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Speaker 2: Well Iron fired missiles at a US air base, and
Speaker 2: Cutter after promising it would respond proportionately and decisively to
Speaker 2: President Trump's weekend air strikes on three of its nuclear facilities.
Speaker 2: Cutter said the barrage at Aluded Base, the biggest such
Speaker 2: US facility in the Middle East, was intercepted, and that
Speaker 2: there were no casualties.
Speaker 3: Carol.
Speaker 2: For a look at US national security in the US's
Speaker 2: role in global security, We're going to bring in Nick Wadams,
Speaker 2: Bloomberg News National Security Team leader. He joins us from
Speaker 2: our Washington DCA.
Speaker 4: Hey, Nick, good to have you here. I know it's
Speaker 4: been a busy week and a busy day. We're trying
Speaker 4: to understand a little bit what feels like military choreography,
Speaker 4: maybe on the part of the US and on the
Speaker 4: part of Iran. Right, missile strike on Cutter was telegraphed
Speaker 4: and had been expected by the US and its allies,
Speaker 4: according to a person familiar. And it's also you know,
Speaker 4: you've got President Trump. He was telegraphing it's going to
Speaker 4: be within two weeks. And so did that give Iran
Speaker 4: a warning? You understand this world? Help me understand how
Speaker 4: military works today?
Speaker 3: Right?
Speaker 5: I mean, so choreography is a really good word here.
Speaker 5: There is a sort of delicate dance going on. After
Speaker 5: the President telegraphed his plans well in advance and then
Speaker 5: sort of tried to gauge what the potential reaction would be.
Speaker 5: US carried out those strikes, and then afterwards had a
Speaker 5: bunch of US officials go on TV and say, hey, listen,
Speaker 5: this was a limited strike. It was aimed at the
Speaker 5: nuclear program, not against Iran. Writ large, then Iran feels
Speaker 5: it needs to retaliate, and then it wants to sort
Speaker 5: for its domestic audience portray this as a very big,
Speaker 5: overwhelming response. But then the indication we're getting from Cutter
Speaker 5: and elsewhere, As you mentioned, this was telegraphed well in advance.
Speaker 5: It targeted a base that had been largely evacuated of
Speaker 5: valuable US military assets, So a symbolic show of force,
Speaker 5: but it looks like when you dig a little bit. Actually,
Speaker 5: the Iranian desire was not to cause too much damage,
Speaker 5: So the interpretation there is okay, now they want to
Speaker 5: push toward a potential new conversation with the US. They
Speaker 5: want an off ramp. Two complicating factors to that. One noise,
Speaker 5: of course, that Iran and Israel are still engaged in
Speaker 5: tit for tat exchanges, so that conflict hasn't ended. The
Speaker 5: other is, which we don't know, is this the end?
Speaker 5: Is Iran planning further attacks? They haven't issued a statement
Speaker 5: to say, hey, we're done here, let's move on.
Speaker 3: Right.
Speaker 2: That's a really good point. I mean, they did say
Speaker 2: proportionately and decisively, this doesn't seem proportional to attacks on
Speaker 2: three of its nuclear facilities. I think it doesn't take
Speaker 2: a nuclear scientist to make that conclearsion. Nick, You know,
Speaker 2: I was thinking about this over the weekend. Other presidents
Speaker 2: have had the opportunity to strike Iran's nuclear targets. Did
Speaker 2: they avoid it because of fears of retaliation?
Speaker 3: Yeah?
Speaker 5: I mean I think there were a lot of questions there.
Speaker 5: The reasons why they avoided it. I mean, it was
Speaker 5: seen as too risky potentially in terms of retaliation by Iran.
Speaker 5: The other question is a matter of efficacy, and one
Speaker 5: thing we don't know about these strikes how much they
Speaker 5: actually obliterated the Iranian nuclear program, as President Trump claimed.
Speaker 5: So there is a potential unintended consequence which as you
Speaker 5: drive Iran's nuclear program deeper underground, both figuratively and literally.
Speaker 5: So does this produce the outcomeing you want? The other is, obviously, well,
Speaker 5: what are the third, fourth, fifth order consequence consequences of this,
Speaker 5: the unknown unknowns that we don't know about. You look
Speaker 5: at the Iraq War two thousand and three. Folks thought, okay,
Speaker 5: we were going to be greeted as liberators when US
Speaker 5: troops went in there, and then you look at what
Speaker 5: a mess everything became, the rise of the Islamic State,
Speaker 5: et cetera.
Speaker 3: So the question is is.
Speaker 5: This something Trump can just do and then get out
Speaker 5: or does this lead to a whole new conflict the
Speaker 5: likes of which we just can't imagine right now.
