going to be a big factor into this whole thing,
Speaker 14: I don't think that we're going to go back to
Speaker 14: the low prices in oil this year. There has been
Speaker 14: some demand destruction and it's going to take a while
Speaker 14: to get that back, and I think that's going to
Speaker 14: be all of twenty twenty six. It doesn't mean that
Speaker 14: oil stays up at these levels or near one hundred dollars.
Speaker 14: It just means that they can come down, but they
Speaker 14: might not go back down.
Speaker 2: But I want to give this this is too important.
Speaker 2: If we have this and if we have stagflation, just
Speaker 2: as one phrase, does the stag save the yield? I mean,
Speaker 2: does the stag push against the inflation?
Speaker 14: Okay, so the stagflation would be very interesting. Yes, it
Speaker 14: could lower yields, but it could also widen spreads, so
Speaker 14: that might not necessarily be so friendly for credit markets.
Speaker 2: See that's celtech physics. Well, I mean, you know only
Speaker 2: Karen can do that.
Speaker 5: Oh, Jim, I just got to ask you before before
Speaker 5: we run. I mean, like, credit spreads haven't barely they're
Speaker 5: not moving, right, I mean they haven't really you know,
Speaker 5: reflected fundamentals for the better part of forever. You know,
Speaker 5: what do you think it would take to get spreads
Speaker 5: to move? And do you think there is gap risk
Speaker 5: here to the market of them moving from sad I
Speaker 5: don't know, eighty BIPs to like one fifty overnight or something.
Speaker 7: I mean, what are your thoughts here?
Speaker 14: Yeah, so I think it would take actually a pretty
Speaker 14: large inflation shock. So that would be effectively oil prices
Speaker 14: staying at one hundred or above for an extended period
Speaker 14: of time. I think that's when you're going to start
Speaker 14: to see some real demand struction. You're going to start
Speaker 14: to move into that stagflationary environment, and that's valuation killer,
Speaker 14: and that's really where people start to talk about defaults
Speaker 14: and demand destruction, and that's when you get wider spreads,
Speaker 14: and that can actually hurt the markets.
Speaker 2: Jim, thank you so much for coming in. Really really
Speaker 2: appreciate it. Jim Carron, I kind of get mortgage Stanley.
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