1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,080 Speaker 2: Terminal and the Bloomberg Business app. So here's the latest 10 00:00:37,120 --> 00:00:39,840 Speaker 2: this morning. Global bonds seeing their biggest sell off since May, 11 00:00:39,960 --> 00:00:43,160 Speaker 2: with the Middle East conflicts reigniting inflation fears, Thawson's Slock 12 00:00:43,200 --> 00:00:45,600 Speaker 2: of Apollo, writing, the key issue is the duration of 13 00:00:45,600 --> 00:00:48,159 Speaker 2: the shock. Markets may quickly get used to a situation 14 00:00:48,240 --> 00:00:51,080 Speaker 2: that could last weeks or even months. Tawson joins us 15 00:00:51,120 --> 00:00:53,400 Speaker 2: now for more. Torston, welcome to the program. Does this 16 00:00:53,479 --> 00:00:56,480 Speaker 2: shock have the potential to become an economic issue in 17 00:00:56,520 --> 00:00:57,200 Speaker 2: the months to come? 18 00:00:57,800 --> 00:01:00,920 Speaker 3: Yeah, because this is steflationary imp So it's actually quite 19 00:01:00,920 --> 00:01:03,280 Speaker 3: similar to what we saw with the trade war. Prices 20 00:01:03,320 --> 00:01:06,280 Speaker 3: are going to go up and Ultimately, if it persists, 21 00:01:06,360 --> 00:01:08,920 Speaker 3: GDP is going to go down. So this creates a 22 00:01:08,959 --> 00:01:11,760 Speaker 3: huge headache for the Federal Reserve because the Federal Reserve. 23 00:01:11,520 --> 00:01:13,040 Speaker 4: Now needs to assist the dual mandate. 24 00:01:13,319 --> 00:01:15,760 Speaker 3: Where is the hit the hardest is to hit the 25 00:01:15,760 --> 00:01:18,520 Speaker 3: hardest on inflation. Should they worry more about inflation going 26 00:01:18,600 --> 00:01:20,800 Speaker 3: up or should they begin to worry about the downside 27 00:01:20,840 --> 00:01:23,480 Speaker 3: impact on the label market. That's why this is a 28 00:01:23,560 --> 00:01:25,759 Speaker 3: complicated shock, just like we saw with the trade wall, 29 00:01:26,040 --> 00:01:28,800 Speaker 3: just like we saw with Ukraine Russia, and thus we're seeing. 30 00:01:28,640 --> 00:01:31,679 Speaker 2: Today talstin relatively speaking? Is it a bigger problem for 31 00:01:31,760 --> 00:01:33,360 Speaker 2: the Bank of England for the ECB? 32 00:01:34,280 --> 00:01:36,440 Speaker 3: Well, the challenge for Europe is that they depend more 33 00:01:36,480 --> 00:01:39,040 Speaker 3: on energy. The US produces, of course, a lot more 34 00:01:39,160 --> 00:01:41,760 Speaker 3: energy than it consumes itself, whereas in Europe we do 35 00:01:41,880 --> 00:01:44,160 Speaker 3: have a much bigger energy dependency. And that's exactly why 36 00:01:44,240 --> 00:01:46,240 Speaker 3: markets are trading the way they are, where Europe is 37 00:01:46,240 --> 00:01:48,480 Speaker 3: getting hard to hit because this simply is a bigger 38 00:01:48,600 --> 00:01:49,880 Speaker 3: energy dependency in Europe. 39 00:01:50,080 --> 00:01:52,640 Speaker 5: How important Touriston is it for a styflationary shock for 40 00:01:52,640 --> 00:01:57,280 Speaker 5: there to be enough economic momentum in a country to. 41 00:01:56,680 --> 00:01:58,760 Speaker 1: Withstand and prolong price. 42 00:01:58,560 --> 00:02:03,160 Speaker 3: Hikes challenge, Lisa, is that this starting point is extremely important. 43 00:02:03,200 --> 00:02:05,760 Speaker 3: Inflation and cod pc each to day is three point zero. 44 00:02:06,080 --> 00:02:08,480 Speaker 3: So if inflations today had been one point zero, it 45 00:02:08,480 --> 00:02:10,840 Speaker 3: would have been a completely different discussion. But now that 46 00:02:10,880 --> 00:02:13,280 Speaker 3: we have inflation already at three and now we're adding 47 00:02:13,320 --> 00:02:16,000 Speaker 3: on top of that more upward lift on inflation over 48 00:02:16,040 --> 00:02:19,160 Speaker 3: the coming quarters, potentially that is certainly a risk that 49 00:02:19,200 --> 00:02:21,040 Speaker 3: the fare of certain needs would take very seriously. 