Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always, on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Here's the view on
Speaker 2: Wall Street stocks falling crew jumping above one hundred dollars
Speaker 2: a barrow for the first time since twenty two. Sarah
Speaker 2: Hunt of Valpine saxon words, writing, the positives that investors
Speaker 2: we're looking for are hard to hang one's hat on
Speaker 2: given the oil price Serge. Sarah joins us now for more. Sarah,
Speaker 2: good mornig, Good morning. What changed with triple digit crud
Speaker 2: for you?
Speaker 3: I think it changes a lot of things. I think
Speaker 3: it's really, as we've all spoken about many times, it's
Speaker 3: going to depend on how long this lasts. Curve does
Speaker 3: not seem to think that this is a permanent state,
Speaker 3: and I think that what it changes is one the
Speaker 3: possibility of an economic slowdown or even going into RECESSI
Speaker 3: because higher energy prices can often cause that kind of
Speaker 3: an economic shock, and what happens on the earnings front,
Speaker 3: both to margins and to spending into everything else. Right now,
Speaker 3: this is a near term problem. If it looks like
Speaker 3: it's going longer, it's going to change some of the
Speaker 3: mouth that everyone's been looking for for the next couple
Speaker 3: of years in terms of earnings.
Speaker 2: Consumer facing names get and beaten up airlines, cruise lines,
Speaker 2: or get an absolutely hammered as crew continues to tick out.
Speaker 2: We have the point of demand destruction.
Speaker 4: Now.
Speaker 3: I think it's a little early for demand destruction. I
Speaker 3: think that there's some obvious things that are going to
Speaker 3: happen as you see prices move very higher in the
Speaker 3: short term, but I think from a longer term perspective,
Speaker 3: it takes longer than a couple of weeks of higher prices.
Speaker 3: Do we get a couple of months of higher prices,
Speaker 3: that's definitely going to hurt it. And they're on the margins.
Speaker 3: People are going to travel less, people are worried about
Speaker 3: traveling to begin with, just because there's something going on
Speaker 3: in a big part of the world that's really important.
Speaker 3: So I think you're definitely going to see some pullback
Speaker 3: in activity, and that is in and of itself slowing
Speaker 3: things down.
Speaker 5: Sarah, have you been reluctant to sell stocks any stocks
Speaker 5: in response to this, given the fact that in the
Speaker 5: past geopolitics is something that has always been a short
Speaker 5: term event for markets.
Speaker 3: I think this is yes, I would say, I wouldn't
Speaker 3: say I'm afraid to sell anything, But it's more that
Speaker 3: is this something that is really a permanent change? And
Speaker 3: what's your time horizon if I needed you know, I
Speaker 3: tell people all the time, if you need money in
Speaker 3: the very short term, you should have it liquid. If
Speaker 3: you're in there for the long term, you're going to
Speaker 3: see a lot of volatility. We knew coming into this
Speaker 3: year it was going to be volatile. We didn't know
Speaker 3: why and how volatile it would be so quickly. But
Speaker 3: you expect after a couple of years, especially if such
Speaker 3: strong equity performance, that you'll see more volatility. The question
Speaker 3: is really going to be whether or not this sticks,
Speaker 3: or whether or not this is something that markets continue
Speaker 3: to see through and look through and I think that
Speaker 3: there are other things going on in the background that
Speaker 3: are also potentially problematic. So it's going to be interesting
Speaker 3: to see how that plays out, and not interesting in
Speaker 3: a good way.
Speaker 5: Yeah, we see, of course what's going on with private credit.
Speaker 5: We see cracks in the US economy. I'm just wondering,
Speaker 5: is there an inflection point, something that you're looking for
Speaker 5: that would change your view, that would make you materially
Speaker 5: shift your longer term outlook for twenty twenty six.
Speaker 3: I think if this continues to go on without figuring
Speaker 3: out what the off ramps are, I think that you know,
Speaker 3: it was a good move to say that we'll globally
Speaker 3: the G seven will release some energy because prices spikes
Speaker 3: so high, that's not going to solve the problem. The
Speaker 3: problem needs to be solved by having some resolution and
Speaker 3: having tankers be able to get through the straight up
Speaker 3: home moves. Until we see some path for that, I
Speaker 3: think you're going to start to see people get more
Speaker 3: and more worried about those longer term both earnings estimates
Speaker 3: and just general economic conditions and the market. Right now,
Speaker 3: it's still we're still in early days. If that really extends,
Speaker 3: I think that's really going to be the tipping point.
