WEBVTT - Bloomberg Surveillance: Tech Slumps and Fed Decision 0:00:05.040 --> 0:00:08.639 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:08.680 --> 0:00:12.040 with Paul Sweeney. Join us each day for insight from 0:00:12.039 --> 0:00:16.200 the best in economics, finance, investment, and international relations. You 0:00:16.239 --> 0:00:19.599 can also watch the show live on YouTube. Visit the 0:00:19.600 --> 0:00:24.360 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:24.360 --> 0:00:27.400 mornings from seven to ten am Eastern from our global 0:00:27.440 --> 0:00:32.080 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:32.440 --> 0:00:36.000 or anywhere else you listen, and always on Bloomberg Radio, 0:00:36.200 --> 0:00:40.040 the Bloomberg Terminal, and the Bloomberg Business App. Paul, I 0:00:40.080 --> 0:00:41.800 want you to bring in dan Ives, but let me 0:00:41.840 --> 0:00:45.960 give you some pre COVID comparisons. Pre COVID one hundred 0:00:45.960 --> 0:00:49.160 and twenty six billion revenue one two six has become 0:00:49.240 --> 0:00:53.840 two four to three. Okay, ebit do down the income statement, 0:00:53.880 --> 0:00:57.360 throwing some balance sheet joy that only Dan Ives understands. 0:00:57.720 --> 0:01:02.279 Fifty six billion pre code COVID. They've done terrible. It's 0:01:02.280 --> 0:01:05.360 one hundred and twenty five billion now fifth that they've 0:01:05.400 --> 0:01:08.399 done on the edge of a double. Yeah, a triple, 0:01:08.440 --> 0:01:10.759 excuse me a triple. And then let me just get 0:01:10.760 --> 0:01:12.880 down to what I care about. I just doesn't care 0:01:12.880 --> 0:01:17.479 about free cash flow free cashlow thirty eight billion. It's 0:01:17.640 --> 0:01:21.319 basically a double pre covid to where we are. This 0:01:21.440 --> 0:01:24.160 company is failing. Why don't you bring in the good 0:01:24.200 --> 0:01:25.760 guy from Wedbush. 0:01:25.200 --> 0:01:28.480 Our good friend Dan, I's Wedbush Securities senior equity analysts. 0:01:28.680 --> 0:01:30.520 So Dan, we got a good look at a couple 0:01:30.560 --> 0:01:32.240 of the. 0:01:31.480 --> 0:01:35.800 Real stalwarts in the tech space last night. Microsoft and Alphabet. 0:01:35.840 --> 0:01:37.679 I know you you don't cover Alphabet, but I know 0:01:37.720 --> 0:01:40.080 you've got some thoughts there. But let's just start with Microsoft. There, 0:01:40.360 --> 0:01:43.520 our good friends in Seattle. It seemed like a solid 0:01:43.600 --> 0:01:46.640 quarter across the board here. I mean, I know the 0:01:46.640 --> 0:01:49.320 stocks reflected that over the last year. What did you 0:01:49.360 --> 0:01:51.920 take away from our good friends at Microsoft. 0:01:52.200 --> 0:01:54.480 I mean, look, I think they should print this press 0:01:54.560 --> 0:01:57.640 release off and conference call and put in the loop. 0:01:58.400 --> 0:02:03.080 I mean, if you look, the cloud numbers here are 0:02:03.120 --> 0:02:05.960 off the charts. Co Pilot. Remember this is all about 0:02:05.960 --> 0:02:10.400 AI co pilot. You have over a million customers now 0:02:10.480 --> 0:02:15.799 from a subscriber perspective. Enterprise are lining up Monzians here. 0:02:16.080 --> 0:02:19.160 This is just the start of the revolution. I think 0:02:19.200 --> 0:02:21.360 this is as bullish as we could have expected. 0:02:21.520 --> 0:02:24.400 Jennives go out three years I was talking with our 0:02:24.400 --> 0:02:27.959 great Joel Lovington this morning about you know the timeline out. 0:02:28.040 --> 0:02:29.680 I want you to be an adult. I don't care 0:02:29.720 --> 0:02:32.079 about the next trading day. I don't even care how 0:02:32.120 --> 0:02:36.520 we get Microsoft to Valentine's Day. Give me twenty twenty six. 0:02:36.880 --> 0:02:38.600 Where is this juggernaut? Then? 0:02:40.000 --> 0:02:42.680 I think it's somewhere between four to five trillion. I mean, 0:02:42.720 --> 0:02:45.240 but Tom muld, you put some numbers around it, please. 