50 00:02:21,160 --> 00:02:22,800 Speaker 5: Well, this is the reason why I was surprised towards 51 00:02:22,800 --> 00:02:24,799 Speaker 5: starting the conversations that I've had with a number of 52 00:02:24,840 --> 00:02:28,320 Speaker 5: different investors, even companies, they seem really excited actually about 53 00:02:28,320 --> 00:02:30,639 Speaker 5: the opportunities ahead. They think the economy is chugging along, 54 00:02:30,800 --> 00:02:33,880 Speaker 5: they're looking to invest. The sort of manufacturing boom feels 55 00:02:33,919 --> 00:02:37,160 Speaker 5: like it's actually getting legs. How much could that amplify 56 00:02:37,200 --> 00:02:39,880 Speaker 5: the risk of a stagflationary shock, because it could cause 57 00:02:39,919 --> 00:02:43,280 Speaker 5: the price increases to be more significant in a way 58 00:02:43,400 --> 00:02:46,760 Speaker 5: that isn't just necessarily a one off shock from commodities. 59 00:02:47,440 --> 00:02:49,040 Speaker 3: No, you're right, and I mean if you just think 60 00:02:49,080 --> 00:02:51,800 Speaker 3: about what has happened in the last few weeks, first 61 00:02:51,880 --> 00:02:54,040 Speaker 3: we would talk about, Wow, the US economy is strong. 62 00:02:54,360 --> 00:02:56,000 Speaker 3: Then we were talking about, oh my god, we're all 63 00:02:56,000 --> 00:02:59,079 Speaker 3: getting unemployed because of AI. Now we're back to talking about, Wow, 64 00:02:59,120 --> 00:03:01,680 Speaker 3: inflation is going up. I mean no wonder that the 65 00:03:01,680 --> 00:03:04,040 Speaker 3: people inside the Federal Reserve are looking at this and 66 00:03:04,320 --> 00:03:06,240 Speaker 3: probably scratching their heads and saying, well, now there's another 67 00:03:06,280 --> 00:03:09,080 Speaker 3: shock that we need to take into account. But in combination, 68 00:03:09,520 --> 00:03:11,799 Speaker 3: the issue is still that the US economy is doing 69 00:03:11,840 --> 00:03:14,919 Speaker 3: really well. We have three very strong tailwinds from AI spending, 70 00:03:15,080 --> 00:03:17,120 Speaker 3: we have a strong tailwind from in the dustal renaissance. 71 00:03:17,280 --> 00:03:19,799 Speaker 3: And let's not forget that the Congressional Budget Office they 72 00:03:19,919 --> 00:03:21,480 Speaker 3: estimate that the one big built of a bill will 73 00:03:21,480 --> 00:03:24,080 Speaker 3: lift GDP growth this year by zero point nine percent. 74 00:03:24,360 --> 00:03:27,400 Speaker 3: That's an enormous boost to GDP coming from fiscal policy. 75 00:03:27,600 --> 00:03:30,480 Speaker 3: So taken together, it is a very strong economy. And 76 00:03:30,560 --> 00:03:32,800 Speaker 3: it is an argument that has been made by many, 77 00:03:32,880 --> 00:03:35,320 Speaker 3: including me, that we are at risk, of course, of 78 00:03:35,360 --> 00:03:37,880 Speaker 3: seeing more upside pressure on inflation. And now you add 79 00:03:37,880 --> 00:03:39,600 Speaker 3: here in the last few days on top of that, 80 00:03:39,880 --> 00:03:42,200 Speaker 3: some more upside pressure because of oil prices. And finally, 81 00:03:42,280 --> 00:03:45,840 Speaker 3: let's not forget also if this was just a few days, well, 82 00:03:45,840 --> 00:03:47,680 Speaker 3: the risk is now that even today now we're getting 83 00:03:47,680 --> 00:03:51,080 Speaker 3: headlines about new oil facilities potentially also getting hit. So 84 00:03:51,160 --> 00:03:53,640 Speaker 3: the challenge here is that, well, what headlines you we 85 00:03:53,720 --> 00:03:56,000 Speaker 3: then expect over the next several days. Again, so it 86 00:03:56,040 --> 00:03:59,800 Speaker 3: really is a complex situation because of this incredible risk 87 00:04:00,040 --> 00:04:01,920 Speaker 3: we might begin to see even more upside pressure on 88 00:04:01,920 --> 00:04:03,800 Speaker 3: in fision from an already pretty bad starting point. 89 00:04:03,840 --> 00:04:05,800 Speaker 2: Well, Toss, and let's unpack the bill case for the 90 00:04:05,840 --> 00:04:08,400 Speaker 2: US economy and the tax component of it. Let's go 91 00:04:08,440 --> 00:04:11,360 Speaker 2: with tax refunds. And you mentioned the labor anxiety connected 92 00:04:11,400 --> 00:04:13,600 Speaker 2: to what's happening with AI developments. I think that's a 93 00:04:13,600 --> 00:04:16,440 Speaker 2: feature of the conversation going forward. Does that hold back 94 00:04:16,800 --> 00:04:19,880 Speaker 2: people when it comes to spending those tax refunds given 95 00:04:19,920 --> 00:04:22,240 Speaker 2: that they're not going to see higher energy bills, potentially 96 00:04:22,279 --> 00:04:25,000 Speaker 2: high utility bills potentially, does that make them more risk 97 00:04:25,000 --> 00:04:27,200 Speaker 2: averse conservative in the months to comet? 