WEBVTT - Oil Markets Say Full-Blown War With Iran Is Unlikely 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:20.200 at Bloomberg dot com to get a sense of where 0:00:20.480 --> 0:00:22.959 oil is going to go or could go in a 0:00:22.960 --> 0:00:26.079 world that has heightened political tensions coming out of the 0:00:26.079 --> 0:00:29.159 Mid East. We welcome Dr Ellen Wald. She's president of 0:00:29.200 --> 0:00:32.239 Transversal Consulting. She's also a nonresident Senior Fellow at the 0:00:32.240 --> 0:00:36.000 Atlantic Council's Global Energy Sector and a Bloomberg opinion contributor 0:00:36.200 --> 0:00:39.120 based in Jacksonville. Dr Wall, thanks so much for joining 0:00:39.200 --> 0:00:41.840 us again. Looking at the oil over the last couple 0:00:41.880 --> 0:00:43.960 of days since the news broke out, we certainly saw 0:00:44.000 --> 0:00:45.879 him move up in oil, but perhaps not as much 0:00:45.880 --> 0:00:49.279 as some traders had been thinking, or some observers had 0:00:49.280 --> 0:00:51.800 been thinking. What's the market telling us? Yeah, I think 0:00:51.840 --> 0:00:54.000 that the market is telling us right now is that 0:00:54.680 --> 0:00:58.640 war is a very unlikely possibility and we can see 0:00:58.680 --> 0:01:01.760 that the prices win up after the event happened. We 0:01:01.800 --> 0:01:05.760 saw rise about really less than four percent for Brent. 0:01:06.240 --> 0:01:09.240 Brent was up, and that tells us that markets believed 0:01:09.280 --> 0:01:14.080 that some sort of temporary disruption to oil supplies or 0:01:14.120 --> 0:01:17.800 oil transportation was likely, but that some kind of big 0:01:17.880 --> 0:01:21.920 military conflagration, some kind of of all out war situation 0:01:22.040 --> 0:01:26.559 is really still a very unlikely possibility. Otherwise the market, 0:01:26.920 --> 0:01:28.640 the price of oil would have gone out much more 0:01:28.640 --> 0:01:31.360 and been much more sustained rise. In fact, we've really 0:01:31.400 --> 0:01:35.200 seen prices come back down today. Brent was up about 0:01:35.240 --> 0:01:38.200 a little over seventy much earlier this morning, but it 0:01:38.319 --> 0:01:41.679 since come down quite a bit, as I think people 0:01:41.720 --> 0:01:44.880 realize that there's a lot of rhetoric going back and forth, 0:01:45.120 --> 0:01:49.640 but that really the tensions are really in this in 0:01:49.680 --> 0:01:53.480 this rhetoric, that there's very little military activity. And in fact, 0:01:53.640 --> 0:01:56.280 one of the interesting developments is that we've seen is 0:01:56.320 --> 0:01:59.680 that the Saudis are sending their defense minister, who is 0:01:59.720 --> 0:02:03.760 the brother of Crown Prince Mohammed bin Salman, to the 0:02:03.840 --> 0:02:07.480 United States to try to deescalate uh these tensions. And 0:02:07.560 --> 0:02:09.799 that's one of the reasons is that Saudi Arabia and 0:02:10.000 --> 0:02:13.120 and you A particularly, they don't want to get involved 0:02:13.200 --> 0:02:16.560 in a war because any kind of military action against 0:02:16.600 --> 0:02:19.280 Iran is going to involve have to involve them, and 0:02:19.320 --> 0:02:21.200 they don't want to be part of any even a 0:02:21.200 --> 0:02:25.200 coalition against this, and so really, you know, they like 0:02:25.360 --> 0:02:28.000 to kind of beat the war drone, but when push 0:02:28.040 --> 0:02:30.720 comes to shove, they don't want a war. What about 0:02:30.800 --> 0:02:35.000 Iraq voting to kick US troops out of the nation, 0:02:35.360 --> 0:02:38.960 how could that potentially play into some of what's going on. 0:02:39.800 --> 0:02:42.000 So this is a really interesting development. I think we 0:02:42.040 --> 0:02:45.360 need to look at exactly what did actually happen in 0:02:45.440 --> 0:02:47.920 the Iraqi parliament. One of the important things to remember 0:02:48.040 --> 0:02:50.919 is that this is a temporary government that that Iraq 0:02:51.040 --> 0:02:54.160 as their prime minister, and the government resigned UH several 0:02:54.200 --> 0:02:57.480 weeks ago due to all of