Speaker 4: Well, Nick, on a global security basis, I mean, what
Speaker 4: are the implications and kind of optics of the US
Speaker 4: actually getting involved, right. You know, that's one thing that
Speaker 4: they're behind the scenes and helping out and supporting, But
Speaker 4: they're involved.
Speaker 5: Right, and you know they're the first order consequences the
Speaker 5: issue of what the potential Iranian retaliation might be in
Speaker 5: the future, what this actually does to Iron's nuclear program.
Speaker 5: But then you have the other element, which is the
Speaker 5: United States just attacked a sovereign country even though the
Speaker 5: US intelligence community assessed that there was no imminent threat
Speaker 5: to the US. So you could call this deterrence or
Speaker 5: a preventive strike. But is it you know, was it
Speaker 5: too precipitous When you have a country like the US
Speaker 5: that essentially says, hey, we're going to uphold this global
Speaker 5: order and then condemn a country like Russia for an
Speaker 5: attack on a sovereign country ie Ukraine, What does that
Speaker 5: do to US legitimacy and questions around US authority when
Speaker 5: it goes after a sovereign country like Iran. You know,
Speaker 5: there's a concern that it's essentially opening up a Pandora's box, right,
Speaker 5: and maybe opening it up to other countries doing the
Speaker 5: same thing.
Speaker 4: All right, good to check in with you, Like I said,
Speaker 4: I know you guys all there in DC are super busy.
Speaker 4: Nick Wadams, Bloomberg News National Security Team leader, joining us
Speaker 4: from our Washington d C burea.
Speaker 6: Nick, Thank you.
Speaker 2: Okay, So look at how US government is thinking about
Speaker 2: potential retaliation from Iran. For more on how Iran navigates
Speaker 2: after the US bombings over the weekend, we turned to
Speaker 2: Arial Cohen, non resident Senior Fellow at the Atlantic Council's
Speaker 2: Eurasia Center, also a member of the Council of Foreign Relations.
Speaker 2: He joins us from Washington d C. Doctor Cohen, good
Speaker 2: to have you with us this afternoon. I have a
Speaker 2: lot of questions about proportional retaliation, but I want to
Speaker 2: know what, in your view, Iran is actually capable of
Speaker 2: right now? What is the state of Iran's military, it's
Speaker 2: armed forces right now? What are they capable of?
Speaker 6: I believe that in a short range missile such as
Speaker 6: the missiles that they fired against US based and Kutar
Speaker 6: potentially US based in Iraq.
Speaker 3: And Syria, we may see more attacks.
Speaker 6: The main news here is that Iran went through sort
Speaker 6: of kind of performative retaliation.
Speaker 3: This was not mother of old.
Speaker 6: Retaliations because a they signaled and b they use the
Speaker 6: systems that were intercepted, and they knew that US and
Speaker 6: Cutter could intercept their missiles. So what does it tell me?
Speaker 6: Tell me that they did not throw the caution out
Speaker 6: of the window. They probably had intervention from China because
Speaker 6: China is a major customer poor Iranian oil. Up to
Speaker 6: fifteen percent of Chinese oil and even more so of
Speaker 6: Iranian oil goes to China and the Golf States, because
Speaker 6: Qatar is a member of Golf Corporation Council, so is Amad.
Speaker 3: If they try to block the Strait of Horrormus, they.
Speaker 6: Would need to do it in the Omani waters, that's
Speaker 6: where the passage is, so they would be in conflict
Speaker 6: with all of the Golf Corporation Council, which is Arab
Speaker 6: of course and Sunni. And then you could couch this
Speaker 6: conflict in the in terms of Arab versus Iranian, Sunni versus.
Speaker 3: They did not want to do it.
Speaker 6: They're not there yet in terms of are they going
Speaker 6: to do more retaliations. It really depends on the balance
Speaker 6: of power in Tehran. We see reports that Ayatola is
Speaker 6: in hiding and nowhere to be found. That Ayatola has
Speaker 6: to sign everything, so I do believe that once the
Speaker 6: elite in Tehran digests the severity of the blows both
Speaker 6: Israeli and American, there will be massive changes in the regime.
Speaker 3: My sources are saying more than sixty percent.
Speaker 6: Chances that the Ayatollah will not stay here by the
Speaker 6: end of this year.
Speaker 7: Regime change, wow, okay, better.
Speaker 6: Internal internal, not US imposed, not Israeli posed.
Speaker 3: But things will shift.
Speaker 6: And we know for years that i RGC, the Islamic
Speaker 6: Revolutionary Guard a corn the.
Speaker 3: Fifth of the regime, is not happy with the rule
Speaker 3: of the clerics. They want to run the show. They
Speaker 3: want to control all the goodies.