Speaker 2: Some of that depends on what your starting point is,
Speaker 2: what your assessment of current conditions actually is, and we've
Speaker 2: got very different views on that. Some people think we're okay.
Speaker 2: In fact, the Federal Reserve, the top of the Federal
Speaker 2: Reserve chair and power would it says that things are stable,
Speaker 2: they're okay. Others would say things at front out, what'd
Speaker 2: you come down on that one of the other.
Speaker 3: I think that they are a little bit more fragile
Speaker 3: than I look. I think that you've seen some disruptions
Speaker 3: in the labor market. You certainly hear a lot of
Speaker 3: rumblings in the labor market about what's going to happen
Speaker 3: because of ai different sectors. There's a lot of spending
Speaker 3: that's coming out of that, though, so there are offsets
Speaker 3: to that. I think generally speaking, absent this shock, the
Speaker 3: economy was doing fairly well. There were definite pockets of weakness,
Speaker 3: and you could see that in rotation in sectors in
Speaker 3: the market. You could see major rotation sectors. The headline
Speaker 3: industries are still fairly close to all time his, but
Speaker 3: there's been some major devastation in different sectors along the way.
Speaker 3: This is going to be one of those situations where
Speaker 3: depending on how long it lasts, and this is you know,
Speaker 3: just going to keep saying that we don't know yet
Speaker 3: what's going to happen. But on the margin, nothing good
Speaker 3: comes out of spiking oil prices this high and shutting.
Speaker 2: In oil and for well, let's pick a sector, financials.
Speaker 2: Lisa talked about private credit, Blackstone, then black Rock going
Speaker 2: into the weekend with a bit of trumble there. Then
Speaker 2: we've seen Morkan, Stanley and Goldman Sachs start to want
Speaker 2: to perform as well. This is going through the whole
Speaker 2: sector now, and not just the private market players. What
Speaker 2: do you think that's Siglink.
Speaker 3: I think that's signaling some concern about weakness ahead and
Speaker 3: some concern about what are if you're going to have
Speaker 3: potential issues in both equity and bond markets, but you
Speaker 3: also have this private credit thing. Is this would be
Speaker 3: the top of the story if we weren't going on this,
Speaker 3: this would be the absolute top story. I think if
Speaker 3: we weren't going through what we're going through right now
Speaker 3: with I Ran because this is one of those it
Speaker 3: started out small and now you're seeing a couple of
Speaker 3: other things and then a couple of other things, and
Speaker 3: that's the kind of things that market don't like. It's
Speaker 3: that uncertainty that markets don't like and investors don't like
Speaker 3: when everyone has been sort of trying to reassure everyone
Speaker 3: that it's all okay, and then you start to see
Speaker 3: things that make it look a little less okay. So
Speaker 3: I think that would be a much bigger headline if
Speaker 3: we weren't in the middle of this, and that would
Speaker 3: be something that would be starting to worry markets going forward.
Speaker 5: Yeah, the idea that panic and sort of retail investors
Speaker 5: trying to pull their money and not getting it all
Speaker 5: back is very concerning to people. Can you put these
Speaker 5: two stories together off the oil price shock and credit
Speaker 5: concerns tied to private credit. The idea that some kind
Speaker 5: of increase in oil and decrease in consumer spending power
Speaker 5: could catalyze the fears that people see in credit soon
Speaker 5: arthan maybe otherwise would take place.
Speaker 3: Well, it's interesting because I think those fears were catalyzing
Speaker 3: on the back of expectations of problems in certain sectors,
Speaker 3: like the software sector specifically, But whether or not the
Speaker 3: reality on the ground is that they were as bad
Speaker 3: as it looked I think the problem is more that
Speaker 3: everybody makes a decision in one direction. I don't know
Speaker 3: that the higher oil presses are going to make that worse,
Speaker 3: because I don't think that the credits that people are
Speaker 3: worried about are ones that are so tied to the consumer,
Speaker 3: and I think that would be the link that I'm
Speaker 3: not sure we see yet, but it doesn't mean that
Speaker 3: it isn't there, and certainly people are going to start
Speaker 3: looking for that.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Janette laws Statigue's right to the following. President Trump can
Speaker 2: pull out of Iran in three weeks and gas prices
Speaker 2: will go back to normal. The risk is if the
Speaker 2: conflict lar Slonka Jeanette joined just now for more Jeanette,
Speaker 2: that statement begs the question if the president, if this
Speaker 2: is still in the President's hands, and if Iran wants
Speaker 2: to make this messy, they can make this messy for
Speaker 2: quite a while.