the political unrest that 0:02:57.520 --> 0:03:00.800 have been going on there, particularly the fact that that 0:03:00.800 --> 0:03:04.040 that particular government was seen as very much in favor 0:03:04.040 --> 0:03:07.480 of Iran and supporting Iran's influence in the region, and 0:03:07.520 --> 0:03:10.799 there have been massive protests against that. So what we 0:03:10.880 --> 0:03:12.880 what we did see from what I understand, the vote 0:03:12.880 --> 0:03:16.360 by the Rocki Parliament was basically to ask the Iraqi 0:03:16.400 --> 0:03:21.200 government to cancel assistance to the US led anti Asis coalition, 0:03:21.760 --> 0:03:25.160 to expel foreign troops from Iraq, file a complaint about 0:03:25.200 --> 0:03:28.640 the US, and investigate the US bombings, and that this 0:03:28.720 --> 0:03:33.040 isn't a binding um a binding legislation in anyway. It's 0:03:33.040 --> 0:03:36.160 really kind of a resolution. But apparently they really can't 0:03:36.280 --> 0:03:39.920 kick the U s out because the security agreement that 0:03:39.920 --> 0:03:43.120 that the US and Iraq have after the war means 0:03:43.160 --> 0:03:44.760 that they really need to give I think at least 0:03:44.800 --> 0:03:47.720 a year's notice to actually leave. So this is really 0:03:47.760 --> 0:03:51.000 a symbolic way of saying, um, you know, we we 0:03:51.080 --> 0:03:53.520 don't approve of what you did. But keep in mind 0:03:53.560 --> 0:03:58.040 also that um Kurdish element Kurdish members of parliament and 0:03:58.080 --> 0:04:00.360 also Senday members of parliament. I think we're not even 0:04:00.560 --> 0:04:03.240 really present or included in this, So it was really 0:04:03.240 --> 0:04:08.240 a reflection of the elements of parliament who support Iran. Ellen, 0:04:08.280 --> 0:04:10.280 what is the what do you think will happen in 0:04:10.400 --> 0:04:12.120 terms of retaliation? I think that's kind of the next 0:04:12.240 --> 0:04:14.840 up here. People are kind of, you know, sensing when 0:04:15.080 --> 0:04:19.000 will Iran retaliate, how will it retaliate, and maybe how 0:04:19.240 --> 0:04:23.560 this might escalate. What is your best guess at this point. Well, 0:04:23.560 --> 0:04:26.600 that's that's really the big question on everyone's minds is 0:04:26.640 --> 0:04:28.880 what's the response going to be. Are we going to 0:04:28.960 --> 0:04:33.359 see some kind of drone strike like we saw on 0:04:33.960 --> 0:04:36.479 a Ramco facilities. I mean, that was really kind of 0:04:36.480 --> 0:04:39.400 a stunning event that we saw in September, because a 0:04:39.400 --> 0:04:41.880 lot of people didn't believe that Iran had the capability 0:04:42.200 --> 0:04:44.960 to do that, or they know how, or the knowledge 0:04:45.040 --> 0:04:48.840 of the detailed knowledge of a Ramco facility. So it's 0:04:48.839 --> 0:04:51.880 certainly possible that we might see and attempt at something 0:04:51.960 --> 0:04:54.680 like that. There could be a cyber attack. We really 0:04:54.680 --> 0:04:58.599 need to take into consideration what Iran is capable of 0:04:58.760 --> 0:05:01.560 at this point. U clearly closing the Streets of Horror 0:05:01.560 --> 0:05:05.120 moves would be a major deal. Most people do consider 0:05:05.200 --> 0:05:07.680 that or would consider that an act of war. But 0:05:07.760 --> 0:05:11.760 keep in mind that also harms Iran because they also 0:05:11.839 --> 0:05:14.760 rely on the Streets of Horror moves to continue their 0:05:14.760 --> 0:05:17.920 illicit oil trade, so that would also harm their ability 0:05:18.040 --> 0:05:21.479 to make any money off of their oil. One of 0:05:21.520 --> 0:05:24.279 the things I think we need to be really careful about, though, 0:05:24.440 --> 0:05:26.520 is that there's a lot of traffic in the Persian 0:05:26.520 --> 0:05:30.560 Gulf right now, even more and the previous attacks we 0:05:30.600 --> 0:05:34.680 saw on tankers in the region. We're really just confined 0:05:34.760 --> 0:05:37.560 to small tankers carrying crude to a products. But if 0:05:37.600 --> 0:05:40.120 we did see an attack on an actual crude