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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 1: Here's of you on Wall Street this morning, Marvin Low
Speaker 1: of State Street writing equities remain relatively well supported and
Speaker 1: while credit remains a concern that has not shown capitulation
Speaker 1: around the private credit meltdown. Marvin joins us. Now, Marvin,
Speaker 1: we were just hearing from Jumana about how tons it
Speaker 1: is in the region. Before that, we were talking about
Speaker 1: the seeming calm, if anything, optimism in markets. How do
Speaker 1: you square that day of the potential stakes that are
Speaker 1: heading into that eight pm deadline that seemed to be
Speaker 1: brushed off by markets.
Speaker 3: Yeah, I mean, you know, the certainly is a fundamental
Speaker 3: aspect of holding on to if you will somewhat positive
Speaker 3: bias on the risk side of things. It's not as
Speaker 3: if all of your risk assets have ignored everything, but
Speaker 3: certainly the amount of downside has probably been less than
Speaker 3: anyone would have expected. So there is a degree of
Speaker 3: looking past this. The timing of it is questionable, but
Speaker 3: from an earning's perspective, as we kind of go into
Speaker 3: earning season, I was just looking at where estimates were
Speaker 3: before we started the conflict versus where we are now,
Speaker 3: and they're actually up. So from a fundamental perspective, you
Speaker 3: still have ultimately that support. It's a few of the
Speaker 3: asset classes, the dollar, the fixed income markets, which are
Speaker 3: really kind of showing the potential that not only that
Speaker 3: this is longer term, but that things might be different
Speaker 3: once everything settles down.
Speaker 4: Mervin, if I'm not mistaken, the reason that earning's estimates
Speaker 4: have been rising just in recent weeks is because of
Speaker 4: energy stocks, because of the oil majors and what's happening
Speaker 4: with the conflict. So what does it take to maybe
Speaker 4: look past some of that and for equity markets to
Speaker 4: start to price in longer term pain and more sustained
Speaker 4: energy prices that the likes of which we're starting to
Speaker 4: see get priced in to your point to rate markets
Speaker 4: and oil.
Speaker 3: Yeah, I mean, I you know, for you know, unfortunately,
Speaker 3: I think that at least when it comes to a
Speaker 3: lot of the more global equity markets, if you will,
Speaker 3: the more international smp A focused type of companies, it's
Speaker 3: going to take a broad slow down. And that isn't
Speaker 3: necessarily making its way into the commentary at this point. Certainly,
Speaker 3: recessionary risk taflation is something that shows up occasionally within
Speaker 3: the numbers, but it's not prevalent in a broad slowing
Speaker 3: of global growth. And I think that that's what it
Speaker 3: would take to really knock it, knock.
Speaker 4: It off, if we do get some flowing but not
Speaker 4: broaden off to knock everything off. Marvin, do you expect
Speaker 4: the S and P to coalesce around the typical market
Speaker 4: leadership that we've seen in other similar periods, that is
Speaker 4: big tech?
Speaker 3: Yeah, and you know, outside of energy, when we talk
Speaker 3: about big tech, they were the second best performing sector
Speaker 3: industry group, you know, since the beginning of the conflict.
Speaker 3: But also on this on this upward bias, So yes,
Speaker 3: there is that coalescing around it, and based on the
Speaker 3: data that we see within our flows of institutional investors,
Speaker 3: there is a reordering going back into maybe some of
Speaker 3: the more beat up tech sectors, particularly as of Lates
Speaker 3: and Marvin.
Speaker 1: This comes on the equity side, but also on the
Speaker 1: dead side. And we saw yesterday this Microsoft tied data
Speaker 1: center deal, a bond offering investment grade get sold and
Speaker 1: actually attracting an incredible volume of bids to try to
Speaker 1: get in on this. Capital markets seems wide open to
Speaker 1: a lot of projects that people seemed concerned about just
Speaker 1: a couple of months ago. How do you again square
Speaker 1: that with apparent risk aversion in other pockets of the market.
Speaker 3: Yeah, I mean, so, you know, this credit story is evolving.