0:02:45.400 --> 0:02:49.919 There's an incremental one hundred to one hundred and twenty 0:02:49.960 --> 0:02:55.799 five billion of cloud revenue not reflected in the street numbers. 0:02:55.800 --> 0:02:58.800 If you put that into EPs, I mean you're really 0:02:58.919 --> 0:03:02.520 essentially looking at what could be an incremental three to 0:03:02.600 --> 0:03:06.120 four hours of EPs that's now refucked in the stytum. 0:03:06.639 --> 0:03:08.200 Yeah. While I was on the conference call and I 0:03:08.200 --> 0:03:10.560 said to Satya, I said, don't get rid of Diablo 0:03:10.720 --> 0:03:13.560 for but tell me about Activision because I looked at 0:03:13.560 --> 0:03:16.960 the free cash flow explosion, and everybody's been out of 0:03:17.000 --> 0:03:21.760 shape about the revenue of EC division. I'm looking at 0:03:21.800 --> 0:03:25.320 the profit from day one. It's larger than what we 0:03:25.360 --> 0:03:29.640 would call Windows business. What does profit AC division do 0:03:30.280 --> 0:03:32.800 out two years, three years? 0:03:32.880 --> 0:03:35.920 Well, I think it's really about the cross sell opportunity. 0:03:36.160 --> 0:03:39.200 I mean that that's something that probably could increase another 0:03:39.320 --> 0:03:43.880 twenty twenty five percent for me from profitability perspective, that's 0:03:43.920 --> 0:03:45.440 just going to give them more and more of a 0:03:45.520 --> 0:03:48.320 talent because in the in the scheme of things that's 0:03:48.360 --> 0:03:51.720 around the error, you know, relative to the overall business 0:03:52.120 --> 0:03:55.440 or what they're doing now, they're just broadening out in 0:03:55.480 --> 0:04:00.600 the consumer and on the enterprise, gaining more more strength. 0:04:00.640 --> 0:04:02.960 And you look at the numbers, the numbers are just 0:04:03.520 --> 0:04:04.560 their job jo dropping. 0:04:04.600 --> 0:04:07.920 They're truly folks. From the scope and scale there's to me, 0:04:08.000 --> 0:04:10.880 it's the Rockefeller build up back in the eighteen nineties 0:04:11.080 --> 0:04:14.640 to nineteen twenty Paul linked in up ninety percent. 0:04:14.840 --> 0:04:17.400 It's just amazing. Hey Dan, I know you don't cover 0:04:17.440 --> 0:04:19.960 Alphabet per se, but what do you think You know 0:04:20.160 --> 0:04:24.480 this just AI and chat ept for our friends in Seattle. 0:04:24.920 --> 0:04:28.400 What does that mean for kind of the global search business? 0:04:29.120 --> 0:04:32.280 But I think look, if you look at Alphabet, the advertising, 0:04:32.360 --> 0:04:35.440 even though you know some could sort of split hairs here, 0:04:35.600 --> 0:04:38.360 I think actually really strong. We saw from YouTube and 0:04:38.600 --> 0:04:40.440 a lot of their assets. I think the big thing 0:04:40.520 --> 0:04:43.680 on Alphabet is just what's happened Google Cloud. You look 0:04:43.720 --> 0:04:46.200 at that some of the parts. I mean, they're just 0:04:46.320 --> 0:04:49.159 starting to tapp into that massive opportunity in the cloud. 0:04:49.520 --> 0:04:51.719 And we've talked about all of my colleagues got deviit 0:04:52.160 --> 0:04:56.160 that could add thirty to forty dollars per share to 0:04:56.320 --> 0:04:57.599 the to the Google Store. 0:04:58.600 --> 0:04:58.840 You know. 0:04:58.839 --> 0:05:04.799 I just real little simple here, Apple tomorrow, Amazon tomorrow. 0:05:05.000 --> 0:05:06.599 What do you expect? 0:05:07.480 --> 0:05:10.680 Look New York City, cab drivers, parish on Apple, you know, 0:05:11.000 --> 0:05:13.760 in terms of units and everything. And I think China's 0:05:13.760 --> 0:05:17.080 actually been relatively stable. I think that's gonna be a 0:05:17.120 --> 0:05:20.520 breadth of fresh air from Cooking Cooper Tino on units, 0:05:20.760 --> 0:05:24.200 on services and on Amazon. And the big story is 0:05:24.240 --> 0:05:27.719 gonna be the i'll call it a mini turnaround that 0:05:27.720 --> 0:05:30.920 they're seeing on e commerce as well as cloud. We're 0:05:30.920 --> 0:05:32.719 gonna look at the end of this week and say, 0:05:32.760 --> 0:05:36.560 big text delivering these knee jerk reactions I view as 0:05:36.680 --> 0:05:38.200 kind of table scraps. 