Speaker 4: Absolutely, I mean this could definitely be their risk here
Speaker 4: for the United States is obviously that this becomes a
Speaker 4: much more protracted war, or it also creates civil war
Speaker 4: and just chaos within Iran and then within the larger
Speaker 4: Middle East. Region. So there are definitely a lot of
Speaker 4: risks to the administration here, but I do think that
Speaker 4: the administration is really focused on this four to five
Speaker 4: week timeline. Do you think that they think that they
Speaker 4: have a plan to accelerate attacks on Iran to try
Speaker 4: to get to their specific goals, which is getting rid
Speaker 4: of the weapons that could be targeted at the United
Speaker 4: States and Israel, getting annihilating the army of I'm sorry,
Speaker 4: the Navy of Iran, and trying to then also prevent
Speaker 4: them from going after ships in the Strait of Hormuz,
Speaker 4: and also maybe potentially trying to get some sort of
Speaker 4: regime change or at least governance changes going forward. So
Speaker 4: do you think there's obviously some risks, but the administration
Speaker 4: probably is looking at this still being a four to
Speaker 4: five week timeline. We'll obviously see if that changes, and
Speaker 4: then what does this look like they have so that
Speaker 4: there is a surge coming that they will increase their
Speaker 4: attacks on Iran. So we'll kind of have to see
Speaker 4: over the next week to see how does this play
Speaker 4: out and then how does that change the timeline going forward?
Speaker 5: Janette, are there any independent assessments of where the administration
Speaker 5: is on achieving main principles of that timeline, in particular
Speaker 5: wiping out weapons that could attack US and allies, as
Speaker 5: well as potentially regime change at a time where we
Speaker 5: now have a new supreme leader that President Trump has
Speaker 5: already said is unacceptable to him.
Speaker 4: Yeah, I mean, I think obviously the regime change is
Speaker 4: going to be the biggest challenge for the United States
Speaker 4: and Israel. And I think you have seen the United
Speaker 4: States a little bit walk back that exact goal for
Speaker 4: this military operation, but you are kind of seeing the
Speaker 4: fact that they are trying to They were focused on
Speaker 4: getting Iran's air defenses along the coast so they could
Speaker 4: then strike deeper into Iranian territory. They to have achieved
Speaker 4: that goal at least particularly so far, but I think
Speaker 4: the big question is there's a lot of unknowns. We
Speaker 4: don't know if Iran has more missile capacity that they
Speaker 4: are still kind of holding onto, that would be important.
Speaker 4: I think that the United States has been highlighting the
Speaker 4: fact that missile attacks and drone attacks coming from Iran
Speaker 4: have been down seventy or eighty percent, and they do
Speaker 4: think that they are losing firepower, but we don't also
Speaker 4: know what actually might still be there, So there's definitely
Speaker 4: still this risk, but I do think the administration sees
Speaker 4: that they have made some progress with getting out certain
Speaker 4: air defenses, using up some of the supplies that Iran
Speaker 4: has that has been using against the US and its allies,
Speaker 4: and also that they're starting to be able to strike
Speaker 4: further and deeper into Iran. So that is a little
Speaker 4: bit of some progress towards these ultimate goals.
Speaker 5: The US is fighting this war alongside Israel. How aligned
Speaker 5: are these two nations that they are ultimate goals?
Speaker 4: Yeah, I mean, I think there's I think the one
Speaker 4: thing that was important about why potentially we may have
Speaker 4: gone into this is that there was an alignment between
Speaker 4: the two countries on the actual ability to go after Iran,
Speaker 4: and this is a they both I think see this
Speaker 4: as an opportunity to really kind of strike at the
Speaker 4: weapons that Iran had that it was potentially using to
Speaker 4: threaten both of those countries, also trying to go after certain,
Speaker 4: you know, other pieces that the Iran has been trying
Speaker 4: to do with its nuclear program. But obviously we may
Speaker 4: see some disagreements longer term. We saw the disagreement over
Speaker 4: the weekend about the fact that Israel struck oil depots
Speaker 4: in Iran and the US was opposed to that. We
Speaker 4: also may see differences of opinion as to whether or
Speaker 4: not we're actually going to get regime change, or would
Speaker 4: the US be more willing to accept some other outcome
Speaker 4: versus Israel. So I think there could be more fractures
Speaker 4: going forward, but we haven't seen a lot yet. But
Speaker 4: obviously the longer this takes, that could obviously become something
Speaker 4: that becomes a bigger risk.
