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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. General Maston Robinson of

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Speaker 2: Academy Securities right in the following Irun's actions left don

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Speaker 2: address potentially sets an illegal new normal. General Robinson joins

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Speaker 2: us now for more. General, Welcome to the program Sir.

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Speaker 2: Can we pick up on Huthy Medicine's entering this war,

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Speaker 2: this conflict. What are the consequences of that?

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Speaker 3: I don't know. This it really changes you think. I

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Speaker 3: believe the Hoothis, who been involved the whole time. I

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Speaker 3: think what we're missing here is that the Huthis do

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Speaker 3: not make their own decisions. They're a proxy and they

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Speaker 3: act when Iran says, okay, we want you to act

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Speaker 3: and when Iran wants them to stand down and they

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Speaker 3: have them stand down. Nobody controls the Huthis except for Iran,

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Speaker 3: and certainly Yemen doesn't control the Huthis or those frontier

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Speaker 3: spaces that are within their border.

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Speaker 4: One individual, though, John Lieber of Your Asia Group, said

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Speaker 4: to me that the Huthis would rather be basically paid

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Speaker 4: off by the Saudis instead of getting involved. I think

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Speaker 4: the calculus is changing for the proxy.

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Speaker 3: I don't think it changed for the proxy because but

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Speaker 3: I think the Houthis are businessmen. Yes they'll take money

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Speaker 3: from the Saudis, and yes they'll promise A B and C.

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Speaker 3: But the end of the day, the Huthis are owned

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Speaker 3: by the Iranians. And the question is do the Huthis

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Speaker 3: really believe they're still sufficient supreme leadership authority in Iran

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Speaker 3: for them to be able to trust that that's where

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Speaker 3: they're calculus, their money, their direction is going to come from.

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Speaker 3: Or has this second or third generation of spreme leadership

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Speaker 3: authority dissipated sufficiently to where they start to doubt. I

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Speaker 3: have confidence that given the decades long relationship Iran has

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Speaker 3: with this proxies, although not decades along necessarily with the Huthis.

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Speaker 3: Iran still has a firm grip in my opinion on them,

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Speaker 3: largely not because of the Spreme Leadership Authority, but because

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Speaker 3: of the RGC that is below that but is intrinsically

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Speaker 3: connected to the Spreme Leadership Authority.

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Speaker 4: We do, though, have a recent killing according to the

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Speaker 4: Israelis of the IRGC Navy commander. Do you think this

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Speaker 4: breaks down their maritime command for the Iranians?

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Speaker 3: Now, I think you've got to get into the tens

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Speaker 3: of thousands, if not one hundred thousands of killings of

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Speaker 3: the of the RGC, if you're really going to have

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Speaker 3: an influence and effect. But I don't think we really know.

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Speaker 3: We know that they're you know, two hundred and fifty

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Speaker 3: thousand in theory strong. We know that they are just

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Speaker 3: etched in stone in relationship with the Spring Leadership Authority

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Speaker 3: and have been since the beginning. We don't know how

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Speaker 3: deep that etched in stone authority and loyalty goes, but

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Speaker 3: we surmise it goes pretty deep, which is why I

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Speaker 3: don't think what the goal here is how do we

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Speaker 3: destroy the RGC. The goal is how do we get

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Speaker 3: Iran to a point where they're willing to negotiate a

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Speaker 3: plausible non nuclear Iran in the future. And to me,

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Speaker 3: that's where the entire buck stops is, how do we

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Speaker 3: get around to where they are not pursuing a nuclear

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Speaker 3: capability that would be catastrophic for the world.

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Speaker 4: Well, how do you think we get there? We're not

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Speaker 4: there now today?

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Speaker 5: Are we?

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Speaker 3: We are not. But I think that's the reason you're

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Speaker 3: seeing more forces sent there. Everything is about leverage. Everything

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Speaker 3: is about how to create negotiation space. How do you

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Speaker 3: create enough not pain, but how do you create enough capability?

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Speaker 3: Threat and anxiety. That is all of this calculus combined

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Speaker 3: together of the killing of the supreme leadership authorities, the

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Speaker 3: reduction of their capabilities, particularly the destruction of their navy

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Speaker 3: and a lot of their air to say, how much

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Speaker 3: more are they willing to sustain and be able to say,

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Speaker 3: We're still an entity to be reckoned with in the

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Speaker 3: Middle East.

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Speaker 1: General and President Trump says that he wants to take

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Speaker 1: the oil in Irun. How do you understand that.

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Speaker 3: I see all this as purely negotiation strategy. If he

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Speaker 3: can see something that causes the Iranians to say, hmm, okay,

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Speaker 3: I didn't expect that that's a breef further than I wanted.