0:05:39.720 --> 0:05:41.320 All right, Dan, So, I mean, I think you know 0:05:41.440 --> 0:05:44.240 the big thing for Apple is China. So just give 0:05:44.320 --> 0:05:46.359 us a sense how you think that's going to be 0:05:46.360 --> 0:05:48.080 play out, or how do you think Tim Cook's gonna 0:05:48.080 --> 0:05:49.640 frame that out? Tomorrow night. 0:05:50.360 --> 0:05:52.880 I think he's going to talk about demand has been 0:05:52.960 --> 0:05:58.760 relatively stable. There are some pockets of weakness Huawei competition, 0:05:59.360 --> 0:06:02.719 but overall, the upgrade opportunities in the ESP's look strong 0:06:02.720 --> 0:06:05.880 in the region. I mean it's our view that units 0:06:06.320 --> 0:06:09.520 show growth this year. The streets now bacon in obviously 0:06:09.640 --> 0:06:13.400 five to ten percent decline. So if you start to 0:06:13.440 --> 0:06:16.720 hear that from Cook along with services double digit growth, 0:06:17.240 --> 0:06:19.760 you look, what's happened? Or free cash or he always 0:06:19.760 --> 0:06:22.600 talks about. I mean, you start to now get a 0:06:22.640 --> 0:06:26.960 stock that should be closer to fifty rather than you know. 0:06:28.440 --> 0:06:31.160 I got thirty seconds, dan Ice use of cash? When 0:06:31.160 --> 0:06:33.160 did they get off their butt? Sweeney wants them to 0:06:33.240 --> 0:06:35.600 raise the dividend. He sent a note out there this 0:06:35.680 --> 0:06:38.760 morning to amihood they get a raise, a dividends, sheer, 0:06:38.800 --> 0:06:42.120 buy back bond issuance. When does Microsoft grow up and 0:06:42.200 --> 0:06:43.239 act like a blue chip? 0:06:43.960 --> 0:06:46.960 Yeah, And they talked about that Sweeney activist situation and 0:06:47.360 --> 0:06:50.159 Nate looking and I think that's something. Over the next 0:06:50.200 --> 0:06:53.400 six twelve months, there's gonna be some massive deployment of 0:06:53.520 --> 0:06:56.640 capitol olt kid just given the generating more cash in 0:06:56.760 --> 0:06:57.680 some countries here. 0:06:58.120 --> 0:07:01.360 You know, this just came in rich from the Netherlands 0:07:01.360 --> 0:07:04.479 just emailed it her the middle of the day. That's 0:07:04.520 --> 0:07:06.560 a hell of a man cave on YouTube, folks, you 0:07:06.640 --> 0:07:10.040 got the ives sports man cave. What do you got 0:07:10.040 --> 0:07:11.680 in the paraphernalia behind you there? 0:07:12.520 --> 0:07:14.840 I hope we got our of course. Pete Penn state 0:07:15.040 --> 0:07:18.720 we are giants Island. There's got my bon Jovi stuff. 0:07:18.800 --> 0:07:21.520 You got your banjo? Is it early bon Jovi back 0:07:21.600 --> 0:07:24.640 with the skull t shirts or is it later bon Jovi? 0:07:24.920 --> 0:07:29.800 Suburban review? Okay, when Michael Brower mixed it, that's good Dan, 0:07:29.880 --> 0:07:32.040 I's are on John bon Jovi, Thank you so much. 0:07:32.040 --> 0:07:35.360 Good morning Michael Brower who mixed all those great kids. 0:07:45.200 --> 0:07:47.520 Right now on the FED she won't fly bowing anymore. 0:07:47.600 --> 0:07:52.000 Julia Carnado Jones's micro Paul, I'm kidding micro policy perspectives 0:07:52.000 --> 0:07:55.920 here on FED Day, Julia, I'm gonna posit the same question, 0:07:56.000 --> 0:07:58.240 which I think is the ambiguity of what to do 0:07:58.320 --> 0:08:01.240 with the nominal rate where it is, and that, folks, 0:08:01.280 --> 0:08:04.640 the math here is the yield of picure duration the 0:08:04.680 --> 0:08:09.640 ten year minus a new wicked small inflation, a disinflationary 0:08:09.680 --> 0:08:13.880 statistic which gives you a high real yield. Julie, how 0:08:13.920 --> 0:08:19.160 should the Fed respond to where the nominal the current 0:08:19.320 --> 0:08:20.640 ten year real yield is. 0:08:22.640 --> 0:08:27.080 Well, I think that the FED trade off ahead of them. 0:08:27.240 --> 0:08:31.480 They can not be in