oil tanker, 0:05:40.320 --> 0:05:43.440 that could cause not just an issue militarily, but it 0:05:43.440 --> 0:05:46.440 could also cause an environmental disaster, and those are the 0:05:46.480 --> 0:05:49.440 kinds of things have to be really careful about. Ellen Wald, 0:05:49.680 --> 0:05:51.719 thank you so much for being with us as always 0:05:51.720 --> 0:05:55.240 and sharing your insights. Elean Wald, president of Transversal Consulting 0:05:55.279 --> 0:05:58.200 and a nonresident Senior Fellow at the Atlantic Council's Global 0:05:58.320 --> 0:06:14.120 Energy Center, joining us give us some perspective, Well, the 0:06:14.200 --> 0:06:17.560 rhetoric between the US and Iran is getting increasingly heated, 0:06:17.600 --> 0:06:19.159 but you wouldn't know it if you took a look 0:06:19.240 --> 0:06:22.640 at equities. Actually on the day, the NASDAC has now 0:06:22.760 --> 0:06:28.159 turned marginally positive, up nine tenths of what one tenth 0:06:28.160 --> 0:06:30.919 of a percentage point, and you're seeing the SMP just 0:06:31.000 --> 0:06:35.160 barely negative, which raises a question, how concerning is it 0:06:35.520 --> 0:06:38.600 that traders seem to be completely complacent the idea of 0:06:38.680 --> 0:06:41.440 an escalating conflict and what has been described as a 0:06:41.440 --> 0:06:43.520 tinder box of the Middle East. Joining US now, as 0:06:43.520 --> 0:06:46.000 Phil Orlando, Chief Equity markets stragist and head of Client 0:06:46.040 --> 0:06:50.400 portfolio Management Federated Investors, which oversees more than eighty billion 0:06:50.400 --> 0:06:53.320 dollars in equities and joins us here in our interactive 0:06:53.320 --> 0:06:56.600 broker studio. So, Phil, does that concern you? The complacency? 0:06:56.960 --> 0:07:01.280 So the Dow Jones was down three hundred points or 0:07:01.320 --> 0:07:04.280 so on Friday, so and I think that was appropriate. 0:07:04.360 --> 0:07:08.040 And then waking up this morning the futures at five am, 0:07:08.120 --> 0:07:11.840 we're down another couple hundred points. And I think what's 0:07:11.880 --> 0:07:14.080 happened over the course of the last few hours that 0:07:14.160 --> 0:07:18.680 investors have actually thought through this? What are the Iranians 0:07:18.720 --> 0:07:20.920 gonna do? Are they going to declare war in the 0:07:20.960 --> 0:07:24.320 United States? That would be suicidal? Uh? Do they have 0:07:24.480 --> 0:07:29.280 the ability to have a deleterious impact on the energy market. 0:07:29.880 --> 0:07:32.360 You've got something like twenty or twenty percent of the 0:07:32.400 --> 0:07:36.400 world's crude flows through the straits of hormones. So could 0:07:36.840 --> 0:07:41.400 uh that turn into a problem from us? Absolutely, But 0:07:41.800 --> 0:07:43.440 we're in a very different place than they were in 0:07:43.440 --> 0:07:47.360 the seventies. Uh we were, you know, we we're now 0:07:47.440 --> 0:07:49.520 generating twelve and a half million barrels a day. We're 0:07:49.520 --> 0:07:51.840 the largest oil producer in the world. I've heard this 0:07:51.960 --> 0:07:54.880 argument that basically Iran doesn't have that many tools to 0:07:54.920 --> 0:07:58.000 retaliate against the US. That said, if they were retaliated 0:07:58.040 --> 0:08:00.640 in any form, which seems highly likely given their threats 0:08:00.680 --> 0:08:03.560 and given their past trajectory, what's the risk on the 0:08:03.560 --> 0:08:07.960 opposite side, that President Trump has some sort of massive response, uh, 0:08:08.040 --> 0:08:10.600 to sort of prove a point, and it sort of 0:08:10.680 --> 0:08:13.280 leads leads things. Uh from that, well, it's a fair 0:08:13.320 --> 0:08:16.440 point leads so because he said publicly that that if 0:08:16.480 --> 0:08:20.120 you do something, we're going to have a disproportionate response, 0:08:20.440 --> 0:08:23.720 and could that escalate into you know, a military conflict. 