Speaker 6: They are aware that the Iranian economy was run into
Speaker 6: the ground by the clerics and the Iran is very isolated.
Speaker 6: And as usual, they're different wings. They're more anti Western wing,
Speaker 6: more radical wing, and more pragmatic wing.
Speaker 7: I have a couple questions. First of all, regime change.
Speaker 4: Will be for the better or we don't know, like
Speaker 4: who is in the wings waiting to take over.
Speaker 3: Let's let's go down the list.
Speaker 6: I mentioned IRGC, and I mentioned that there's a split
Speaker 6: within IRGC.
Speaker 3: This is the military wing of the Islamic regime.
Speaker 6: In addition, there's a regular army, which is less idea,
Speaker 6: less ideological, less politicized. They are a separate body. Some
Speaker 6: of these officers were officers back in the day, even
Speaker 6: under the shop. Now of course that generation is gone.
Speaker 6: Then they're liberals or technocratics in the regime. Then they're
Speaker 6: the monarchists. The crown Prince of Iran, Reza lives about.
Speaker 3: What five miles from where I live in Potomac, Maryland.
Speaker 6: Yeah, And then they're the Mujahiden, the Marxist wing that
Speaker 6: was fighting desperately with this regime.
Speaker 3: These are atheists and.
Speaker 6: Once violent. Some people call them terrorists. That's another far
Speaker 6: left which so you see the spectrum and what the
Speaker 6: islamister are doing. Them are monopolizing power. They're not transitioning
Speaker 6: that pretty sophisticated modern society into some semblance of a
Speaker 6: democratic machine that could balance the interest of different groups.
Speaker 4: So, doctor Coni dosick, if we do see a regime change,
Speaker 4: or largely a regime change, is it better is such
Speaker 4: a poor word, But is it better on the other side,
Speaker 4: for the people of Iran, for Iron's role in the region,
Speaker 4: and maybe even you know, globally.
Speaker 6: Look, this is a highly opaque situation, very difficult to predict.
Speaker 6: I would say that if the system opens up, if
Speaker 6: the system avoids a civil war, which is a possibility
Speaker 6: also not necessarily a high possibility, but a possibility, if
Speaker 6: the system brings more participation from the society.
Speaker 3: Imagine they have the urban.
Speaker 6: Dweller, the city society that is educated, a lot of
Speaker 6: people whose college education. A lot of people are looking
Speaker 6: towards the West, not towards China, not towards Russia to
Speaker 6: model their society, and they're aware that women fifty percent
Speaker 6: of the population are abused and severely.
Speaker 3: Oppressed by that regime.
Speaker 6: We saw nine hundred plus nine hundred and eighty two
Speaker 6: people I believe in twenty twenty four killed. We see torture,
Speaker 6: we see execution of gays, we see all kinds of brutal,
Speaker 6: barbaric behavior that a lot of city dwellers, educated Iranians
Speaker 6: are totally rejecting. There's a lot of sympathy towards the West,
Speaker 6: towards the United States, and even towards Israel. And the
Speaker 6: fact that the Israeli intelligence and other intelligences so effective
Speaker 6: is because there is a lot of corporation by the
Speaker 6: Iranians with Western intelligence services.
Speaker 2: That is fascinating to hear before even the possibility of
Speaker 2: talking about a different regime in Tehran. I think there
Speaker 2: are some questions now that Americans in the US military
Speaker 2: and the President wants the answers to, For example, where
Speaker 2: is the enriched uranium now? If it left fourdoh? Do
Speaker 2: we have any idea?
Speaker 3: Absolutely, we don't know if it left fourdo. But I
Speaker 3: can tell you one thing.
Speaker 6: That uranium is enriched to sixty percent, which is twenty
Speaker 6: times more.
Speaker 3: Enriched than what they need for the.
Speaker 6: Civilian nuclear reactor for electric power generation. That was a
Speaker 6: step before enriching to eighty ninety percent for the bomb.
Speaker 6: They have enough uranium, according to open sources, to eight
Speaker 6: or nine bombs. They could have taken that uranium at
Speaker 6: sixty percent as they have it currently, package it into
Speaker 6: regular explosion with regular explosives, containerize it and blow it
Speaker 6: up in Israel, in the United States, in Europe, you
Speaker 6: name it.
Speaker 3: So it's a clear and present danger.
Speaker 6: And I disagree with the intelligent community assessment and with
Speaker 6: the gentleman who spoke before me, your security desk chief,
Speaker 6: because no country builds a ballistic missile arsenal with long
Speaker 6: range missiles that could reach Europe and are reaching Israel,
Speaker 6: and all you need to do is add one more
Speaker 6: stage to that missile to make it an ICBM.