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Speaker 3: Then I think that gives the upper hand of what

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Speaker 3: the administration is seeking. What I don't see this being

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Speaker 3: is a ground invasion like Iraq. I don't see that

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Speaker 3: is where we're headed. I do see where we're headed

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Speaker 3: is where the leverage points that the administration believes are plausible.

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Speaker 3: It's really the leverage points that SITCOM believes are plausible

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Speaker 3: because all of them, there is any surprise that we're

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Speaker 3: doing something against Iran at some point, it's just the

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Speaker 3: timing to win. But every reasonal combatic commander has in

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Speaker 3: the can campaign plans and plans against certain scenarios that

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Speaker 3: they break out, dust off, update based on how these

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Speaker 3: situation has changed, and then they expand it based on

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Speaker 3: what the current administration will allow and authorize them to

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Speaker 3: do it. Most reasonal combatic commanders are willing to be

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Speaker 3: a little more aggressive than their electoral officials are telling

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Speaker 3: them to be. So there's always that calculus of the

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Speaker 3: military wanting to be a little more aggressive and confident

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Speaker 3: the administration and the elected officials and win a minute.

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Speaker 3: There's more stake here than just winning a battle.

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Speaker 2: On the battle to stay with US more Bloomberg surveillance

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Speaker 2: coming up after this. Brankrud on track for a record

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Speaker 2: monthly game. As the war with Around continues to intensify,

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Speaker 2: Bob mcnalley of Rapid and Energy Group writing fade speculation

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Speaker 2: on a near term US around cease fire. US force

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Speaker 2: posture points to escalation. Bob joined us. Now for more, Bob, welcome.

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Speaker 2: Let's start with that line. It's an important line. What

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Speaker 2: is it about the force posture of the US the

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Speaker 2: points to escalation?

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Speaker 6: Great to be with you, John. So, yeah, we're flowing.

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Speaker 7: We have one marine expeditionary units arrived, another one's on

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Speaker 7: the way, eighty second airborne and other forces are moving in.

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Speaker 7: We think we're likely to see some form of ground operation.

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Speaker 7: I'll doubt we'll go into carg Island. Most of the

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Speaker 7: military folks I talk with just don't understand the utility

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Speaker 7: of that. However, there are smaller islands that are more

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Speaker 7: defensible that are used by Iran to interdict shipping. Perhaps

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Speaker 7: it's those, but I think some form of US groundfores

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Speaker 7: insertion is coming.

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Speaker 4: But Bob, when we talk about the President saying things

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Speaker 4: like I want to take the oil in Iran. Inevitably

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Speaker 4: that would mean some sort of operation with carg Island.

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Speaker 6: No, you know it doesn't have to I don't understand.

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Speaker 7: I mean, back in twenty twelve, I wrote an ft

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Speaker 7: up ed and I said, just put a quarantine up.

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Speaker 7: You just stop all the ships in the Gulf of

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Speaker 7: Oman coming out of Carr Island. Carg Island's like five

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Speaker 7: miles from the coast. We could take it, but then

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Speaker 7: we'd be under constant bombardment from drones and artillery and

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Speaker 7: missiles and things. So again, I'm not a military guy,

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Speaker 7: but the military guys and gals I know don't really

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Speaker 7: see the need to occupy carg Island. We can still

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Speaker 7: choke off Iran's exports, we can do that, but we

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Speaker 7: can do it far away on the water.

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Speaker 4: Why would this administration want to choke off their exit

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Speaker 4: when they literally took Ran off of their sanctions list,

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Speaker 4: even including in the general license that Americans can now

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Speaker 4: buy Iranian barrels.

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Speaker 7: Right, So, right now, I Marie, you're right, right now,

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Speaker 7: the strategy the administration is put every barrel it can

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Speaker 7: into the market to try and break crudes assent. Okay,

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Speaker 7: And so that you're right, liberalizing access to Iranian barrels,

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Speaker 7: to Russian barrels, allowing Iran to export it will while

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Speaker 7: others are constrained, you know. But if we're going to

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Speaker 7: take carg Island by force, that strategy will obviously change.

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Speaker 6: I'm just saying you can do it in other ways, Bob.

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Speaker 1: There is a lot of uncertainty around how significantly oil

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Speaker 1: production has already been disrupted in some sort of significant

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Speaker 1: way that could lead to prolonged shortages. Do you have

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Speaker 1: an assessment of that.

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Speaker 6: We're starting to work that up.