0:08:23.760 --> 0:08:27.600 Absolutely do I think we'll win that sure? But but uh, 0:08:27.920 --> 0:08:31.640 from from an uncertainty standpoint, and I think that's the 0:08:31.680 --> 0:08:34.040 point you're trying to get to, does that create a 0:08:34.080 --> 0:08:37.120 potential air pocket for the market? Could stocks be down, 0:08:37.600 --> 0:08:39.640 you know, four or five percent over the space of 0:08:39.640 --> 0:08:42.040 a couple of weeks? Is this as this you know, 0:08:42.080 --> 0:08:44.360 sort of plays out in the answer that's absolutely yes. 0:08:45.160 --> 0:08:47.560 But but at the end of the day, do we 0:08:47.600 --> 0:08:50.320 think that the United States ends up on top in 0:08:50.320 --> 0:08:52.480 in in this scenario? I think the answer to that 0:08:52.559 --> 0:08:55.200 question is also yes, and I think investors are sort 0:08:55.200 --> 0:08:57.719 of looking through that in terms of what are the 0:08:57.800 --> 0:09:01.640 underlying fundamentals of the market, and you know, could we know, 0:09:01.760 --> 0:09:04.000 you know, could we see a couple of percent down? Look, 0:09:04.040 --> 0:09:07.640 we're up forty percent since Christmas Eve a year ago. 0:09:08.320 --> 0:09:10.840 I mean that's phenomenal. And if we give up five 0:09:10.880 --> 0:09:15.360 percent here, okay, fine, it's probably healthy. It washes out 0:09:15.400 --> 0:09:18.079 some weekends and then we start to work higher again. 0:09:18.160 --> 0:09:20.960 So for you absolutely killed it with your bullish equity 0:09:21.000 --> 0:09:27.040 call in again, market up significant in the calendar year. 0:09:27.559 --> 0:09:30.880 What does the market do for an encore in Well, 0:09:31.280 --> 0:09:34.400 in a word, higher, Uh not, We're not gonna be 0:09:34.480 --> 0:09:37.600 up or percent again. Well, we're sort of in the 0:09:37.600 --> 0:09:39.720 eight to ten percent neighborhood. We think we get up 0:09:39.760 --> 0:09:43.400 to about the thirty five hundred level, which would be 0:09:43.480 --> 0:09:46.160 on a total return basis, about ten percent from where 0:09:46.160 --> 0:09:48.640 we started the year. Uh. We think there will be 0:09:48.679 --> 0:09:53.280 potentially increased volatility and and certainly developments here in the 0:09:53.280 --> 0:09:58.000 Middle East would qualify as as a source of of instability. Uh, 0:09:58.120 --> 0:10:02.520 we've got this election coming up. Uh, that certainly could 0:10:02.520 --> 0:10:05.240 be a problem. Do we do we consummate the China 0:10:05.320 --> 0:10:08.240 deal the way we think we will. We've got a 0:10:08.280 --> 0:10:10.959 positive view on that, but certainly you've got no way 0:10:10.960 --> 0:10:12.520 of knowing if there are going to be any fits 0:10:12.520 --> 0:10:15.280 and starts here. So there's any number of things that, uh, 0:10:15.720 --> 0:10:18.679 could create roadblocks here that could create a little volatility 0:10:18.679 --> 0:10:21.320 in the meantime. When you talk about air pockets lower 0:10:21.480 --> 0:10:24.760 and that things should continue to grind higher despite those 0:10:24.800 --> 0:10:28.000 air pockets, what would you be buying if there is 0:10:28.040 --> 0:10:31.120 some sort of significant decline. Sure, so I'll take a 0:10:31.120 --> 0:10:33.320 look at some of the things we did towards the 0:10:33.400 --> 0:10:36.360 end of the year. Uh, we've gotten more aggressive and 0:10:36.400 --> 0:10:40.840 domestic small cap, We've gotten more domestic aggressive in domestic 0:10:41.000 --> 0:10:44.920 large cap value versus growth, took some profits in growth. 0:10:45.240 --> 0:10:49.160 Value is underperformed growth by something like eleven percentage points 0:10:49.200 --> 0:10:52.720 over the last year. And then emerging markets. Emerging markets 0:10:52.920 --> 0:10:57.240 have underperformed the SMP by basis points in the last year. Uh. 0:10:57.280 --> 0:11:00.320 This China US trade deal, that's gonna be good for China. 