98 00:04:27,680 --> 00:04:30,640 Speaker 3: No, you're right, John, because last year, if you go 99 00:04:30,680 --> 00:04:33,280 Speaker 3: and look at, of course, what tax refunds normally are, 100 00:04:33,320 --> 00:04:36,279 Speaker 3: they were around three thousand dollars per family. And now 101 00:04:36,320 --> 00:04:38,320 Speaker 3: this year, if you think about that, the one big 102 00:04:38,360 --> 00:04:41,160 Speaker 3: built of a bill is done retroactively starting in January one, 103 00:04:41,320 --> 00:04:43,440 Speaker 3: twenty twenty five. That means that we have all paid 104 00:04:43,480 --> 00:04:45,800 Speaker 3: too much in taxes in twenty twenty five. That means 105 00:04:45,839 --> 00:04:48,239 Speaker 3: that our tax refunds will be bigger this year. On average, 106 00:04:48,240 --> 00:04:50,040 Speaker 3: they will go out from three thousand dollars last year 107 00:04:50,080 --> 00:04:52,479 Speaker 3: per family, so now four thousand dollars. And there's one 108 00:04:52,520 --> 00:04:54,280 Speaker 3: hundred and twenty nine million households in the US. So 109 00:04:54,320 --> 00:04:56,159 Speaker 3: if you multiply these two numbers, that's a one hundred 110 00:04:56,160 --> 00:04:59,919 Speaker 3: billion dollars more in consumer spending coming along here POTENTI 111 00:05:00,320 --> 00:05:02,320 Speaker 3: in March and April and May. So over the next 112 00:05:02,360 --> 00:05:04,680 Speaker 3: seven months we're going to get quite a lift in 113 00:05:04,760 --> 00:05:07,720 Speaker 3: consumer spending. But you're right, if consumers are very worried, 114 00:05:07,880 --> 00:05:09,839 Speaker 3: they could be saved more. But that's why the key 115 00:05:09,839 --> 00:05:11,760 Speaker 3: indicators to look at on that is to look at 116 00:05:11,839 --> 00:05:14,520 Speaker 3: consumer confidence. Consumer confidence has done a little bit better, 117 00:05:14,640 --> 00:05:17,600 Speaker 3: but our consumer confidence indicators getting impacted by this or 118 00:05:17,640 --> 00:05:20,120 Speaker 3: not that becomes very important over the next sevel readings. 119 00:05:20,120 --> 00:05:21,560 Speaker 2: So to uston that feels like much more of a 120 00:05:21,600 --> 00:05:24,680 Speaker 2: European story potentially than the US one. How do you 121 00:05:24,680 --> 00:05:26,839 Speaker 2: expect central bank is to guide us through this moment? 122 00:05:26,880 --> 00:05:29,880 Speaker 2: We had some guidance from the Australian Central Bank over 123 00:05:30,000 --> 00:05:32,560 Speaker 2: nights saying every meeting is live. What do you think 124 00:05:32,600 --> 00:05:35,400 Speaker 2: will the approach will be of saving Europeans of the 125 00:05:35,440 --> 00:05:36,640 Speaker 2: Federal Reserve the ec Bank. 126 00:05:37,200 --> 00:05:39,040 Speaker 3: Well, I think it's easier for the Fed because they 127 00:05:39,040 --> 00:05:41,359 Speaker 3: will probably be more two handed and say, on the 128 00:05:41,400 --> 00:05:43,640 Speaker 3: one hand, we have inflation going up. On the other hand, 129 00:05:43,640 --> 00:05:45,400 Speaker 3: we're worried about what this means for the labor market. 130 00:05:45,440 --> 00:05:47,279 Speaker 3: It's more challenging for the ECB and the Bank of 131 00:05:47,320 --> 00:05:49,560 Speaker 3: England because they don't quote unquote. 132 00:05:49,200 --> 00:05:50,200 Speaker 4: Care about the labor market. 133 00:05:50,200 --> 00:05:53,200 Speaker 3: They really only target inflation, and if the only target inflation, 134 00:05:53,279 --> 00:05:56,080 Speaker 3: they should begin to be more hawkish. So that's why 135 00:05:56,120 --> 00:05:58,760 Speaker 3: it makes sense that and rates expectations and central bank 136 00:05:58,839 --> 00:06:01,479 Speaker 3: expectations are moving more in Europe because the Europeans have 137 00:06:01,560 --> 00:06:04,159 Speaker 3: simply a different mandate, namely only inflation. 