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Speaker 7: The problem is this is still underway and the damages

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Speaker 7: are TBD. But right now, you know, I think it's

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Speaker 7: three to four more months before the major Saudi Arabia Kuwait,

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Speaker 7: probably maybe longer for Iraq Romelia that field. That one

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Speaker 7: million barrel a day outage there could could be much

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Speaker 7: longer term. So if you put a gun to my

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Speaker 7: head right now it's still underway, I'd say on the

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Speaker 7: order of two million barrels a day of crude that

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Speaker 7: could be lost for a long time here, and that's

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Speaker 7: before we get into any potential damage to above ground facilities. Again,

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Speaker 7: the silver lining so far on this cloud is we

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Speaker 7: haven't seen escalation to destroying the facilities we need to

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Speaker 7: process and export that crude. When those fields can be

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Speaker 7: brought back up, that would be disastrous. Ab Cake rostun

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Speaker 7: or a terminal carg island itself haven't been physically damaged,

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Speaker 7: so that's the other thing to watch for. If that happens,

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Speaker 7: then all the damage estimates, you know, get increased.

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Speaker 1: How much has the SPR release of the United States

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Speaker 1: and in Europe, as well as the unsanctioned Iranian and

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Speaker 1: Russian oil potentially cushioned some of what we're seeing in

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Speaker 1: terms of actual production absolutely destroyed.

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Speaker 6: Well, from a flow perspective, it's marginal. Right at the.

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Speaker 7: Most, when all the SPR barrels are flowing from the

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Speaker 7: IA countries, you're looking at maybe a little more than

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Speaker 7: two million barrels a day the deficit. And there's a

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Speaker 7: lot of math going around out there, but you know,

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Speaker 7: we estimate the deficit to be about cruder products twelve

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Speaker 7: a million barrels a day or so, so obviously from

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Speaker 7: a flow perspective, it's not that significant. It is, however,

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Speaker 7: helping keep WTTI down. It is cushioning the market a

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Speaker 7: little bit, but it's a speed bump kind of on

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Speaker 7: the way higher.

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Speaker 2: Well, can you translate a headline for me? Just help

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Speaker 2: me understand how important this is or not. This came

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Speaker 2: from the President speaking to the Financial Times. He talked

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Speaker 2: about this a few times now, about these Pakistan flagged

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Speaker 2: oil tankers that have been alopped through the strati formos.

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Speaker 2: Whether that number is ten or whether it's twenty, Can

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Speaker 2: you give us some context on that. How big is

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Speaker 2: that number relative to the amount of traffic that which

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Speaker 2: traditionally go through the strike?

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Speaker 6: Yeah?

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Speaker 7: John, So you know what we haven't even I mean,

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Speaker 7: it's these tankers were not even sure there were oil tankers,

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Speaker 7: and they have been dry cargo tankers. It's you know,

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Speaker 7: if each one at max would have been two million barrels,

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Speaker 7: ten million barrels, two million barrels.

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Speaker 6: So it's just not that much.

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Speaker 7: I mean, I think all of this really is verbal intervention,

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Speaker 7: you know, the term I learned in the nineties working

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Speaker 7: at Tutor and watching the central banks. This is activating

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Speaker 7: this reservoir of hope and confidence in the market that

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Speaker 7: this nightmare is going to go away. And the President

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Speaker 7: knows when he says things like this, we almost have

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Speaker 7: a deal. Ten cargoes went out it was a gift.

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Speaker 7: We're escorting tankers out. All of this I think is

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Speaker 7: mainly intended to try and keep oil prices down, and

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Speaker 7: that doesn't reflect the real return of barrels. Most on

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Speaker 7: a given day, maybe a half a million barrels a

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Speaker 7: day is getting out, but it's quite marginal.

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Speaker 2: Stay with us Inmberg surveillance coming up after this at Alhasani, Columbia,

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Speaker 2: threatned or writing it's in the fence interest to keep

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Speaker 2: markets on edge. Doubts is their most powerful tool to

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Speaker 2: keep inflation in check. At joint US Now for more

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Speaker 2: and good morning glory. Is that how you describe this?

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Speaker 2: Then the first phase is a big communication push.

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Speaker 5: I think that's right. You want to create the permission

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Speaker 5: structure for markets to price type monetary policy upfront. Then

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Speaker 5: as we see inflation, as we see growth developed later

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Speaker 5: this year, I think it opens up room for cuts.

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Speaker 5: But the initial stage you want to make sure that

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Speaker 5: the markets feel that the Fed's responding with sort of

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Speaker 5: a whatever it takes pasture.

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Speaker 2: How do you price that sequencing through this yield curve.

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Speaker 5: I think we've done a good amount of work. We've

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Speaker 5: taken out about two and a half cuts. We've taken

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Speaker 5: that pricing to roughly neutral, maybe half a hike in

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Speaker 5: the price. We've flattened the curve, right, If anything in

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Speaker 5: the extreme of this conflict continues, we could invert the curve,

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Speaker 5: and that would be very consistent with the FED tightening

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Speaker 5: policy in the background to make sure there are no

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Speaker 5: second round effects from this.