0:11:00.520 --> 0:11:02.800 What's going on in the energy market right now with 0:11:02.920 --> 0:11:05.840 higher energy prices, that's gonna be good for both Brazil 0:11:05.920 --> 0:11:08.240 and Russia. Well, I've just mentioned three of the major 0:11:08.280 --> 0:11:11.559 economies that comprise the emerging markets an index that we 0:11:11.679 --> 0:11:14.960 just said is underperformed by basis points over the last year. 0:11:15.200 --> 0:11:17.439 So so if I've got some fresh money to play with, 0:11:17.600 --> 0:11:20.960 domestic small cap, domestic large cap, value, and emerging markets 0:11:20.960 --> 0:11:24.200 are three areas that I've looked at well in filled 0:11:24.240 --> 0:11:26.440 the as I think back in the performance that we 0:11:26.480 --> 0:11:29.160 had in equity markets in twenty nineteen is essentially all 0:11:29.640 --> 0:11:32.040 multiple expansion. We didn't have a whole lot of earnings growth. 0:11:32.640 --> 0:11:35.960 How critical is it that we get the high single digit, 0:11:36.000 --> 0:11:38.079 close to ten percent earnings growth that we're seeing and 0:11:38.160 --> 0:11:40.280 also are expecting the SMP this year. So what what 0:11:40.440 --> 0:11:44.080 happened last year in terms of earnings was not unexpected. 0:11:44.400 --> 0:11:46.760 You think about that, we had about a twenty five 0:11:46.840 --> 0:11:51.199 or thirty percent earnings increase eighteen over seventeen, largely because 0:11:51.200 --> 0:11:54.360 of the fiscal policy changes. Last year should have been 0:11:54.920 --> 0:11:57.640 a year of consolidation. From an earning standpoint, we were 0:11:57.679 --> 0:12:00.800 roped sort of small, single digit. We'll probably end up 0:12:00.840 --> 0:12:03.640 you know, three to five percent something like that. This year, 0:12:03.720 --> 0:12:06.000 we think we're gonna be up you know, maybe eight 0:12:06.000 --> 0:12:09.560 percent something like that. It's not gonna be phenomenal, but 0:12:09.920 --> 0:12:12.600 we're gonna get more multiple expansion. And the reason for 0:12:12.640 --> 0:12:15.760 that is core PC inflation sitting here at one point 0:12:15.800 --> 0:12:18.880 six percent, benchmark ten year treasury yields are below one 0:12:19.040 --> 0:12:23.040 one eight percent. In that kind of an environment, multiple 0:12:23.160 --> 0:12:27.600 should comfortably be at eighteen or nineteen times earnings. So 0:12:27.600 --> 0:12:30.280 so you know, investors did look at and say, well, 0:12:30.840 --> 0:12:33.240 the average multiple in stocks over the last you know, 0:12:33.360 --> 0:12:36.920 fifty seventy hundred years fourteen or fifteen times earnings. We're 0:12:36.960 --> 0:12:40.839 sitting at seventeen times now. Therefore the market's overvalued. That 0:12:40.960 --> 0:12:43.880 argument is flawed, and the reason it's flawed is that 0:12:44.120 --> 0:12:47.360 the market does not trade at some multiple based upon 0:12:47.480 --> 0:12:52.239 what history suggests. It's a function and inverse mathematical relationship 0:12:52.600 --> 0:12:55.400 between where interest rates and inflation are on the one hand, 0:12:55.559 --> 0:12:57.960 and where price earnings ratios are in the other. With 0:12:58.200 --> 0:13:01.760 so with benign interest rate to an inflation we should 0:13:01.800 --> 0:13:04.360 get more multiple expansion over the course of the next year. 0:13:04.559 --> 0:13:06.679 Just real quick, here, what roles the Fed play? How 0:13:06.760 --> 0:13:10.760 much more more juice does the Fed give us equities 0:13:10.800 --> 0:13:13.560 if it cuts rates again? Feds done? Feds on hold, 0:13:13.679 --> 0:13:16.600 We've seen the last of the Fed last year. We 0:13:16.640 --> 0:13:19.560 will not see them change interest rates. In our view, 0:13:19.640 --> 0:13:21.880 for the rest of this year. Upper band of the 0:13:21.880 --> 0:13:25.200 funds rates days at one spot seven five. Okay, but 0:13:25.320 --> 0:13:26.800 you don't think that it's gonna Do you think that 0:13:26.880 --> 0:13:29.360 if they were to cut rates that would help stocks, Well, 0:13:29.920 --> 0:13:32.520 it would. I don't know what the justification for that 0:13:32.559 --> 0:13:35.400 would be, because we do expect that there will be 0:13:35.440 --> 0:13:39.040 a re acceleration of both economic growth and corporate earnings 0:13:39.080 --> 0:13:41.240 growth in the back half of the year. The first 0:13:41.320 --> 0:13:43.440 