138 00:06:04,480 --> 00:06:06,880 Speaker 5: Twist and does this torpedo the bull case for Europe 139 00:06:06,920 --> 00:06:10,040 Speaker 5: and frankly for a lot of the XUS discussion, because 140 00:06:10,080 --> 00:06:13,560 Speaker 5: even though yes, the United States could face the stagflationary shock, 141 00:06:13,880 --> 00:06:16,520 Speaker 5: other places could struggle with that even more at a 142 00:06:16,560 --> 00:06:19,440 Speaker 5: time with the market seems to be overly positioned that way. 143 00:06:20,160 --> 00:06:22,600 Speaker 3: Well, the challenge for Europe is that the main book 144 00:06:22,600 --> 00:06:24,640 Speaker 3: case for Europe is really that Germany has said that 145 00:06:24,640 --> 00:06:27,240 Speaker 3: they will spend five hundred billion euros in infrastructure and 146 00:06:27,279 --> 00:06:30,200 Speaker 3: spend unlimited on defense. So the question that of course 147 00:06:30,320 --> 00:06:31,840 Speaker 3: is immediate here is to ask, well, what are the 148 00:06:31,839 --> 00:06:34,560 Speaker 3: Europeans going to do now in the form of defense spending. 149 00:06:34,680 --> 00:06:35,919 Speaker 3: What are they going to do in the form of 150 00:06:35,920 --> 00:06:39,640 Speaker 3: more government spending. So the policy reaction becomes very critical. 151 00:06:39,839 --> 00:06:42,000 Speaker 3: How is Europe going to respond to this. Are they 152 00:06:42,040 --> 00:06:44,760 Speaker 3: going to say, well, too bad, inflation is just going up, 153 00:06:45,040 --> 00:06:46,760 Speaker 3: or are they going to say, well, wait a minute, 154 00:06:46,760 --> 00:06:48,560 Speaker 3: maybe we do need to do more on the fiscal front, 155 00:06:48,560 --> 00:06:50,599 Speaker 3: and there is not much room to maneuver on that front. 156 00:06:50,760 --> 00:06:53,400 Speaker 3: But it becomes very critical that on the policy front 157 00:06:53,400 --> 00:06:55,960 Speaker 3: the Europeans are likely going to at least say and 158 00:06:56,080 --> 00:06:59,120 Speaker 3: indicate more action as a result, In particular, if this 159 00:06:59,200 --> 00:07:02,200 Speaker 3: does become more of a niggative risk to the genp. 160 00:07:02,000 --> 00:07:03,560 Speaker 4: Outbook, stay with us. 161 00:07:03,880 --> 00:07:16,320 Speaker 2: More Bloomberg surveillance coming up after this. Let's justus stend 162 00:07:16,320 --> 00:07:19,840 Speaker 2: the conversation with US Marine Corps veteran Major General Mastin 163 00:07:20,040 --> 00:07:23,240 Speaker 2: Roberson of Academy Securities right in the following Aroun's current 164 00:07:23,280 --> 00:07:26,760 Speaker 2: ability to make clear and rational decisions is likely disrupted, 165 00:07:27,000 --> 00:07:30,280 Speaker 2: but proceeds are still a problem that it's not easily solved. 166 00:07:30,280 --> 00:07:32,120 Speaker 2: The Major General joins us now for more. Major General, 167 00:07:32,160 --> 00:07:34,560 Speaker 2: welcome to the program, sir I always appreciate your insight. 168 00:07:34,760 --> 00:07:37,640 Speaker 2: Let's just start with your assessment of the operation so far. 169 00:07:39,880 --> 00:07:45,440 Speaker 6: Thanks John Laser. So, I mean, it seemed to me 170 00:07:45,520 --> 00:07:48,280 Speaker 6: that the number one objective was to try to ensure 171 00:07:48,320 --> 00:07:53,280 Speaker 6: that the nuclear capability for Iran is off the table, 172 00:07:53,400 --> 00:07:56,080 Speaker 6: and it does seem that that part of the operation 173 00:07:56,160 --> 00:08:01,360 Speaker 6: has gone well. If the objective was to take mid 174 00:08:01,480 --> 00:08:04,000 Speaker 6: range and short range are particularly long range and mid 175 00:08:04,120 --> 00:08:08,960 Speaker 6: range missiles and destruction of the navy, that's gone well. 176 00:08:10,120 --> 00:08:13,640 Speaker 6: The challenge is the side effects of those, the closing 177 00:08:13,640 --> 00:08:16,920 Speaker 6: of the straits, the attacks on Middle Eastern countries and 178 00:08:16,960 --> 00:08:22,960 Speaker 6: their capitals, which doesn't really surprise me, because you've got 179 00:08:23,000 --> 00:08:26,640 Speaker 6: to believe that everything that's happened from the Iranian side 180 00:08:26,640 --> 00:08:29,600 Speaker 6: of the house over the last four days was probably 181 00:08:29,640 --> 00:08:33,440 Speaker 6: prescripted that if we get attacked, these are the target 182 00:08:33,480 --> 00:08:37,400 Speaker 6: season things you do, which probably at hindsight, is not 183 00:08:37,920 --> 00:08:42,160 Speaker 6: best for Iran to be attacking the other Middle East 184 00:08:42,160 --> 00:08:46,520 Speaker 6: countries capitals because it certainly plays against their ability to 185 00:08:47,320 --> 00:08:52,520 Speaker 6: have an emotional connection to the Muslim people in those 186 00:08:52,559 --> 00:08:56,160 Speaker 6: countries and separate them from their governments. 