a rush. At the same time, 0:08:32.240 --> 0:08:35.720 it's there's no denying now that the inflation trend is 0:08:35.760 --> 0:08:40.520 definitely outpacing their expectations, and a sequence of cuts to 0:08:40.559 --> 0:08:43.680 the nominal rate is the right way to balance risks 0:08:44.760 --> 0:08:47.400 to keep that real yield from tightening. So I think 0:08:47.480 --> 0:08:50.680 the direction of travel is pretty clear, and what we 0:08:50.760 --> 0:08:53.760 will look to hear from j. Powell is some sense 0:08:53.800 --> 0:08:58.440 of strategy and timing and cadence right, and what exactly 0:08:58.440 --> 0:09:00.920 they're looking at to trigger this process? 0:09:01.080 --> 0:09:05.720 Are they slaves to the green span measured? Which I 0:09:05.720 --> 0:09:07.800 think everybody knows so and listening to me for years, 0:09:07.800 --> 0:09:11.080 I totally disagree with my good friend doctor Greenspan on 0:09:11.559 --> 0:09:15.360 But are they just completely slaves to it all costs 0:09:15.520 --> 0:09:16.160 be measured? 0:09:17.720 --> 0:09:20.559 I don't think so. I wouldn't. I would say it's 0:09:20.640 --> 0:09:23.720 it's a little bit more nuanced. They did say that 0:09:23.800 --> 0:09:28.320 they could move methodically, or that's what Governor Waller signaled, 0:09:28.360 --> 0:09:32.840 and we'll see if Chair Powell repeats that word today. 0:09:33.320 --> 0:09:36.720 What is methodical? Well, it sort of suggests they won't 0:09:36.760 --> 0:09:40.000 be moving in you know, fifty or seventy five basis 0:09:40.040 --> 0:09:42.199 point moves, that they will be moving in twenty five 0:09:42.240 --> 0:09:46.040 basis point increments. But I expect a lot less sort 0:09:46.080 --> 0:09:49.440 of rigid forward guidance. That doesn't mean twenty five basis 0:09:49.440 --> 0:09:53.680 points every meeting or you know, every other meeting. It's 0:09:53.720 --> 0:09:56.600 going to be dependent on the data. Could be faster 0:09:56.800 --> 0:09:59.960 or slower, But it does seem like they are ruled 0:10:00.360 --> 0:10:05.000 out chunkier moves in the initial phases of this process. Again, 0:10:05.040 --> 0:10:08.600 as long as the economy cooperates. If we get you know, 0:10:08.840 --> 0:10:14.200 companies laying off workers, certainly that would change the landscape 0:10:14.240 --> 0:10:16.120 and they could move a lot faster. But I think 0:10:16.120 --> 0:10:20.040 in the current environment where the labor market looks pretty healthy, 0:10:20.160 --> 0:10:25.000 a lot cooler but pretty healthy, growth is fine, and 0:10:25.040 --> 0:10:29.560 inflation is cooling quite rapidly, they the intention seems to 0:10:29.600 --> 0:10:33.440 be dare I say, move at a measured pace and. 0:10:33.480 --> 0:10:36.040 Julia, but there's a lot of folks out there, a 0:10:36.040 --> 0:10:39.079 lot of folks that you know, look at real time 0:10:39.160 --> 0:10:42.320 data and say, hey, this FED inflation is already down, 0:10:42.360 --> 0:10:45.959 the economy is slowing. Now is the time? Why wait 0:10:46.120 --> 0:10:49.440 to see the rear view mirror data confirm what we 0:10:49.480 --> 0:10:52.160 already know, which is economy is slowing, inflation is tame. 0:10:52.240 --> 0:10:52.840 Let's go now. 0:10:53.960 --> 0:10:56.720 Yeah, it's a it's a fine balance, you know. Again, 0:10:56.760 --> 0:10:59.640 you're right. We look at g Q four GDP, it's 0:10:59.679 --> 0:11:02.520 quite an impressive but again that's Q four. We're in 0:11:02.600 --> 0:11:05.959 Q one and we're looking towards Q two. What does 0:11:05.960 --> 0:11:09.440 the future hold. I think we've seen surveys showing some 0:11:10.160 --> 0:11:13.240 alarming things on the hiring front. We in our own 0:11:13.360 --> 0:11:18.640 scraping of earnings reports that we do at MPP hearing 0:11:18.679 --> 0:11:21.400 the same thing, that there's not a lot of hiring intentions. 