Speaker 3: And Iran already is building.
Speaker 6: That capacity because they're putting satellites in space. So with
Speaker 6: sixty percent enrichment, that a step just before putting it
Speaker 6: in a warhead. And they can get the warhead technology
Speaker 6: from North Korea, Russia, from China, from Pakistan. So they
Speaker 6: are at a threshold country. And what the United States
Speaker 6: and President Trump did was absolutely correct for the interest
Speaker 6: of the United States.
Speaker 3: We do not forget that.
Speaker 6: Since ninety seventy nine, for forty six years, every Friday,
Speaker 6: these people are chanting death to America, death to Israel,
Speaker 6: and they killed over a thousand Americans, the tortured American officers,
Speaker 6: military officers, the killed American servicemen in the Cobar towers,
Speaker 6: et cetera.
Speaker 3: They are a hostile power and they what.
Speaker 6: Trump is trying to do is to put them down
Speaker 6: a peg and possibly consumed doctor Villain Freeman.
Speaker 2: In your view, did the US go far enough with
Speaker 2: the bombing campaign on Saturday evening into the early hours
Speaker 2: of Sunday, or does the US need to do more.
Speaker 3: I think we went as far as we could.
Speaker 6: We used cutting edge technology, the heavy bunk bunker buster bombs,
Speaker 6: and we need to do a damage assessment. Once we
Speaker 6: have a damage assessment and it will be classified, I
Speaker 6: won't know it then Trump, he said, Chief of Joint Chiefs.
Speaker 6: The Head of Joint Chiefs will reassess it with the
Speaker 6: National Security Council, with the intelligence community, reassess it and decide.
Speaker 3: But I think President Trump is trying to de escalate now.
Speaker 6: And I think what this attack is telling me that
Speaker 6: the Iranians are playing ball. They want to walk away
Speaker 6: from this situation because they realize they're kind of crazy.
Speaker 3: But they're not, you know, they're not stupid.
Speaker 6: They're trying to They're realizing that more bombing campaign, both
Speaker 6: from Israel and from the United States may signal the
Speaker 6: end of that regime.
Speaker 4: AH many more questions I'd love to ask you. Can
Speaker 4: I just ask you thirty seconds? Does China, being somewhat
Speaker 4: a lot allied with Ron, complicate things.
Speaker 7: Very quickly if you could?
Speaker 4: Like twenty five.
Speaker 6: Has a four hundred billion dollar investment agreement.
Speaker 3: I think it's twenty five.
Speaker 6: Years stretch, and they are buying a lot of Iranian.
Speaker 3: Oil, and they're doing a lot of other.
Speaker 6: Things the Chinese do infrastructure, roads, airports, etc. The Chinese
Speaker 6: do not want that agreement to be destroyed. And I
Speaker 6: would recommend to anybody who is engaged in Iran tell
Speaker 6: the Chinese, don't worry, your investment is safe. Same thing
Speaker 6: as we should have done with the Russians in Iraq.
Speaker 3: I advocated that back in.
Speaker 6: Two thousand and three, and the Bush administration did not
Speaker 6: listen and we turned Russia against US.
Speaker 3: Now the Russians are being very cautious.
Speaker 6: The Russians had that defense agreement with Iran, but it
Speaker 6: did not include mutual defense, mutual military activity. And the Chinese,
Speaker 6: again it's very opaque. We do not know what they're supplying.
Speaker 6: Possibly some miss cell technology too. Iran came from China,
Speaker 6: we don't know.
Speaker 3: That for sure.
Speaker 6: But the Chinese are very very cautious because they don't
Speaker 6: have the power projection capability in the Gulf like the
Speaker 6: United States.
Speaker 4: Very interesting, Thank you so much, so appreciate your time today.
Speaker 4: Eryl Cohen, non resident Senior Fellow at the Atlanta Council's
Speaker 4: Eurasia Center and a member of the Council of Foreign Relations,
Speaker 4: joining us from Washington, DC.
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Speaker 2: Well against the backdrop of the war in the Middle East,
Speaker 2: that the US is now involved in an ongoing tariff
Speaker 2: trade war, we're just a few weeks from that July deadline,
Speaker 2: rising oil prices, Carol, potential disruptions, and chipping through the
Speaker 2: crucial strait of horror moves. The macro economic background is
Speaker 2: certainly complex. There's a lot for investors to wade through.
Speaker 4: Yeah, absolutely, although risk go on in today's straight Torston's
Speaker 4: Lack is chief economist partner of at Apollo Global Management,
Speaker 4: joining us from New York. Tourston, you did send, first
Speaker 4: of all, welcome, welcome, good to have you here. You
Speaker 4: sent a note out this morning that included data for
Speaker 4: ship crossings in the Strait of Hormus. It's Bloomberg data.