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Speaker 1: So then, how do you understand the back end of

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Speaker 1: the yield curve, the ten year, the thirty year, and

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Speaker 1: the fact that yields have moved higher. Is this a

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Speaker 1: lack of credibility that the market has that they truly

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Speaker 1: can contain inflation.

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Speaker 5: I think the answer is twofold one. Not yet. Most

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Speaker 5: of the repricing has been real rates. So it's been

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Speaker 5: a tightening of policy. It's been a tightening of posture.

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Speaker 5: The initial reaction to me is a couple of things. One,

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Speaker 5: there's some technicals behind this. The market was positioned for cuts,

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Speaker 5: with position for a steeper curve. At the end of February,

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Speaker 5: we've unwound all of that. We haven't had time to

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Speaker 5: price in the hit to growth in the labor market yet.

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Speaker 5: I think it's starting to get a look now as

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Speaker 5: we get thirty year yields to five percent ten year

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Speaker 5: yields to four and a half percent, Those things start

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Speaker 5: to become more durable ceilings. But I think the key

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Speaker 5: question for an investor today is which part of the

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Speaker 5: curve is overshot. Is at the longer end of the

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Speaker 5: curve or the front end. And I think I put

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Speaker 5: a lot more chips on that longer end of the curve, so.

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Speaker 1: You believe it's going to be a greater growth shock

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Speaker 1: than people previously expected. I'm just wondering how the fiscal

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Speaker 1: lever plays into this, given the fact that the previous

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Speaker 1: declines in growth have been met with huge fiscal responses,

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Speaker 1: and we see a similar type of impulse coming right now,

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Speaker 1: at least in the rhetoric from Congress.

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Speaker 5: Absolutely, so that's a little bit of a wildcard right now.

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Speaker 5: The fiscal posture right now in the background is roughly neutral,

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Speaker 5: not a lot going on. It's a little bit more

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Speaker 5: accommodative in China, in Japan, in Germany. To the extent

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Speaker 5: that there is room to really ramp up fiscal stimulus

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Speaker 5: the way we did after COVID, I think that room

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Speaker 5: is a lot tighter. I think Congress has learned the

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Speaker 5: fact that look, look, you really need a different rate environment.

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Speaker 5: You really need a different growth environment to drop stimulus

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Speaker 5: into the economy without basing significant consequences. So I'm seeing

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Speaker 5: a little bit of adjustment on the margin gasoline taxes

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Speaker 5: and the like, but large fiscal stimulas so far is

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Speaker 5: not part of the picture. But that's a massive risk

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Speaker 5: for bond investors.

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Speaker 2: Is is there a bond market you're worried about. I looked

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Speaker 2: to Japan High CEO. It's across some tennas since the

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Speaker 2: nineteen nineties, the UK since two thousand and I Germany

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Speaker 2: since twenty eleven. Is there a market you're more concerned

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Speaker 2: about versus souders?

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Speaker 5: I think some of the volatility you see in UK rates,

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Speaker 5: for sure, is symptomatic of the fact that there's very

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Speaker 5: little capacity for that market to absorb additional supply. That's

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Speaker 5: one to a lot of the participants of that market

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Speaker 5: are leveraged hedge funds. They moved their positions around very quickly.

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Speaker 5: You see that in the rate volatility. But if I

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Speaker 5: zoom out, I would be most worried about emerging markets,

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Speaker 5: particularly local currency emerging markets. This has put significant pressure

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Speaker 5: on them, both directly through the inflation, oil shock and

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Speaker 5: indirectly through a stronger dollar, so to the extent that

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Speaker 5: emerging markets were a real sweet spot last year, a

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Speaker 5: really nice runway for cuts that's gone and a lot

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Speaker 5: of them will have to tighten policy pretty significantly. So

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Speaker 5: from a growth perspective, that feeds back in a nasty way.

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Speaker 6: That is just great.

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Speaker 2: So they don't get just hit once, they get hit twice,

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Speaker 2: maybe three times.

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Speaker 1: And how many people were positioned for emerging markets to

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Speaker 1: perform heading into this year. They thought that they would

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Speaker 1: benefit from the tailwind of global growth continuing to expand

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Speaker 1: and potentially at a faster pace the rest of the

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Speaker 1: world out performing in the US. How much things have

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Speaker 1: been completely turned on their heads in just one month.

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Speaker 2: Forgive me for showing this down to about thirty seconds.

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Speaker 2: That's all I've gone. Do you think there's an underappreciation

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Speaker 2: still this morning about energy rationing in am and it

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Speaker 2: hits the growth for about c Yeah.

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Speaker 5: Absolutely absolutely. We're starting to see that in Asia, particularly

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Speaker 5: in East and South Asia. That's starting to play through

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Speaker 5: in the physical markets. It's the place where manufacturing is

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Speaker 5: concentrated and so most sensitive to to the inflation and

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Speaker 5: energy sharp story.

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