0:11:21.480 --> 0:11:23.640 So we could see a cooling in the labor market 0:11:23.679 --> 0:11:26.600 in coming months. I don't necessarily think it'll show up 0:11:26.840 --> 0:11:30.760 on Friday, because there's some seasonality issues that could boost 0:11:30.760 --> 0:11:33.280 the number. But I do think in coming months we're 0:11:33.280 --> 0:11:36.360 going to see softer job numbers and that could lead 0:11:36.400 --> 0:11:39.560 the FED to go either at a steadier pace. I 0:11:39.600 --> 0:11:41.760 do expect them to move in March. I don't see 0:11:41.800 --> 0:11:44.840 there's a reason holding them back. We expect as long 0:11:44.880 --> 0:11:49.600 as the January inflation data don't repeat the surge that 0:11:49.640 --> 0:11:52.600 we saw last January. If it looks more like the 0:11:52.679 --> 0:11:56.400 last six months, which is very benign. I think that 0:11:56.480 --> 0:11:58.840 they go ahead in March and get this process started. 0:11:58.880 --> 0:12:01.280 I think that's what we've been hearing in feed speak 0:12:01.320 --> 0:12:05.280 when they say risks are balanced, that means, you know, 0:12:06.040 --> 0:12:08.960 it's time to start thinking about the next phase of policy. 0:12:09.400 --> 0:12:11.960 Hey, Juiet, you mentioned kind of the labor market. Obviously 0:12:12.000 --> 0:12:15.360 we'll get a good read on Friday here. I mean, 0:12:15.720 --> 0:12:18.520 I don't know. I mean I took two economics classes 0:12:18.520 --> 0:12:23.040 at Duke. I feel qualified to comment on this. I'm 0:12:23.120 --> 0:12:25.280 just shocked at how strong the labor market has been 0:12:25.280 --> 0:12:28.160 and how resilient the labor market's been. What do you 0:12:28.200 --> 0:12:28.679 make of it? 0:12:29.760 --> 0:12:33.760 Yeah, it's been impressive. It was the main reason we 0:12:33.840 --> 0:12:36.920 did not expect a recession last year. The US labor 0:12:37.000 --> 0:12:41.440 market is so diversified. It's an ocean liner, and we 0:12:41.520 --> 0:12:45.040 came into last year just firing on all cylinders and 0:12:45.280 --> 0:12:48.960 it was hard to see a sharp turned down. It's 0:12:49.040 --> 0:12:51.360 a little bit, I would agree, it is with a 0:12:51.440 --> 0:12:54.680 feed it's more balanced now. Hiring still looks okay, but 0:12:54.800 --> 0:13:00.160 it's slowed considerably since last year. Unemployment is low, but 0:13:00.200 --> 0:13:03.600 it's crept up a little bit, and the base of 0:13:03.720 --> 0:13:06.960 hiring the number of companies hiring, the number of sectors 0:13:07.040 --> 0:13:10.480 hiring has really really narrow. Steve Rattner, it's just three 0:13:10.559 --> 0:13:11.880 sectors driving everything. 0:13:12.040 --> 0:13:14.360 Steve Ratner was out the other days doing a thing. 0:13:14.400 --> 0:13:19.400 On morning Joe saw that Steve's got killer chart, killer 0:13:19.480 --> 0:13:24.200 killer chart, showing how odd the employment growth was. This 0:13:24.360 --> 0:13:29.400 explosion out of a stimulus lead pandemic. Doctor Coronado, who 0:13:29.440 --> 0:13:32.760 benefited in the job market? Was it the haves the 0:13:32.840 --> 0:13:35.559 have nots? Did the middle class lift? 0:13:36.080 --> 0:13:36.320 Yes? 0:13:36.520 --> 0:13:38.840 Yes, I mean I think one of the great things 0:13:38.960 --> 0:13:42.040 we saw from this run it Hot experiment was that 0:13:42.120 --> 0:13:45.640 it did benefit the lower end of the earning spectrum, 0:13:46.160 --> 0:13:49.360 and that's something we haven't seen in decades. But the 0:13:49.480 --> 0:13:53.320 lower income workers. You know, it was Amazon competing with 0:13:53.440 --> 0:13:57.840 Chipotle for you know, entry level, lower wage workers, and 0:13:57.920 --> 0:14:00.560 all of a sudden, those workers could get full time 0:14:00.640 --> 0:14:04.920 jobs with benefits at a decent wage. That was it 0:14:04.960 --> 0:14:08.000 was like a level shift up for the lowest earners. 0:14:08.040 --> 0:14:11.080 Now at the top it's a bit more nuanced. Things 0:14:11.240 --> 0:14:15.120 like work from home allow Actually people are not willing, 0:14:15.520 --> 0:14:19.920 they're willing to take smaller raises for more flexibility, and 0:14:20.000 --> 0:14:23.120 so especially supervisory workers didn't get those raises. 