Speaker 4: It does show decline in traffic both.
Speaker 7: West to east, east to west.
Speaker 4: Is this your main macroeconomic concern when it comes to
Speaker 4: what we are watching in the Middle East? And the
Speaker 4: potential for even further escalations escalation, and.
Speaker 7: I guess not just escalation, but a longer duration of conflict.
Speaker 8: I think the bigger picture really here is that we
Speaker 8: already have an economy that is experiencing techflation. We have
Speaker 8: terms higher means, higher inflation, lower GDP growth. We also
Speaker 8: have restrictions on immigration, many deportations. Meaning if you lower
Speaker 8: the labor falls at the moment, the administration has the
Speaker 8: stated goal of lowering labor falls but about a million people.
Speaker 9: And of course if you do that.
Speaker 8: You would also begin to have more upward pressure on inflation,
Speaker 8: specifically wa inflation, and of course also downward pressure on
Speaker 8: employment and therefore economic activity.
Speaker 9: And if we add to that the risks here to
Speaker 9: oil prices.
Speaker 8: Yes, I do understand that oil prices are now going
Speaker 8: down and.
Speaker 9: Some special reasons for that.
Speaker 8: But the fear of course here is that if the
Speaker 8: oil price increase that we've seen since the beginning of June,
Speaker 8: if that is continuously hanging at the current levels or
Speaker 8: even goes higher, of course that will also be staflation,
Speaker 8: meaning putting up our pressure on inflation and downward pressure
Speaker 8: on GDP.
Speaker 9: So, in summary, adding everything together, where we stand.
Speaker 8: At the moment, We just have that the economy is
Speaker 8: hit by a number of shocks that have the same characteristics,
Speaker 8: namely high inflation and lower.
Speaker 2: GDP Trsten, You've been beating this drum for a while,
Speaker 2: and I was surprised because I read the notes that
Speaker 2: you send. Perhaps I was surprised to hear j. Powell
Speaker 2: essentially say last week that everything is okay, there are
Speaker 2: no issues starting to form anywhere. That was the takeaway
Speaker 2: I got. Maybe we'll hear something different tomorrow and Wednesday
Speaker 2: when we hear from the Fed chair on Capitol Hill.
Speaker 2: Do you think that the Fed chair is incorrect with
Speaker 2: his assessment of the economy?
Speaker 8: Tim this is really really important because what's also very
Speaker 8: interesting is that last week Chris Waller began to talk
Speaker 8: about rapcut in July, and today we had Mickey Bowman
Speaker 8: first talk about rapcot also now in July, and now
Speaker 8: we also have goals by talking about that, Well, the
Speaker 8: dust may have been cleared in the air and maybe
Speaker 8: there's no room for cutting rates. That's very interesting. When
Speaker 8: Japal last week very clearly said word for word, we
Speaker 8: expect a meaningful increase in inflation over the coming months,
Speaker 8: so it's telling you that this rise in inflation that's
Speaker 8: coming as a result of oil prices already haven't gone up,
Speaker 8: this as a result of tariffs already having of course
Speaker 8: gone up, and also as a result of potential up
Speaker 8: by pressure on wage inflation, that the FED is deciding
Speaker 8: to almost look through the coming rise in inflation and
Speaker 8: focus more on the worries about growth slowing down. So yes,
Speaker 8: FED watching here at the moment is very interesting simply
Speaker 8: because the dual mandate is torn in opposite directions.
Speaker 9: On the one hand, when inflation is going up, the
Speaker 9: fetch would be hiking. On the other hand, where he
Speaker 9: grows is slowing down, the fetcher be cutting. So where
Speaker 9: do they put that weight? And the last few fitzpeakers
Speaker 9: have clearly said, including.
Speaker 8: Today Will Goalsby and Bowman, that the focus should be
Speaker 8: on growth slowing down. So that's why we are probably
Speaker 8: moving more towards more rate cuts coming faster than what
Speaker 8: the marker was pricing just even a few days ago.
Speaker 4: I just want to add in one caveat from Austin
Speaker 4: Gooseby towards him where he said, of course, Federal Reserve
Speaker 4: Bank of Chicago President Austin Goolsby. He says the Central
Speaker 4: Bank could resume interest rates cuts if the inflation hit
Speaker 4: from tariff's remains subdued. Don't we have to kind of
Speaker 4: wait a few months to see because ultimately we're going
Speaker 4: to find out hopefully very soon in terms of what
Speaker 4: the tariffs really are and how they play out. But
Speaker 4: at any rate it is going to be higher than
Speaker 4: it was before. There will be some cost pressures potentially.