quarter is going to be a problem, alright, Just just 0:13:43.480 --> 0:13:46.880 to be clear that the whole Boeing shutdown situation is 0:13:46.880 --> 0:13:49.960 going to have a derivative impact throughout the economy. Normal 0:13:50.080 --> 0:13:53.040 first quarter seasonal stuff. We've got some you know, some 0:13:53.120 --> 0:13:55.920 lagging stuff going with China trade. But as we get 0:13:56.000 --> 0:13:58.000 through that, as we get to the middle of the year, 0:13:58.360 --> 0:14:01.079 in our view, we're gonna start to see economic growth 0:14:01.080 --> 0:14:03.839 in corporate during this growth start to accelerate. Philorlando, thank 0:14:03.840 --> 0:14:06.200 you so much for joining us. Really appreciate you being 0:14:06.280 --> 0:14:09.520 in our Bloomberg Interactive Broker studio. Phil Orlando, chief equity 0:14:09.559 --> 0:14:13.600 market strategist and head of Client portfolio Management at Federated Investors. 0:14:30.080 --> 0:14:35.080 You know, after increasing SMP five, investors are looking for 0:14:35.160 --> 0:14:38.400 some places that might offer some better risk reward opportunity. 0:14:38.440 --> 0:14:41.960 One of those areas has been emerging markets. We want 0:14:42.000 --> 0:14:43.760 to talk emerging markets. We talked to our good friend 0:14:43.840 --> 0:14:46.960 Eric Fine, portfolio manager for Emerging markets fixed income and 0:14:47.160 --> 0:14:50.120 Van Eck, a Global based here in New York City. 0:14:50.400 --> 0:14:52.720 Eric joins us here in our Bloomberg Interactive Broker studio. 0:14:52.800 --> 0:14:55.440 So before we just get to a broad kind of 0:14:55.560 --> 0:14:59.400 emerging markets view, as we head into what does the 0:14:59.480 --> 0:15:02.400 last seven two hours in terms of geopolitical risk coming 0:15:02.400 --> 0:15:05.320 out of the Mid East, how does that factor into 0:15:05.320 --> 0:15:07.960 your modeling, your calculus as you just think about, you know, 0:15:08.240 --> 0:15:11.720 emerging markets. Sure with Hi, Paul High, Lisa having near 0:15:11.880 --> 0:15:15.360 thanks so so the UH, I'd say the first thing 0:15:15.400 --> 0:15:17.960 is there are a lot of emerging market countries and 0:15:18.040 --> 0:15:20.400 companies in the region that issue, and that's where I'm 0:15:20.440 --> 0:15:23.200 more comfortable saying that there could be an impact UM. 0:15:23.360 --> 0:15:27.200 And I would say that the countries that are UH 0:15:27.320 --> 0:15:31.640 the most subject to this are Iraq Um, which is 0:15:31.720 --> 0:15:33.800 now being threatened by sanctions. The bonds are down and 0:15:33.840 --> 0:15:37.440 maybe another two points today and yields aren't that high there, right, 0:15:37.480 --> 0:15:40.160 That's the thing for a lot of these UM for 0:15:40.200 --> 0:15:42.760 a lot of countries that are ultimately dependent on some 0:15:42.840 --> 0:15:46.480 bottom up development that can change quickly. Um um. You 0:15:46.640 --> 0:15:50.520 often see the last price before the event as being 0:15:50.560 --> 0:15:53.440 a generic price for risk in a low yield world. 0:15:53.720 --> 0:15:56.160 Oh it's this rating, it's got this yield that yields 0:15:56.200 --> 0:15:58.240 a little too high and own it not Oh, it's 0:15:58.240 --> 0:16:00.400 got this bottom up specific fund im And also I 0:16:00.400 --> 0:16:04.120 think sanctions risking Iraq um uh does is a real 0:16:04.160 --> 0:16:07.360 issue and uh this really started with Iraq war and 0:16:07.360 --> 0:16:09.960 and the sort of opening that that creates to Iran. 0:16:10.040 --> 0:16:12.040 Let me put it that way. The natural um I'd 0:16:12.040 --> 0:16:14.840 say Saudi is is another country that could be affected 0:16:14.880 --> 0:16:17.720 by this, and that it's a regular issuer, and it 0:16:17.760 --> 0:16:23.880 would seem reasonable to me to expect Iran to leverage 0:16:24.600 --> 0:16:28.920 Yemen over over Saudi. That was the pea stalks look 0:16:29.000 --> 0:16:31.640 like to me like they've broken down um and there 0:16:31.680 --> 0:16:34.120 I think the issue is that Saudi's a regular issue 0:16:34.200 --> 