0:14:23.360 --> 0:14:25.520 Julia Coronado, thank you so much for the FED brief. 0:14:26.320 --> 0:14:27.160 Do we have flexibility? 0:14:27.200 --> 0:14:34.240 We have flexibility, Okay, I've waited and waited for this interview. 0:14:35.200 --> 0:14:38.600 Robert T. Kaplan, I've done a number of books with him, 0:14:38.600 --> 0:14:40.360 where they've been my book of the Summer. He did 0:14:40.400 --> 0:14:44.640 a brilliant book on China and all their expansion, if 0:14:44.680 --> 0:14:47.960 you will, off of Marco Polo. His definitive book on 0:14:48.000 --> 0:14:50.320 the South China Sea is a must read for anyone 0:14:50.440 --> 0:14:53.440 in the American military to get an understanding of the 0:14:53.520 --> 0:14:56.680 circuitous nature of the South China Sea. And of course 0:14:56.760 --> 0:15:01.200 the way the United States militaries in the Philippines is 0:15:01.240 --> 0:15:04.440 just one example right now, And with that question, my 0:15:04.520 --> 0:15:06.840 book of the year this year was Robert T. Kaplan 0:15:07.480 --> 0:15:11.120 The Loom of Time. Yes, it's between empire and anarchy 0:15:11.160 --> 0:15:14.200 from the mediterrane to China. Boloney, it's a primer from 0:15:14.400 --> 0:15:17.120 Rocco all over to the stands where you don't know 0:15:17.160 --> 0:15:20.280 they're on the map. Robert T. Kaplan joins us right 0:15:20.320 --> 0:15:25.600 now on international relations. Robert T. Kaplan, if you wrote 0:15:25.640 --> 0:15:29.160 The Loom of Time right now, how would you have 0:15:29.280 --> 0:15:34.080 to rewrite it? Mister Netanya who's actions in Israel. 0:15:35.840 --> 0:15:38.560 First of though, it's a pleasure to be with you, Tom, 0:15:39.040 --> 0:15:41.880 I would not have to rewrite it at all, because 0:15:42.120 --> 0:15:46.240 Israel and Palestine are really not in the loom of time. 0:15:46.640 --> 0:15:48.880 And what I did do in the loom of time 0:15:49.040 --> 0:15:52.760 was I said that ultimately that the Middle East will 0:15:52.880 --> 0:15:58.200 change dramatically with a change of regime any Iran that 0:15:58.240 --> 0:16:02.760 will be driven by intern factors, and that I think 0:16:02.920 --> 0:16:08.320 the events of October seventh, twenty twenty three have, because 0:16:08.360 --> 0:16:12.880 of their very ferocity and beast reality and intimacy, have 0:16:13.120 --> 0:16:19.120 probably changed the Israeli calculation on Iran. That sometime in 0:16:19.200 --> 0:16:23.480 the future we're going to see direct Israeli attacks on Iran, 0:16:23.640 --> 0:16:26.440 not now because they have their hands full with Gaza 0:16:27.560 --> 0:16:32.280 and that Iran. You know that as when Iran changes, 0:16:32.720 --> 0:16:37.200 where eighty five million Iranians are brought into the global economy, 0:16:37.360 --> 0:16:39.840 that's when the Middle East will really shift. 0:16:40.160 --> 0:16:43.840 James Travinas was on yesterday the former Supreme Commander NATO. 0:16:44.080 --> 0:16:48.280 He was fiery, incendiary about that we need to take 0:16:48.400 --> 0:16:51.840 actions against Iran. You're one of our experts on what 0:16:51.840 --> 0:16:55.280 we've gotten right, what we've gotten wrong about the cultural 0:16:55.440 --> 0:16:59.360 Sunni Shia debate the idea that Iran has maybe the 0:16:59.360 --> 0:17:04.320 only legiti middle class in the Pan Arab world. What 0:17:04.520 --> 0:17:09.320 is the Robert Kaplan prescription for how we approach Iran 0:17:09.680 --> 0:17:11.399 after three deaths in Jordan? 