Speaker 2: How much physipal they say, do we have on what's
Speaker 2: happening inside Iran right now? This is a population of
Speaker 2: ninety million people something like that, with very very complex
Speaker 2: power stress. As anyone who's followed that country for a while,
Speaker 2: we'll understand, Janet, those strikes from Israel are really really
Speaker 2: important because that undermines the domestic support for what is happening.
Speaker 2: And that's been an argument of both Israel and the
Speaker 2: US for quite a while to try and get the
Speaker 2: Iranian people on side to ultimately tople the leadership. There's
Speaker 2: a little sign of that right now. How do those
Speaker 2: strikes help?
Speaker 5: Yeah?
Speaker 4: I think that was one of the main concerns that
Speaker 4: the United States had was that those tacks could actually
Speaker 4: make opposition less willing to go after the regime and
Speaker 4: less willing to kind of a rise up in that way,
Speaker 4: And so that was why the administration was a little
Speaker 4: bit more upset with Israel for going after those attacks,
Speaker 4: because they do want to make sure that there are
Speaker 4: conditions where we're not actually helping to rally the Iranian
Speaker 4: people behind the leadership and feeling like they in particular
Speaker 4: are being attacked rather than the regime and the security
Speaker 4: forces that hold up that regime. So that is definitely
Speaker 4: a risk. Obviously. The other issues that we do have
Speaker 4: these internet blackouts, which doesn't mean we always have a
Speaker 4: full understanding of what is actually happening within Iran, and
Speaker 4: that makes it a little bit more difficult to know
Speaker 4: what could be the ultimate outcome. Obviously, one of the
Speaker 4: big issues here is that we don't necessarily have a
Speaker 4: good understanding of could there be an opposition leader who
Speaker 4: could actually rise up and take over in Iran like
Speaker 4: what you saw in nineteen seventy nine. The fact that
Speaker 4: the Iotola was a particular figure that I think is
Speaker 4: something that is going to be a risk going forward,
Speaker 4: and to see if that ultimate goal can be achieved.
Speaker 2: Stay with us more Bloomberg surveillance coming up. After this
Speaker 2: surging oil prices sending bond you attire across the globe,
Speaker 2: investors raising bet central banks will keep ranks on hold.
Speaker 2: The former Kansas City FED president as the George, writing,
Speaker 2: with oil prices surging over one hundred dollars a barrel,
Speaker 2: inflation is sure to move higher. The Fed will want
Speaker 2: to look through this price pressure, but it will likely
Speaker 2: stay there and for entering radcouts or entertaining redcouts. The
Speaker 2: former Fed president joins us now for more and so
Speaker 2: welcome to the program. Let's just get to that statement
Speaker 2: and your experience too. I always want to lean on
Speaker 2: that you lift the twenty two energy shock. Can you
Speaker 2: frame for our audience the similarities the differences between this
Speaker 2: moment and that one.
Speaker 1: Well, good morning, Jonathan.
Speaker 2: Yeah.
Speaker 1: I think I think the uncertainty that we've talked about
Speaker 1: for some time is one of the characteristics here that
Speaker 1: we have to remember. We have been relying heavily on
Speaker 1: a consumer that has faced significant price shock coming out
Speaker 1: of the pandemic. This is a consumer that has felt
Speaker 1: the impact of the tariffs, and they also have felt
Speaker 1: the uncertainty associated with a job market that has shifted significantly,
Speaker 1: and so when we rely on the consumer, as we
Speaker 1: do here in the US, that becomes a real focal point.
Speaker 1: I think for trying to understand now we have added
Speaker 1: a new shock, this gasoline price at the pump. We
Speaker 1: understand that diesel prices will be affected, which of course
Speaker 1: will feed into the cost of transportation and other things.