0:16:36.960 or they've got big fiscal deficits um and the yields 0:16:37.000 --> 0:16:39.120 are really low. You have three percent yield, so a 0:16:39.160 --> 0:16:42.160 lot of this isn't priced so regionally. I think there's 0:16:42.200 --> 0:16:45.200 some very specific implications that are important and that are 0:16:45.240 --> 0:16:48.280 generally adverse. And I think that the main names names 0:16:48.400 --> 0:16:51.520 national names would be Iraq and uh uh and Saudi 0:16:52.000 --> 0:16:55.600 um um. In terms of anything more broadly, UM, I 0:16:55.640 --> 0:16:58.360 would say it's uh, it's it's a bit of a stretch. 0:16:58.440 --> 0:17:01.000 I think you really have to First, I think one 0:17:01.040 --> 0:17:04.879 should be reluctant to hang an entire portfolio thesis based 0:17:04.920 --> 0:17:06.960 on developments in the Middle East. You know, it's just 0:17:07.040 --> 0:17:11.399 really really trick um and uh um. And second, central 0:17:11.400 --> 0:17:14.480 banks are so activated now UM that it's arguably a 0:17:14.560 --> 0:17:19.000 positive UM. And Third, I caution that this is what happened. 0:17:19.240 --> 0:17:21.479 As dramatic as it is, it is a line cross 0:17:21.840 --> 0:17:25.040 UM is part of of of broader trends that have 0:17:25.119 --> 0:17:30.000 already started. The borders that existed are being rethought UM. 0:17:30.040 --> 0:17:32.879 And this and this didn't just start last week, Okay. 0:17:32.960 --> 0:17:37.600 Arguably positive because it could potentially ignite the central banks 0:17:37.640 --> 0:17:41.320 out there to stimulate further. Is that the idea, UM, 0:17:41.880 --> 0:17:44.920 it's a reminder that to to the extent that central 0:17:44.960 --> 0:17:47.880 banks were getting a little emboldened by growth, or we're 0:17:47.920 --> 0:17:49.439 at risk of it, I think it's a little too 0:17:49.480 --> 0:17:51.720 early to say that they were getting emboldened by by growth, 0:17:51.760 --> 0:17:53.520 but to the extent that that was a scenario or 0:17:53.560 --> 0:17:55.720 a month or two from now, maybe that's put back 0:17:55.760 --> 0:17:57.639 a few more months. I don't think it's a complete 0:17:57.720 --> 0:17:59.720 I don't think you're gonna see statements from central banks 0:18:00.080 --> 0:18:03.600 on this, but it's we will be reminded of Central 0:18:03.640 --> 0:18:06.960 bank forbearance. What are the big conundrums is how much 0:18:07.040 --> 0:18:10.600 further the Federal Reserve than the ECB can can stimulate 0:18:10.800 --> 0:18:13.960 global risk markets? And I have to wonder, you know, 0:18:14.160 --> 0:18:17.800 doesn't at a certain point further rate cuts signal that 0:18:17.880 --> 0:18:20.639 the economy is even worse than people expected, and it 0:18:20.680 --> 0:18:23.119 doesn't really give that much of a boost to uh 0:18:23.280 --> 0:18:26.239 sort of the relative valuations and risk assets. Wow. The 0:18:26.240 --> 0:18:29.480 third question, and we're into this issue of the reversal rate. 0:18:29.480 --> 0:18:32.000 I think it's the hugest question, and it's going to 0:18:32.080 --> 0:18:34.920 be a question we're gonna be asking for years is 0:18:35.160 --> 0:18:39.280 are we at the end? Are we? Is this experiment over? Um? 0:18:39.320 --> 0:18:43.840 I would you know, I call myself a recovering economist, 0:18:43.880 --> 0:18:45.800 so my and I'm going to give a you know 0:18:45.840 --> 0:18:48.560 that kind of economics type of answer, which it depends, right, 0:18:48.600 --> 0:18:52.760 it depends on this which like economists anonymous, there should 0:18:53.200 --> 0:18:55.440 should be after the financial crisis, the global financials where 0:18:55.440 --> 0:18:57.560 there should be like it's any bar in midtown, you know, 0:18:57.880 --> 0:19:01.760 sitting on the end. I think the issue is clearest 0:19:01.840 --> 0:19:04.480 in Europe, where you've seen a very dramatic increase in 0:19:04.520 --> 0:19:07.760 the balance sheet and really no transmission into growth. It's 0:19:07.960 --> 0:19:10.560 mercier in uh in in the U S where you 0:19:10.560 --> 0:19:15.000 can see some success, but um, Europe has a uh. 0:19:15.000 --> 0:19:16.879 Europe is really where I think that that issue is 0:19:16.880 --> 0:19:20.120 coming to the four One way of putting your question 0:19:20.440 --> 0:19:22.880 is or one way of answering your question is, yeah, 0:19:23.000 --> 0:19:25.400 some of the central banks, maybe all of the developed ones, 0:19:25.440 --> 0:19:28.119 but certainly I think Europe's at the forefront of the problems. 