Speaker 8: Absolutely, And that's why what's really interesting in Harold about
Speaker 8: this issue and this debate is, of course this difference
Speaker 8: between what Jappal said Wednesday and now we've had three
Speaker 8: speakers since then that go out and basically say something
Speaker 8: a little bit different. They are all of course conditioning
Speaker 8: on saying if inflation is not a problem, then we'll
Speaker 8: be cutting.
Speaker 9: But here the key question becomes what does a problem mean?
Speaker 8: If I on my Blueberg screen side ECFC go and
Speaker 8: I start looking at the consentuous forecast to inflation, you
Speaker 8: will see that the expectation is inflation will go up
Speaker 8: from two point six in this quarter to three point.
Speaker 9: Three by the end of the year.
Speaker 8: That's a fairly significant expected increase in invlation. And is
Speaker 8: the fit just going to ignore that rise and say, hey,
Speaker 8: we're just going to cut interest rates and ignore inflation
Speaker 8: is going up. That's why it still remains to be
Speaker 8: seen with the next FROMC meeting what they actually are
Speaker 8: as a committee thinking, because it's very clear that these
Speaker 8: individual members that are moving in a direction of more cuts.
Speaker 8: You're right that there are more nuances as both Gostby
Speaker 8: was also pointing out his speech, but definitely also in
Speaker 8: contrast to what Jpal was saying last week.
Speaker 4: Yeah, it's amazing how fast and furious it's coming. Having
Speaker 4: said that, so then the idea of stag vers, I mean,
Speaker 4: I know we've talked about it, We've talked about it
Speaker 4: a lot here at Bloomberg.
Speaker 7: Is that still a high possibility?
Speaker 8: I still think that it's a high possible at least
Speaker 8: this is what the consensus is expecting. If I do
Speaker 8: look at that Bloomberg screen that shows you the consensus
Speaker 8: expectation again ECFC go, then it will tell you that
Speaker 8: there is the expectation inflation is going up.
Speaker 9: And this was also m GDP growing down.
Speaker 8: This was also what the Fed did last week and
Speaker 8: the CP in the forecast that the Fed published, they
Speaker 8: raised inflation. This year to three percent by the end
Speaker 8: of the year, and they lower grows.
Speaker 9: One point four percent.
Speaker 8: That means quite uncomfortable for investors scenario, because should I
Speaker 8: put weight on inflation going up on growth slowing down?
Speaker 8: In terms of what the FED will do, And now
Speaker 8: the Fed seems to be leaning, at least with the
Speaker 8: lateste from symbombers towards saying, hey, we're just going to
Speaker 8: ignore the rise in inflation is probably just temporary, and
Speaker 8: then we're.
Speaker 9: Going to cut rates.
Speaker 8: But that is where the debate needs to be again
Speaker 8: more clear in terms of what is it that they're
Speaker 8: saying today reads it to what Jip how actually said
Speaker 8: last Wednesday.
Speaker 2: You know, I'm curious because look, you're an economist, you're
Speaker 2: you're you're not going to tell us what stocks to
Speaker 2: buy or you know what equities or what assets to own.
Speaker 2: But you do work for an asset manager, and the
Speaker 2: idea is that you advise people there about what to do.
Speaker 2: What should investors be doing in a situation like this,
Speaker 2: because by the sound of it, it seems like maybe
Speaker 2: you think the equity market has it wrong right now.
Speaker 9: I do think the public equity market has it wrong.
Speaker 8: So here's the answer to your question, what you'ld investors do,
Speaker 8: they should do three things. The key outcome of everything
Speaker 8: we're talking about here is that interest rates will be
Speaker 8: higher for longer, meaning we're not going down to zero
Speaker 8: interest rates or to dramatically low interest rates. Yes, the
Speaker 8: market is pricing somewhere between one and two cuts this year,
Speaker 8: but that's not much.
Speaker 9: That means that the level of interest rates this year
Speaker 9: will still be high and next year.
Speaker 8: The Fed also just published their forecast saying that interust
Speaker 8: rates will be high.
Speaker 9: And what should you do when interest rates are higher
Speaker 9: for longer? You should be up in.
Speaker 8: Quality opt ecology and credit and private credit. That means
Speaker 8: first lean seeing as secure a top of the campus
Speaker 8: structure to get the best protection you can get against
Speaker 8: the risk of a sharper slowdown. But it must be
Speaker 8: high quality assets, high quality credit to make sure that
Speaker 8: you're protected against the downside risks that comes with this
Speaker 8: risk of growth slowing down. At the same time, the
Speaker 8: second thing that's interesting, Yeah, two more things, Carol. Thing
Speaker 8: that's interesting for investors is, of course, as the things
Speaker 8: that comes with dislocation funds. That means secondaries in pe,
Speaker 8: that means these location funds also in when it comes.