Speaker 1: And I think it creates a real point not just
Speaker 1: of uncertainty, but I think heightened risk around consumer spending
Speaker 1: and growth as we look ahead.
Speaker 2: When you were at the Federalserve through the twenty two shock,
Speaker 2: household balance sheets arguably much stronger and the labor market
Speaker 2: was much tighter. Do you think differently about how this
Speaker 2: price shock or the energy market will work its way
Speaker 2: through the economy.
Speaker 1: Yeah, I think you hear a lot about the K
Speaker 1: shaped economy, and I think that will come into the
Speaker 1: four now. We have really been relying on a group
Speaker 1: of consumers that can power through this. But you can
Speaker 1: only stress weaker household balance sheets that have again had
Speaker 1: the benefit of having jobs. That has been really I
Speaker 1: think one of the tailwinds here. But there is a
Speaker 1: breaking point, I think, and so I think the FED
Speaker 1: will have to be particularly focused on thinking about how
Speaker 1: that consumer is going to be positioned today to be
Speaker 1: able to look through this kind of additional price pressure after.
Speaker 5: They could go one or two ways. On one hand,
Speaker 5: you can make an argument for easing policy and to
Speaker 5: try to give lower income consumers a better scenario, a
Speaker 5: better backdrop to meet this price shock. On the other hand,
Speaker 5: you could say the FED has a role to play
Speaker 5: to combat inflation. Which side of the equation do you
Speaker 5: fit on?
Speaker 2: Well?
Speaker 1: The FED has been focusing on the labor market and
Speaker 1: on weakness at I think the risk of inflation even
Speaker 1: before this oil price shock. Now, I think the FED
Speaker 1: and you hear them increasingly talking about the risk of inflation.
Speaker 1: They have allowed it to extend out for a period
Speaker 1: of time. That now puts them in a very very
Speaker 1: difficult position, I think, and understanding how they're going to
Speaker 1: weigh their policy risk, whether they continue to think they
Speaker 1: are as well balanced coming into this March meeting, I
Speaker 1: think is going to be something to listen for here,
Speaker 1: because you are going to have headline inflation for sure,
Speaker 1: We'll be getting more numbers than this week to see that,
Speaker 1: and I think the calculus around keeping those inflation expectations
Speaker 1: in the long run anchored is going to be a
Speaker 1: point worth talking.
Speaker 5: About rates Traders are pricing in rate hikes over at
Speaker 5: the ECB as well as the Bank of England. Do
Speaker 5: you think that as this progresses, if it does continue
Speaker 5: for a longer period of time, that that's going to
Speaker 5: be a scenario that's reflected in how the Federal Reserve
Speaker 5: is being priced.
Speaker 4: Well.
Speaker 1: I think obviously a little bit different for the US
Speaker 1: to think about that in the FED as it contemplates
Speaker 1: its updated dot plots, But I do think it stays
Speaker 1: their hand on being able to suggest that they are
Speaker 1: looking to rate cuts, but maybe in a pause mode.
Speaker 1: I think this kind of environment will really remind them
Speaker 1: that inflation target has to be credible and they have
Speaker 1: to keep focused on that, even if their tools right
Speaker 1: now are in conflict. They are looking at a job
Speaker 1: market that may be stable but has shown signs of weakness,
Speaker 1: while they have been looking at inflation that continues not
Speaker 1: only to be persistent, but as we've been talking about,
Speaker 1: is now going to show some upward pressure.
Speaker 2: Would you describe this lave market as stable?
Speaker 1: You know, I consider it stable in the sense when
Speaker 1: you step back and look at the unemployment rate, which
Speaker 1: is our best gauge. I think of how that labor
Speaker 1: market looks, it does mask what is underneath that surface
Speaker 1: of a lot of moving parts. I think we're beginning
Speaker 1: to see the real impact of some of the immigration
Speaker 1: policy hits here. We're beginning to see the uncertainty, I
Speaker 1: would argue, play out where businesses are happy to hire
Speaker 1: for positions they feel confident about, but they're not going
Speaker 1: to move hard and fast relative to the growth levels
Speaker 1: that we've seen. So I think it's a tentative labor
Speaker 1: market in my view, even though we continue to enjoy
Speaker 1: relatively low and employment br.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
Speaker 2: in markets, economics, angiopolitics. You can watch the show live
Speaker 2: on Bloomberg TV weekday mornings from six am to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app.