Speaker 3: You know, nobody on television knows the credit world as
Speaker 3: well as U Lisa. So it's really a function of
Speaker 3: whether or not the liquidity exists out there, and certainly
Speaker 3: for these large names, that liquidity is out there. There
Speaker 3: have been days that you know, I really didn't think
Speaker 3: we were going to see in the credit market where
Speaker 3: it closed for a few days, it really looks shaky,
Speaker 3: and then once it opened, we had, you know, nearly
Speaker 3: one hundred billion dollars in deals being sold. That shows
Speaker 3: that there's a lot of liquidity. On the other side
Speaker 3: of that, certainly is the private credit discussion, which is
Speaker 3: still somewhat fragile, but at this point there are large
Speaker 3: institutional investors that are in that space getting compensated for
Speaker 3: the risk. And we're still, if you will, debating whether
Speaker 3: or not this is a liquidity issue, particularly around maybe
Speaker 3: some of these less liquid products that is the flagship
Speaker 3: in the private credit world versus a credit issue, and
Speaker 3: so paik and it kind of keeps us guessing because
Speaker 3: of that.
Speaker 1: The common thought on Wall Street are certainly among private
Speaker 1: credit executives when they talk in public or frankly, even
Speaker 1: in private, is it probably will be okay on a
Speaker 1: fundamental level. Is not as long as there isn't some
Speaker 1: sort of economic downturn, as long as there isn't really
Speaker 1: a test of the credit cycle, which hasn't been had
Speaker 1: frankly going back almost twenty years, right, How concerned are
Speaker 1: you that this kind of stacflationary hit to the economy
Speaker 1: could expedite that kind of credit cycle that really hasn't
Speaker 1: come to fruition since two thousand and eight.
Speaker 3: I mean, I'm concerned about it. I wouldn't say that
Speaker 3: I'm one of those that is comparing it back to
Speaker 3: the GFC, if you will, I think dynamics are very,
Speaker 3: very significantly different and really kind of that broad liquidity
Speaker 3: that seems to be prevalent both in the equity and
Speaker 3: the fixed income markets is one that will you know,
Speaker 3: for utter for work keep valuations potentially not adjusting as
Speaker 3: quickly as maybe they should.
Speaker 2: Stay with us Mulblindex Savana's coming up off to this,
Speaker 2: General Robert.
Speaker 1: Walsh of Academy Securities writing, infrastructure is only a legal
Speaker 1: target if it directly supports military operations. Dual use systems
Speaker 1: like energy, ports, oil are where things get legally and
Speaker 1: politically risky. General Walsh joins US. Now, General, thank you
Speaker 1: so much for being with us, and we'll get to
Speaker 1: the legality of certain types of strikes in a moment.
Speaker 1: I just want to start with how likely do you
Speaker 1: see escalation as the outcome of tonight.
Speaker 5: I think the path we're on, Lisa, good morning, thanks
Speaker 5: for having me today, is we're on that escalation. We're
Speaker 5: probably seeing some of those strikes start to happen today.
Speaker 5: You've had some of your reports that the IDEAF and
Speaker 5: started that. I think this is just kind of a
Speaker 5: test of wills here now to see where today goes.
Speaker 5: And I think Trump President Trump was very clear yesterday
Speaker 5: that if Iran does not come to the negotiating table
Speaker 5: to negotiate, you know, fairly and honestly, then they're going
Speaker 5: to continue to escalate this and the escalation will continue
Speaker 5: until Iran really decides that they want to negotiate in
Speaker 5: good faith and start to give into some of the
Speaker 5: things that the Trump administration is looking for.
Speaker 4: And one of the things, you know, the Trump administration
Speaker 4: is now looking for general is to have the Straight
Speaker 4: of Horror moose open. You do believe that Iran will
Speaker 4: open or ease the Straight, but you say, only when
Speaker 4: it extracts enough value. What does that scenario look like?
Speaker 5: I think that value they're looking for is one of
Speaker 5: the things they're saying is they want control the Straits
Speaker 5: when this is over, and I don't think that's anything
Speaker 5: anybody in the Gulf region or the US side wants
Speaker 5: it all. They also would like the US and Israel
Speaker 5: to stop all, you know, military actions. One of their
Speaker 5: earlier things was they would like the US to leave
Speaker 5: the Middle East. So I think, you know, and another
Speaker 5: big one that is on the table by Irn. They'd
Speaker 5: like to continue enrichment. So controlling the straits into the
Speaker 5: future and continuing to be able to enrichment is one
Speaker 5: of those things that's just off the table for the
Speaker 5: US as to how far we've been, and I think
Speaker 5: this escalation will continue. There's a point in time here
Speaker 5: that the US makes the decision that we continue to
Speaker 5: escalate and eventually you just go for ending this thing,
Speaker 5: and you just go after taking down their military capabilities
Speaker 5: just as far as you can take it. Some of
Speaker 5: these infrastructure targets we talk about that would be dual
Speaker 5: use type targets. The US has to be careful on that.