0:17:12.680 --> 0:17:16.680 Well, first of all, keep in mind that we had 0:17:16.760 --> 0:17:21.960 the United States and especially Israel have been in an 0:17:22.080 --> 0:17:27.080 undeclared war with Iran for years now, and it really 0:17:27.280 --> 0:17:31.399 ramped up after October seventh, and ramped up another degree 0:17:31.480 --> 0:17:35.520 or two after the three deaths at the US military 0:17:35.560 --> 0:17:40.200 base in northeast northeastern Jordan. I think the way they 0:17:40.240 --> 0:17:44.879 have to approach it is, you know, everyone says, let's 0:17:44.960 --> 0:17:49.120 take out their nuclear facilities or their missile facilities. This 0:17:49.200 --> 0:17:51.880 is easier said than done. A lot of their nuclear 0:17:51.960 --> 0:17:56.080 facilities are deep underground. I don't think the Israelis have 0:17:56.200 --> 0:18:00.480 the equipment, you know, the bunker buster bombs to do it. 0:18:01.000 --> 0:18:05.080 I think what the Biden administration has to do is 0:18:05.280 --> 0:18:12.040 increase by degrees its its retaliation, in other words, not 0:18:12.320 --> 0:18:16.360 tit for tat. And the reason why tit for doesn't 0:18:16.440 --> 0:18:21.320 work anymore is because the Iranian strategy is they will 0:18:21.359 --> 0:18:26.440 have their proxies attack Americans and Israelis, and the Americans 0:18:26.440 --> 0:18:32.280 in Israelis will then attack their proxies without hitting Iran directly. 0:18:32.520 --> 0:18:38.280 Therefore Iran suffers no retribution, and because Iran is afraid 0:18:38.320 --> 0:18:42.520 of a dramatic retribution against them, because that could unhinge 0:18:42.960 --> 0:18:46.960 the domestic situation in Iran, which has been tense for 0:18:47.160 --> 0:18:48.240 years now. 0:18:48.640 --> 0:18:52.560 Robert, is their political will in Washington, in the administration, 0:18:52.680 --> 0:18:57.439 in Congress for such a change. Maybe imposture towards Iran 0:18:57.480 --> 0:18:59.680 on the part of the US, Well. 0:18:59.520 --> 0:19:02.199 There might be in Congress. I'm not sure there is 0:19:02.240 --> 0:19:06.560 in the administration because you know this is very unscientific, 0:19:06.640 --> 0:19:10.840 but this is an election year and a wide ranging 0:19:10.960 --> 0:19:13.959 war in the Middle East may not help the Biden 0:19:14.040 --> 0:19:17.560 administration or probably hurt it. So I think that you know, 0:19:17.600 --> 0:19:21.200 in our system, the commander in chief makes the calls. 0:19:21.680 --> 0:19:25.280 All the powerful experts can give him this advice in that, 0:19:25.600 --> 0:19:28.479 but he has to make the judgment call. And I 0:19:28.520 --> 0:19:33.000 think he's ultimately fixated on getting reelected and doesn't want 0:19:33.000 --> 0:19:36.520 a wide ranging war with Iran. But you know that 0:19:36.880 --> 0:19:39.840 being off the table, they have to really ramp up 0:19:40.359 --> 0:19:45.640 the level and ferocity of the attacks on Iranian proxies 0:19:46.040 --> 0:19:49.040 from Syria and the North to Yemen in the south. 0:19:49.680 --> 0:19:53.119 Robert, what do you think the Israelis will do in 0:19:53.200 --> 0:19:56.720 the coming days weeks as it relates to their efforts 0:19:57.400 --> 0:20:00.959 in Gaza. I mean, the response was stronger, probably than 0:20:00.960 --> 0:20:03.520 maybe a lot of people thought, but it's been certainly 0:20:03.600 --> 0:20:05.560 consistent with what they've said. They said they are going 0:20:05.640 --> 0:20:08.080 to wipe out Hamas, and a lot of people question 0:20:08.119 --> 0:20:09.280 whether that's even possible. 0:20:09.760 --> 0:20:10.640 What do they do from here? 0:20:10.640 --> 0:20:11.040 Do you think? 0:20:11.680 --> 0:20:14.840 All right? Well, the problem the Israelis have is if 0:20:14.880 --> 0:20:19.080 they have a permanent cease fire that allows in massive 0:20:19.240 --> 0:20:24.600 amount massive amounts of rebuilding and humanitarian aid. The way 0:20:24.640 --> 0:20:28.679 that Gaza society is structured is that the remnants of 0:20:28.760 --> 0:20:33.840 Hamas will take that aid and restrengthen themselves. You know, 0:20:34.000 --> 0:20:38.040 humanitarian aid is one thing, but rebuilding aid will be 0:20:38.160 --> 0:20:41.199 stolen by Hamas, and then the Israelis will not be 0:20:41.400 --> 0:20:44.679 back to square one, but they'll be back a number 0:20:44.680 --> 0:20:49.160 of steps. Therefore, I think the Israelis will do everything 