187 00:08:56,440 --> 00:08:58,520 Speaker 2: So major general, that last point I think is quite 188 00:08:58,559 --> 00:09:02,320 Speaker 2: important that the response we've seen from forces in Iran 189 00:09:02,440 --> 00:09:05,000 Speaker 2: so far has been scripted. As time goes on, how 190 00:09:05,040 --> 00:09:08,320 Speaker 2: do you think ILGC forces are operating or will operate 191 00:09:08,600 --> 00:09:09,720 Speaker 2: in a leadership vacuum? 192 00:09:11,559 --> 00:09:14,480 Speaker 6: I mean that's the hard part to predict, because I 193 00:09:14,520 --> 00:09:16,920 Speaker 6: do think they're operating in a vacuum. I don't think 194 00:09:16,920 --> 00:09:20,440 Speaker 6: that there's a central government that is in essence making 195 00:09:20,600 --> 00:09:23,199 Speaker 6: decisions to say this is what we're going to do next, 196 00:09:23,240 --> 00:09:25,880 Speaker 6: These are our objectives, this is what we want to 197 00:09:25,960 --> 00:09:29,600 Speaker 6: achieve in order to get the upper hand. So it 198 00:09:29,760 --> 00:09:32,600 Speaker 6: is going to be interesting to watch. At what point 199 00:09:32,679 --> 00:09:36,440 Speaker 6: do they have the ability to name a government, and 200 00:09:36,480 --> 00:09:39,000 Speaker 6: then even if they name it, does it have any 201 00:09:39,040 --> 00:09:43,720 Speaker 6: control Given the amount of destruction that's occurred to their network, 202 00:09:43,960 --> 00:09:48,520 Speaker 6: Do they have the ability to control their military or 203 00:09:48,640 --> 00:09:52,959 Speaker 6: is their military pretty much now in isolated bubbles doing 204 00:09:53,000 --> 00:09:56,959 Speaker 6: what they think are best without any centralized control. And 205 00:09:57,360 --> 00:10:01,320 Speaker 6: that has a danger all to itself, But it also 206 00:10:01,440 --> 00:10:05,960 Speaker 6: means that they're not going to be unified in objectives 207 00:10:06,240 --> 00:10:10,760 Speaker 6: to be able to try to disrupt what the coalition 208 00:10:10,880 --> 00:10:12,439 Speaker 6: right now is trying to accomplish. 209 00:10:13,040 --> 00:10:15,600 Speaker 5: Major General, I wonder what we're learning about the nature 210 00:10:15,760 --> 00:10:19,080 Speaker 5: of modern warfare in terms of the way that drones 211 00:10:19,400 --> 00:10:23,200 Speaker 5: are being used and deployed by Iran and the asymmetry 212 00:10:23,240 --> 00:10:26,160 Speaker 5: and pricing. Right, these drones are cheap, they are multiple, 213 00:10:26,360 --> 00:10:28,720 Speaker 5: and they are quick to produce, and at the same time, 214 00:10:28,840 --> 00:10:30,719 Speaker 5: some of the missiles that we're using to shoot them 215 00:10:30,760 --> 00:10:33,680 Speaker 5: down cost tens hundreds of thousands of dollars. 216 00:10:33,720 --> 00:10:37,240 Speaker 1: I mean, how is that mismatch playing out? How could that. 217 00:10:37,200 --> 00:10:40,160 Speaker 5: Be something that shapes the nature of war going forward. 218 00:10:41,080 --> 00:10:45,000 Speaker 6: Yeah, you're absolutely right, Lisa, that we the US have 219 00:10:45,120 --> 00:10:47,880 Speaker 6: to figure out a better way to do this. We've 220 00:10:47,880 --> 00:10:49,920 Speaker 6: got to figure out a cheaper way to do this. 221 00:10:51,360 --> 00:10:55,199 Speaker 6: It doesn't make economic sense to do what you've just. 222 00:10:55,200 --> 00:10:56,000 Speaker 4: Described with. 223 00:10:57,600 --> 00:11:02,480 Speaker 6: Million dollar missiles shooting down hundreds of dollars drones. So 224 00:11:03,240 --> 00:11:07,160 Speaker 6: it was fascinating to me to see that President Zelensky 225 00:11:07,200 --> 00:11:11,320 Speaker 6: had offered to help us figure that out better if 226 00:11:11,480 --> 00:11:14,839 Speaker 6: and help the Israel figure out out better, if they 227 00:11:14,880 --> 00:11:17,240 Speaker 6: could convince and the Middle East could convince Russia for 228 00:11:17,240 --> 00:11:22,640 Speaker 6: a thirty day ceasefire, so who knows that may happen? 229 00:11:23,360 --> 00:11:25,360 Speaker 5: Well, Major General, the way that war is being fought 230 00:11:25,520 --> 00:11:28,240 Speaker 5: is so different. In this case, there's a concern that 231 00:11:28,280 --> 00:11:32,360 Speaker 5: retaliation could come in the form of cyber attacks or other. 