Speaker 5: But you start to really just take down their military
Speaker 5: capabilities to go back into production and be able to
Speaker 5: build these capabilities up again. I think that becomes a
Speaker 5: real challenge for them when you start to take down
Speaker 5: some of these infrastructure capabilities. And I think Tyler also
Speaker 5: mentioned China. I think China's a key thing going into
Speaker 5: this is when this is all over, I think President
Speaker 5: Trump needs to look President g in the eye and
Speaker 5: go which side are you really on when it comes
Speaker 5: to the global community you're supporting? You know, President Putin
Speaker 5: in the Ukraine war, and here you are so supporting
Speaker 5: the Iranians with missiles and technology. Are you going to
Speaker 5: continue that or are you going to be more on
Speaker 5: the side of the world community.
Speaker 4: I suppose though, if President Trump does want to end it,
Speaker 4: and he does so with more military force, General, do
Speaker 4: you expect that they need to also be able to
Speaker 4: regain or get control of the Strait of Horror Moves
Speaker 4: and allow for free passage And how difficult would that
Speaker 4: be of an operation?
Speaker 5: Yeah, I think that's very clear that the path that
Speaker 5: the US is on as they start to continue to
Speaker 5: take down the Iranian military capabilities in conjunction with the
Speaker 5: Israeli Defense Force, they continue to take it down, they've
Speaker 5: put this bubble really over the entire country. Now they
Speaker 5: really have to focus on another phase and just really
Speaker 5: focus on the Straits of Horn Moves to be able
Speaker 5: to make that more safe for commercial navigation. It obviously
Speaker 5: would get to the point where the US Navy could
Speaker 5: come into the Gulf they get escort commercial tankers through there,
Speaker 5: and that's a another phase that we could be going into,
Speaker 5: and I certainly think it's doable with the capabilities that
Speaker 5: the US military has, and that would be another phase.
Speaker 5: As we move forward, the US is not going to
Speaker 5: allow Iran to continue to have this leverage over the
Speaker 5: Straits are On. This will take longer than the original
Speaker 5: planet thought because the enemy has a vote. The enemy
Speaker 5: has voted to use the Straits are On Hormuz as leverage,
Speaker 5: and now that they're using it, the US is going
Speaker 5: to have to move to a phase where they make
Speaker 5: that much more safe, where they can bring into commercial shipping.
Speaker 5: And again I'll say that they can do that.
Speaker 1: We just have a bet a minute left, just getting
Speaker 1: some headlines reporting from Axio saying that the US conducted
Speaker 1: strikes on military targets on Carg Island. Based on your
Speaker 1: understanding of the region, how important is carg Island, what
Speaker 1: kind of targets could be in their sights?
Speaker 5: I think the big thing is this is really kind
Speaker 5: of the key thing for the Iranian government but also
Speaker 5: for the IRGC, which gets fifty percent of its funding
Speaker 5: from the oil that goes through Carg Island. So this
Speaker 5: is a lifeline to the regime, and if the US
Speaker 5: starts to hit these military targets, it's a signal today
Speaker 5: that we're serious about going after infrastructure that is important
Speaker 5: to the regime, and the more and more we see
Speaker 5: with this regime, the let more that we're seeing that
Speaker 5: they're isolating the current political leadership, President Posesskian, and they're
Speaker 5: taking more and more control and becoming more and more hardline.
Speaker 5: So an attack on carg Island would send a clear
Speaker 5: signal to the IRGC that President Trump is serious, the
Speaker 5: Israelis are serious about not allowing them to continue to
Speaker 5: control oil, get money, and continue to grow on their
Speaker 5: military capabilities.
Speaker 2: Stay with US multil index Savidance coming up off to this.
Speaker 1: Or Hey Leon of risetead Energy writing, this is no
Speaker 1: longer just a supply story. It's a broader macro story
Speaker 1: impacting growth, inflation and policy. Jorge joins us, Now, what
Speaker 1: do you make right now of the forward looking curve
Speaker 1: in crude the points to de escalation that the market
Speaker 1: is taking a signal from.
Speaker 6: Aliza, thank you for the invitation. Indeed, this is I
Speaker 6: think that right now the market is trying to understand
Speaker 6: what is likely to happen. Are we going going to
Speaker 6: see escalation or de escalation in the coming hours. On
Speaker 6: the one hand, we have a deadline, that is, clocks
Speaker 6: are ticking. On the other hand, we have the news
Speaker 6: that there was an attack on card Island, so still
Speaker 6: very much unknown. But at the same time, I think
Speaker 6: that we should brace ourselves for possibility that this becomes
Speaker 6: becomes a longer conflict, that this, you know, the traffic
Speaker 6: through the straight of Moves remains close for an extended
Speaker 6: period of time. So I think that that's what is
Speaker 6: trying to the market is trying to figure out that
Speaker 6: this at this at this moment, and.