0:20:49.640 --> 0:20:53.560 to keep putting off American pressure, saying nice things to 0:20:53.640 --> 0:20:58.600 Secretary of State Anthony Blincoln, but ultimately to keep pressing 0:20:58.640 --> 0:21:01.959 on and fighting. Yes, there might be a cease fire 0:21:02.080 --> 0:21:04.760 for a few weeks to get back maybe one hundred 0:21:04.840 --> 0:21:08.560 hostages because Netagne, who is under a lot of domestic 0:21:08.680 --> 0:21:13.160 pressure to get more hostages released. But in the medium term, 0:21:13.359 --> 0:21:17.280 in a long term, I think they keep bombing, you know. 0:21:17.520 --> 0:21:20.000 You know, though it will shift from these sort of 0:21:20.119 --> 0:21:23.800 you know, I wouldn't call it indiscriminate, but these wide 0:21:23.880 --> 0:21:28.720 ranging attacks on infrastructure and the Gaza stripped and changed 0:21:28.760 --> 0:21:35.400 to intelligence driven, targeted you know attacks. We get intelligence 0:21:35.480 --> 0:21:37.880 that these people are in such and such a building, 0:21:38.040 --> 0:21:41.359 we bomb it. And they will keep doing that, and 0:21:41.400 --> 0:21:45.680 they will keep methodically going after the tunnels, flooding them 0:21:45.720 --> 0:21:49.800 with seawater, et cetera. You know, the media loves novelty, 0:21:50.320 --> 0:21:53.480 and there isn't a lot of novelty after you accept 0:21:53.520 --> 0:21:56.560 that the Israelis are bombing and flooding the tunnels. It's 0:21:56.640 --> 0:22:00.439 just takes time. It takes many weeks. So these so 0:22:00.560 --> 0:22:04.680 the media thinks Israel is not making progress, but that's false. 0:22:05.400 --> 0:22:08.520 Robert Kaplan, folks, he will continue with us. Robert T. Caplin, 0:22:08.560 --> 0:22:11.040 I can't say enough about his effort over the years. 0:22:11.040 --> 0:22:13.359 A Loom of Time was my book of the year. 0:22:13.480 --> 0:22:16.880 I just can't say enough about the span from Morocco 0:22:16.960 --> 0:22:20.639 to the stands Robert Kaplan. I've got to go back 0:22:20.720 --> 0:22:24.879 because of the shock of our military at risk to 0:22:24.960 --> 0:22:28.120 the state of the Pacific, the jewel from years ago, 0:22:28.800 --> 0:22:32.679 Asia's Cauldron, the South China Sea, and the end of 0:22:32.720 --> 0:22:36.920 a stable Pacific. We walked away from the Pacific Rim. 0:22:37.200 --> 0:22:41.200 Now we're coming back with four military bases sprawled across 0:22:41.240 --> 0:22:45.280 the Philippines, the debate of Taiwan. Give us an update 0:22:45.359 --> 0:22:49.359 on how you perceive the end of a stable Pacific. 0:22:50.520 --> 0:22:54.439 All right, First of all, the Chinese love to, you know, 0:22:54.640 --> 0:22:59.199 to constantly bully in push around the Philippines, because the 0:22:59.240 --> 0:23:03.800 Philippines is a weak state compared to the other major 0:23:03.880 --> 0:23:07.480 states in the Pacific. But it is also a treaty ally, 0:23:07.640 --> 0:23:11.000 the highest form of ally with the United States. So 0:23:11.080 --> 0:23:16.000 whenever that China bullies around the Philippines, Beijing is also 0:23:16.240 --> 0:23:20.280 poking Washington in the eye. I think what we've seen 0:23:20.440 --> 0:23:23.399 is the creation of this wall of sand where the 0:23:23.520 --> 0:23:29.400 Chinese have literally dumped sand, created atolls, built military bases 0:23:29.840 --> 0:23:32.560 in a very you know, you know, in a very 0:23:32.600 --> 0:23:38.160 slow moving fashion and salami sliced fashion. So that gradually, 0:23:38.280 --> 0:23:42.520 over the last decade since I've published Asia's cauldron. The 0:23:42.680 --> 0:23:46.560 Chinese have essentially taken over the South China Sea without 0:23:46.600 --> 0:23:49.920 the United States being able to do much. It's been 0:23:50.320 --> 0:23:53.479 you know, they've done it by a thousand cuts, and 0:23:53.640 --> 0:23:57.240 each one so small that for us to retaliate, we 0:23:57.280 --> 0:23:59.360 would seem to be over retaliated. 0:23:59.480 --> 0:24:00.800