Speaker 9: To the broader entry point for private credit and for markets.
Speaker 8: And the last thing that's interesting is of course thematic
Speaker 8: investing things that as five ways, so you can get
Speaker 8: from the trade wall, so that will be infrastructure, data center, inergy, sensation,
Speaker 8: climate thinks, the long duration assets that have nothing to do
Speaker 8: with in near term outlook.
Speaker 4: All right, fifteen seconds on a tenure? Is five percent
Speaker 4: not even a consideration in your world?
Speaker 7: Or could it happen?
Speaker 8: I absolutely think that long term interstrates are going up.
Speaker 8: So solter interstrates are going up because of inflation. Long
Speaker 8: ter interstrates are going up because of partly inflation, but
Speaker 8: also because of the fiscal challenges. So there's upward pressure
Speaker 8: on the whole yield curve for these different reasons.
Speaker 4: Even five percent, yes, sir, no, real quick? Yeah you
Speaker 4: think you said yes? I think I saw them say yes.
Speaker 7: It's touristed.
Speaker 4: Yes, thank you, Turstan slack Over at Apollo Global Management.
Speaker 7: This is Bloomberg Business Weekdaily.
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Speaker 7: All right, TikTok everybody.
Speaker 4: Yeah, we got about just under seventeen minutes. Are going
Speaker 4: to we wrap up the trade on this Monday. It's
Speaker 4: been an interesting one, maybe not as expected. We've seen
Speaker 4: the markets kind of all over the place, and right
Speaker 4: now we are hovering near our highs of the day.
Speaker 7: So we're up almost eight.
Speaker 4: Tens of a percent on the S and P five hundred,
Speaker 4: up seven tens of a percent in the Dow Jones
Speaker 4: Industrial Average. More than three hundred point moved to the
Speaker 4: upside for the Dow NASTEQ one hundred up almost two
Speaker 4: hundred points. Tim good for a gain of about nine
Speaker 4: tens of a percent, But keep in mind we were
Speaker 4: lower when the initial strikes by iron on cutter, and
Speaker 4: then I think the perception was that it wasn't as
Speaker 4: maybe big as it could have been, or as devastating, I.
Speaker 7: Guess, yeah. And so we saw markets bounce off in
Speaker 7: a big way. Oil has been down.
Speaker 2: You know, I think what I found pretty shocking just
Speaker 2: being and this is the day when you want to
Speaker 2: be a fly on a wall in a newsroom, because
Speaker 2: we're following the headlines. The markets are moving with the headlines.
Speaker 2: At twelve thirty three pm Wall Street time, we saw
Speaker 2: stocks fall because the Wall Street jonnel reported that Ron
Speaker 2: moved launchers for a possible attack on US forces. And
Speaker 2: then less than an hour later we get this headline
Speaker 2: Cutter says, it's successfully intercepted Iran missile attack. We see
Speaker 2: a breath of relief in the markets, and we start
Speaker 2: to see them move higher.
Speaker 7: Yeah, exactly.
Speaker 4: If I'm going back to crude futures, which we're up
Speaker 4: more than six percent at they're high. Today they're down
Speaker 4: almost seven percent as we speak. I go back to
Speaker 4: our conversation with Dick Wanham's about the choreography, like I just.
Speaker 7: There's you know, we'll see, we'll see where this all lands.
Speaker 2: I want to see what Megan Horneman has to say
Speaker 2: about this. She's chief investment officer at Burden's Capital Advisor.
Speaker 2: She joins us from Hunt Valley, Maryland. Meghan, I want
Speaker 2: to let everybody know that in the notes that you
Speaker 2: sent out today, you make the point that you are
Speaker 2: market specialists, not political experts. So we're not going to
Speaker 2: ask you about the politics of this. We're going to
Speaker 2: ask you about the market reaction. It's been muted on.
Speaker 3: The equity side.
Speaker 2: We saw oil go up, now oil go down. Why
Speaker 2: a muted reaction to a military operation and esc adding
Speaker 2: conflicts such as this.
Speaker 10: So I think coming in this morning and we can
Speaker 10: talk about equities first. When we came in this morning,
Speaker 10: it was it was it was a muted reaction. Equity
Speaker 10: futures were actually up before the market open, and then
Speaker 10: it was relatively you know, positive, but not by much.