Speaker 1: A lot of people are turning to scenario analysis simply
Speaker 1: because we don't have a lot of facts. One question
Speaker 1: has been what point is this a growth shock and
Speaker 1: at what point is this an inflationary shock? What are
Speaker 1: the thresholds you have on oil prices where it's one
Speaker 1: or the other.
Speaker 6: Sure, So the moment, let's let's think about scenarios. Evoid
Speaker 6: price averages one hundred and ten dollars per barrel this year,
Speaker 6: global growth will be will be trimmed down around one
Speaker 6: percentage point, so from around right now with three percent
Speaker 6: before the crisis to two percent now. At the same time,
Speaker 6: one hundred and ten dollars per barrel means that global
Speaker 6: inflation will pick up rapidly, and then you have the
Speaker 6: secondary effect. So if the central banks around the world
Speaker 6: are going to start increasing interest rates, then that complicates
Speaker 6: even more than macroeconomic outland. Let's not forget that the
Speaker 6: ECB here in Europe and the FED in the US
Speaker 6: have the next meeting on April thirty, and there is
Speaker 6: a lot of possibilities at this moment if the war continues,
Speaker 6: that we are going to see actually increase is in
Speaker 6: interest rates. As I said on April the thirties.
Speaker 4: Well hey somehow pointed to Penco being among them. The
Speaker 4: opposite side of that which Lisa was also getting at,
Speaker 4: that it would result in a hit to growth. Why
Speaker 4: would the next move be a hike and not a
Speaker 4: cut if you do see lower growth as a result
Speaker 4: of higher energy prices, that's a.
Speaker 6: That's a that's a great question. This is normally part
Speaker 6: of the of the of the book of central banks,
Speaker 6: right fighting against inflation. That is the key for any
Speaker 6: micro economic director, for any any director of a central bank.
Speaker 6: Inflation is the key, you know, enemy of macroeconomic growth
Speaker 6: in the medium and long term. So and that is
Speaker 6: part of the mandate of central banks. So I would
Speaker 6: I would assume that that same manual is going to
Speaker 6: continue in this this this time around. That is what
Speaker 6: central banks have been doing when there is a supply
Speaker 6: show which increases oil prices. Killing the inflation is fundamental
Speaker 6: for a more optimistic macroeconomic output. Not in the very
Speaker 6: short term, I agree with you, but if we're thinking
Speaker 6: about how we exed this conflict, then increasing interest rates
Speaker 6: killing inflation is probably one of the most sensible things
Speaker 6: to do.
Speaker 4: I just keep thinking about what we heard from the IA,
Speaker 4: who called this year's disruption the worst ever for the
Speaker 4: global economy, equivalent to the two major crises of the
Speaker 4: nineteen seventies and of oil crisis in twenty twenty two.
Speaker 4: When it comes to natural gas, are you looking at
Speaker 4: a similar environment a disruption the worst ever for energy markets?
Speaker 6: Yes, and no. There are some elements that point towards
Speaker 6: this is much more serious than let's say, the two
Speaker 6: oil crisis of the nineteen seventies. And there are all
Speaker 6: other elements that say no, they're probably a little bit
Speaker 6: less less serious. Let's focus on the ones that show
Speaker 6: that this is slightly less serious. First of all, the
Speaker 6: world depends less on oil right now right than we
Speaker 6: did in nineteen seventy. Now we have nuclear we have renewable.
Speaker 6: So the oil intensity of the global economy is lower,
Speaker 6: significantly lower now than in nineteen seventy. But then you
Speaker 6: have the other argument that back then in nineteen seventy,
Speaker 6: there was not a lot of gas demand, right and
Speaker 6: right now you have a double crisis, which is oil
Speaker 6: and gas. So those are the two elements that we
Speaker 6: could probably think think about, you know, when comparing to
Speaker 6: the to the you know, to the previous energy crisis.
Speaker 6: But I agree with you whether it's you know, a
Speaker 6: bit more serious or less less serious than the previous crisis,
Speaker 6: sort of it's sort of slightly relevant.
Speaker 2: Right now.
Speaker 6: What we need to focus is on how long this
Speaker 6: is going to last for to make sure that we
Speaker 6: have you know, the correct variedyt at the end of
Speaker 6: the of the crisis. The duration is the key variable here.
Speaker 6: Is this going to end up being an extended, a
Speaker 6: prolonged crisis or this is going to be a short
Speaker 6: lived crisis.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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