232 00:11:32,320 --> 00:11:33,520 Speaker 1: Types of disruption. 233 00:11:34,360 --> 00:11:36,760 Speaker 5: How are you monitoring that given the fact that it 234 00:11:36,760 --> 00:11:40,000 Speaker 5: could be kind of one off events in different places. 235 00:11:40,480 --> 00:11:42,720 Speaker 1: How well protected is not. 236 00:11:42,640 --> 00:11:45,520 Speaker 5: Only the US but also other Middle Eastern countries against 237 00:11:45,559 --> 00:11:46,439 Speaker 5: that type of attack. 238 00:11:48,000 --> 00:11:50,400 Speaker 6: I think we're pretty well protected. I mean, there's no 239 00:11:50,520 --> 00:11:52,400 Speaker 6: way that you're going to get one hundred cent protection. 240 00:11:54,080 --> 00:11:57,720 Speaker 6: But I think let's remember that even though this is 241 00:11:57,720 --> 00:12:01,760 Speaker 6: a four day war that's just been on now, cyber 242 00:12:01,800 --> 00:12:06,360 Speaker 6: attacks and penetrations have been a serious threat for years 243 00:12:07,640 --> 00:12:12,359 Speaker 6: and buy and large. Even though Iran has a capability, 244 00:12:13,200 --> 00:12:16,319 Speaker 6: their capability pales in comparison to some of the other 245 00:12:16,800 --> 00:12:19,920 Speaker 6: capability of nefarious actors that are out there in the world, 246 00:12:20,600 --> 00:12:26,280 Speaker 6: who certainly could insert themselves into this in a disruption 247 00:12:27,040 --> 00:12:30,000 Speaker 6: type style, but I'm not sure it's to their advantage. 248 00:12:30,040 --> 00:12:33,439 Speaker 6: It appears at this point that the Chinas and the 249 00:12:33,520 --> 00:12:37,839 Speaker 6: Russias and the North Koreans are content at this point 250 00:12:37,840 --> 00:12:40,040 Speaker 6: to sit on the sideline and watch this play out, 251 00:12:40,679 --> 00:12:43,760 Speaker 6: and that's our advantage. That happens if it broadens and 252 00:12:43,880 --> 00:12:48,440 Speaker 6: they become part of what you're describing, you know, a 253 00:12:48,559 --> 00:12:53,640 Speaker 6: cyber type offensive defensive war, then that does complicate things 254 00:12:54,000 --> 00:12:59,000 Speaker 6: for everybody. But I think we have a better defensive architecture. 255 00:13:01,320 --> 00:13:04,560 Speaker 6: They probably we're willing to advertise for obvious reasons. 256 00:13:05,320 --> 00:13:05,959 Speaker 4: Stay with us. 257 00:13:06,280 --> 00:13:18,640 Speaker 2: More Bloomberg surveillance coming up after this. Of course, the 258 00:13:18,679 --> 00:13:21,320 Speaker 2: main focus this morning remains on the rising tensions in 259 00:13:21,360 --> 00:13:24,080 Speaker 2: the Middle East. Shipments of oil and other goods passing 260 00:13:24,080 --> 00:13:26,880 Speaker 2: through the Straight offorll meerc have come to a virtual standstill. 261 00:13:27,160 --> 00:13:30,760 Speaker 2: The Flexports CEO Ryan Petterson, writing, what began as a 262 00:13:30,840 --> 00:13:34,600 Speaker 2: regional security crisis has now become a direct disruption to 263 00:13:34,720 --> 00:13:37,680 Speaker 2: global supply chains. Ryan joins us now for more. Ryan, 264 00:13:37,679 --> 00:13:39,600 Speaker 2: welcome to the program, Thanks for making time for us. 265 00:13:39,640 --> 00:13:42,160 Speaker 2: Just how much capacity have we just taken out? 266 00:13:43,120 --> 00:13:45,520 Speaker 7: Well, on the container shipping side of things, you see, 267 00:13:45,600 --> 00:13:49,079 Speaker 7: there's sixty seven ships that are inside the strait. 268 00:13:48,840 --> 00:13:50,720 Speaker 4: Of our moves right now. A lot of those are 269 00:13:50,760 --> 00:13:51,280 Speaker 4: smaller ships. 270 00:13:51,320 --> 00:13:53,200 Speaker 7: So it looks like zero point six percent of all 271 00:13:53,240 --> 00:13:55,520 Speaker 7: the container shipping capacity and the world has taken out. 272 00:13:55,960 --> 00:13:59,199 Speaker 7: And that is the equivalent of the idle fleet today 273 00:13:59,360 --> 00:14:02,040 Speaker 7: and is one of the main ways that capacity can 274 00:14:02,080 --> 00:14:04,240 Speaker 7: be controlled to kind of keep prices in place is 275 00:14:04,280 --> 00:14:07,360 Speaker 7: if there's too much capacity, you idol ship. So it's 276 00:14:07,360 --> 00:14:08,840 Speaker 7: a bigger deal and it sounds and what's going to 277 00:14:08,880 --> 00:14:11,880 Speaker 7: really play out here is that the major container shipping 278 00:14:11,920 --> 00:14:14,800 Speaker 7: lines and I've spoken to three CEOs of the big 279 00:14:14,840 --> 00:14:17,680 Speaker 7: ten ocean carriers in the last forty eight hours that 280 00:14:18,160 --> 00:14:21,200 Speaker 7: most of them have either paused bookings to the region 281 00:14:22,000 --> 00:14:25,080 Speaker 7: or really diverted. They've all stopped shipping inside the strait 282 00:14:25,080 --> 00:14:26,320 Speaker 7: of form moves but many of them and said, hey, 283 00:14:26,320 --> 00:14:28,600 Speaker 7: we're not going to take any bookings. And so what 284 00:14:28,680 --> 00:14:31,520 Speaker 7: that means is these containers are going to sit at 285 00:14:31,560 --> 00:14:34,040 Speaker 7: ports around the world, especially in East Asia, China and 286 00:14:34,080 --> 00:14:36,960 Speaker 7: Southeast Asia and not move. And so you're going to 287 00:14:37,000 --> 00:14:39,600 Speaker 7: start to get real congestion at those ports. And we've 288 00:14:39,600 --> 00:14:41,800 Speaker 7: seen this movie before where that congestion can lead to 289 00:14:41,800 --> 00:14:43,600 Speaker 7: spikes and prices and all kinds of problems. 290 00:14:43,720 --> 00:14:45,960 Speaker 2: So around let's talk about that. Some people reflected on 291 00:14:45,960 --> 00:14:48,640 Speaker 2: the Energy Shark of twenty two the conditions coming out 292 00:14:48,680 --> 00:14:49,320 Speaker 2: of the pandemic. 293 00:14:49,360 --> 00:14:50,800 Speaker 4: Are there parallels here? For you? 294 00:14:51,840 --> 00:14:54,400 Speaker 7: I mean, you know, the history always seems to rhyme, 295 00:14:54,600 --> 00:14:57,720 Speaker 7: and it is about that congestion and how it flows 296 00:14:57,760 --> 00:15:01,400 Speaker 7: through the supply chain and builds up in unexpected places. 297 00:15:01,440 --> 00:15:03,120 Speaker 4: And now it all depends on how long this lasts. 298 00:15:03,160 --> 00:15:05,120 Speaker 7: If it lasts for a long time, you're going to 299 00:15:05,160 --> 00:15:06,320 Speaker 7: see major reroutings. 300 00:15:06,360 --> 00:15:08,240 Speaker 4: In fact, In fact, Flexport's. 301 00:15:07,720 --> 00:15:10,040 Speaker 7: One of the largest providers of ocean freight in the world, 302 00:15:10,360 --> 00:15:14,040 Speaker 7: and we built this new product called Atlas. It's Atlas 303 00:15:14,080 --> 00:15:15,880 Speaker 7: dot flexport dot com where you can monitor all the 304 00:15:15,880 --> 00:15:18,040 Speaker 7: ships in real time and see where they're sailing. And 305 00:15:18,080 --> 00:15:20,000 Speaker 7: so it's actually going to be a big challenge for 306 00:15:20,040 --> 00:15:21,560 Speaker 7: us to see can we keep this thing up today 307 00:15:21,600 --> 00:15:26,080 Speaker 7: as the ships get diverted, as services are less reliable. 308 00:15:26,960 --> 00:15:29,120 Speaker 7: We have seen that movie before, so yeah, I would 309 00:15:29,120 --> 00:15:31,440 Speaker 7: expect to see it the services start to degrade and 310 00:15:31,480 --> 00:15:33,000 Speaker 7: be more difficult to operate run. 311 00:15:33,000 --> 00:15:35,160 Speaker 2: You've got great visibility on these things, so says Domino 312 00:15:35,240 --> 00:15:38,280 Speaker 2: start to fall. Are you thinking about secondary bottlenecks that 313 00:15:38,360 --> 00:15:39,200 Speaker 2: might emerge as well? 314 00:15:39,240 --> 00:15:40,560 Speaker 4: And where might they emerge? 315 00:15:41,480 --> 00:15:44,200 Speaker 7: Yes, I mentioned a few of those in unexpected places 316 00:15:44,200 --> 00:15:46,800 Speaker 7: like congestion, but you can see pricing be a global 317 00:15:46,800 --> 00:15:47,520 Speaker 7: phenomenon here. 318 00:15:47,640 --> 00:15:48,680 Speaker 4: Ocean freight prices. 319 00:15:48,720 --> 00:15:51,800 Speaker 7: We already we're right in the middle of contracting season. 320 00:15:51,840 --> 00:15:53,280 Speaker 4: It's just starting to kicked off. 321 00:15:53,720 --> 00:15:56,240 Speaker 7: And all the ocean carriers have told us this week, 322 00:15:56,560 --> 00:15:58,280 Speaker 7: not all, but most of the ocean carriers and I 323 00:15:58,320 --> 00:16:00,520 Speaker 7: think it'll be all pretty soon, have told us that 324 00:16:00,680 --> 00:16:03,720 Speaker 7: all previous discussions on ocean freight contracts for this year 325 00:16:03,760 --> 00:16:07,200 Speaker 7: out the window, that there's too much uncertainty, and they 326 00:16:07,200 --> 00:16:09,520 Speaker 7: expect prices to go way up from where they are today. 