0:19:28.240 --> 0:19:33.919 UM uh. They either high rates and uh and bankrupt governments, 0:19:34.040 --> 0:19:39.240 or they cut rates and bankrupt financial systems, which are 0:19:39.280 --> 0:19:42.399 contingent liability of governments. So that's a way of describing 0:19:42.600 --> 0:19:45.520 the condom. If they keep interest rate slow, the financial 0:19:45.600 --> 0:19:49.120 banking pensions is in the financial system, um UM doesn't 0:19:49.280 --> 0:19:53.399 earn enough to remain solvent. Arguably right or that's a 0:19:53.480 --> 0:19:55.960 challenge long term. I'm just a big picture theory theoretical, 0:19:56.000 --> 0:19:59.000 so UM and uh UM. But if rates are raised 0:19:59.080 --> 0:20:02.639 to a level that that the banking system, for example 0:20:02.640 --> 0:20:06.480 in Europe, is probably lobbying for UM. Then government borrowing 0:20:06.480 --> 0:20:10.640 costs become a real issue, particularly for the peripheral, higher 0:20:10.760 --> 0:20:14.080 indebted countries. Now this is very theoretical, not really what 0:20:14.160 --> 0:20:16.200 we do day to day. Any I think it's a 0:20:16.240 --> 0:20:18.640 great question, what are you playing in what's your highest 0:20:18.640 --> 0:20:22.160 conviction idea UM highest conviction ideas. Two groups of ideas. 0:20:22.240 --> 0:20:23.520 One is I think it is going to be a 0:20:23.520 --> 0:20:26.359 bumpy road, part partially because of the reasons Lisa mentioned 0:20:26.840 --> 0:20:29.560 longer term, so maybe you know second, third quarter. And 0:20:29.560 --> 0:20:31.119 one of the problems I have is a lot of 0:20:31.119 --> 0:20:32.720 people think what I'm about to say is it will 0:20:32.720 --> 0:20:34.760 have a good quarter or so and then then it 0:20:34.800 --> 0:20:37.239 will be tricky. But one group of ideas is the 0:20:37.240 --> 0:20:39.560 ones that that we think should last the whole year, 0:20:39.600 --> 0:20:41.199 and they're similar to what we do what we did 0:20:41.280 --> 0:20:43.760 last year. Things where we're waking up in the morning 0:20:43.800 --> 0:20:45.920 and not thinking about these sorts of questions where we're 0:20:45.920 --> 0:20:48.400 not thinking about Middle East developments, we're not thinking about 0:20:48.440 --> 0:20:51.200 oil upper down or rates upper down. So Argentina comes 0:20:51.240 --> 0:20:53.600 to mind. We're waking up in the morning and following Argentina, 0:20:53.680 --> 0:20:56.720 we think there's too much pessimism that government's basically market 0:20:56.760 --> 0:21:00.640 friendly and as and the biggest determined to remind people, 0:21:00.680 --> 0:21:04.240 the biggest determined of present value in a dicing in 0:21:04.320 --> 0:21:08.560 a potential default situation is nonpayment when you're and that's 0:21:08.560 --> 0:21:11.720 when you should be discounting a zero payment at and 0:21:11.760 --> 0:21:13.399 so you're losing a lot of money as long as 0:21:13.400 --> 0:21:16.159 they're staying current, which all indications are they plan on it. 0:21:16.600 --> 0:21:18.320 Um Um. I think that's a very very good situation, 0:21:18.359 --> 0:21:21.560 but again, bottom up, uncorrelated. We're waking up looking doing 0:21:21.560 --> 0:21:26.040 our day job. That's one Uruguay another really interesting local market, 0:21:26.080 --> 0:21:28.160 not big part of the index, but we have significant 0:21:28.160 --> 0:21:31.400 exposure there. You're getting around ten percent yields UM low 0:21:31.400 --> 0:21:34.120 and declining inflation and a new government elected to deal 0:21:34.119 --> 0:21:36.159 with their one problem fiscal But again I'm waking up 0:21:36.160 --> 0:21:38.320