327 00:16:09,920 --> 00:16:13,200 Speaker 7: We're already hearing rumors of five thousand dollars a container 328 00:16:13,280 --> 00:16:16,480 Speaker 7: from China to the US East Coast, which that's almost 329 00:16:16,560 --> 00:16:18,320 Speaker 7: that's more than double where it's been for the last 330 00:16:18,360 --> 00:16:21,160 Speaker 7: few months. So yeah, we're already seeing big spikes and 331 00:16:21,560 --> 00:16:23,400 Speaker 7: that will lead to all kinds of secondary effects. 332 00:16:23,480 --> 00:16:24,760 Speaker 2: Right, some of that, as you know, it might just 333 00:16:24,800 --> 00:16:27,480 Speaker 2: be a reflection of extended transit times as well. Could 334 00:16:27,520 --> 00:16:29,560 Speaker 2: you give us an idea as some of this traffic 335 00:16:29,640 --> 00:16:33,000 Speaker 2: reroutes what the extension to transit times might be for say, 336 00:16:33,240 --> 00:16:35,280 Speaker 2: traffic between Europe and Asia. 337 00:16:36,400 --> 00:16:38,640 Speaker 7: Yeah, well, then in the ocean market, it's really just 338 00:16:38,680 --> 00:16:41,760 Speaker 7: what which of these strings these services call in. 339 00:16:41,880 --> 00:16:43,880 Speaker 4: Jebalali's the ninth largest port in the world. 340 00:16:43,960 --> 00:16:46,240 Speaker 7: Abu Dhabi has a large poor there's several other important 341 00:16:46,280 --> 00:16:49,120 Speaker 7: ports within the inside the Strait of Barmouth, So the 342 00:16:49,160 --> 00:16:51,320 Speaker 7: first thing is okay, which services call there. Those are 343 00:16:51,360 --> 00:16:53,160 Speaker 7: going to be heavily disrupted in because they're gonna have 344 00:16:53,200 --> 00:16:56,640 Speaker 7: to stop and unload all of those containers. One of 345 00:16:56,640 --> 00:16:59,320 Speaker 7: the Ocean CEOs I talked to you said they were 346 00:16:59,320 --> 00:17:01,760 Speaker 7: going to unload it Oman. But of course the port 347 00:17:01,760 --> 00:17:04,200 Speaker 7: of Oman got hit with a missal yesterday to a 348 00:17:04,240 --> 00:17:08,040 Speaker 7: ship near Oman. So it's really difficult to say exactly 349 00:17:08,560 --> 00:17:10,560 Speaker 7: how each carrier is going to reroute things, but that 350 00:17:11,040 --> 00:17:13,760 Speaker 7: will for sure lead to service issues. 351 00:17:14,640 --> 00:17:16,200 Speaker 4: Let's not forget the air freight market. 352 00:17:16,760 --> 00:17:19,200 Speaker 7: Whereas the Middle East is a major hub for air freight, 353 00:17:19,480 --> 00:17:22,159 Speaker 7: we estimate around eighteen percent of all the global cargo 354 00:17:22,240 --> 00:17:25,480 Speaker 7: capacity for air freight has been taken offline just temporarily. 355 00:17:25,480 --> 00:17:27,040 Speaker 4: We haven't seen planes get shot down. 356 00:17:26,920 --> 00:17:29,240 Speaker 7: But temporarily, and a lot of you know, you have 357 00:17:29,320 --> 00:17:33,560 Speaker 7: Emirates and Cuts are at the hot All of these 358 00:17:33,560 --> 00:17:36,840 Speaker 7: are major cargo airlines that operate in that region, and 359 00:17:37,040 --> 00:17:40,879 Speaker 7: Asia to Europe flights tend to go over either stop 360 00:17:40,920 --> 00:17:44,119 Speaker 7: in the Middle East or fly directly over Iran, so 361 00:17:44,400 --> 00:17:46,960 Speaker 7: just big disruptions to the air freight market as well, 362 00:17:46,960 --> 00:17:50,920 Speaker 7: and there it's a relatively capacity constrained market. In general, 363 00:17:51,000 --> 00:17:54,159 Speaker 7: you can see huge spikes in price from a small 364 00:17:54,280 --> 00:17:55,480 Speaker 7: disruption and capacity. 365 00:17:56,359 --> 00:17:59,600 Speaker 2: This is the bloomberg S Events podcast, bringing you the 366 00:17:59,640 --> 00:18:03,000 Speaker 2: best markets, economics, a gio politics. You can watch the 367 00:18:03,040 --> 00:18:06,160 Speaker 2: show live on Bloomberg TV weekday mornings from six am 368 00:18:06,200 --> 00:18:09,320 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, 369 00:18:09,600 --> 00:18:12,440 Speaker 2: Spotify or anywhere else you listen, and as always on 370 00:18:12,480 --> 00:18:14,960 Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.