Speaker 10: And I think that markets were just awaiting what was
Speaker 10: going to happen next. And I think the surprise you
Speaker 10: know that that Qatar had was being you know, Iran
Speaker 10: and launched missiles against Qatar. This the markets reacted to
Speaker 10: the fact that this was a better than expected I
Speaker 10: guess reaction from Iran. So what we saw was you know,
Speaker 10: the markets down when the news broke that they were
Speaker 10: going to attack guitar and then them come all the
Speaker 10: way back now sitting here near record highs as the
Speaker 10: markets seeing that, hey, that this was not that big
Speaker 10: of a move. So I think the market's just celebrating
Speaker 10: the fact that there hasn't been anything major yet and
Speaker 10: the retaliation efforts that Iran has taken thus far haven't
Speaker 10: been that detrimental.
Speaker 7: Are you surprised? I mean, I think, you know, we
Speaker 7: came in and it felt.
Speaker 4: A little quiet, and then of course the headlines you know,
Speaker 4: started around midday in terms of what's going on and cutter,
Speaker 4: but it just felt like an uneasy quiet. Certainly this
Speaker 4: morning we were surprised by the market reaction or what
Speaker 4: does it tell you, maybe more longer term or maybe nothing.
Speaker 3: Now.
Speaker 10: I was a bit surprised this morning that it was
Speaker 10: so quiet. Even the VIX index really didn't move much.
Speaker 10: I mean, it was more than less than half of
Speaker 10: what we saw in the during the liberation spike, what
Speaker 10: we saw in volatility. So I was a bit surprised
Speaker 10: that the equity markets relatively muted. I'm a bit more
Speaker 10: surprised that oil futures have sold off so much. I
Speaker 10: don't think that's behind US. I do think any disruption
Speaker 10: in the Middle East can have an impact on oil prices,
Speaker 10: so I'm a little surprised at how quickly they decline.
Speaker 10: I mean, we're down on the day, you know that.
Speaker 10: That's surprising when we're looking at such a dramatic impact
Speaker 10: that we saw over the weekend in Iran.
Speaker 4: I think we're still up though about I want to say,
Speaker 4: about four percent since that initial Israel attack on Iran.
Speaker 4: So I think we're still up. But you're right today,
Speaker 4: you know we're down a lot. We've seen actually a
Speaker 4: pretty big swing. So what do you do for clients
Speaker 4: right now?
Speaker 10: Well, first of all, we have to not be complacent.
Speaker 10: We have to realize that, yes, we haven't seen any
Speaker 10: major retaliatory impacts from Iran. It does look like we've
Speaker 10: weakened them in some respect. But don't be complacent either.
Speaker 10: We still do have a conflict in the Middle East
Speaker 10: and that can have impacts on the market. And what
Speaker 10: we've seen with history, if you look at any of
Speaker 10: the different military actions the US has taken, they tend
Speaker 10: to see some weakness, but positive equity markets in the
Speaker 10: long term. So that's what we're telling clients right now.
Speaker 10: We're focusing on the long term. We're not going to
Speaker 10: get emotional and just sell everything because of this conflict. Instead,
Speaker 10: we're going to look at long term fundamentals us economy.
Speaker 10: The FED still is on the table to be able
Speaker 10: to cut rates this year. The economy is weakening but
Speaker 10: not completely falling off a cliff, and we're seeing that,
Speaker 10: you know, consumers, The confidence has been very weak, but
Speaker 10: consumers still are out there, So there are some positives
Speaker 10: to note. Don't forget. There's several things though, coming up
Speaker 10: in the next couple of weeks where we also don't
Speaker 10: want to be complacent. We have earning season picking up,
Speaker 10: and then we still have that July ninth deadline. From
Speaker 10: a tariff perspective, don't be complacent on some of these
Speaker 10: other risks that are out there. So don't sell into this.
Speaker 10: But I wouldn't necessarily be buying into this either, which what.
Speaker 2: Changes your view though, what makes you either run for
Speaker 2: the hills or says, Okay, we better strap in for
Speaker 2: the long haul here.
Speaker 10: I think if the if we start to see this
Speaker 10: intensify and broaden out beyond just Iran and Israel. If
Speaker 10: other countries get involved, that obviously wouldn't.
Speaker 2: Make anathy like the US did over the weekend.
Speaker 10: Well, the US again has been trying to get Iran
Speaker 10: to the negotiating table for many many months, and this
Speaker 10: has failed and failed and failed. And it's not just
Speaker 10: you know, this has been many administrations. So again the
Speaker 10: US did get get involved in this. The US has
Speaker 10: also said this isn't a declaration of war. The other countries,
Speaker 10: where we get China, Russia, some of these other big
Speaker 10: powerhouses involved, that's going to be a concern for me.
Speaker 10: If it does escalate beyond just these missiles that are
Speaker 10: going into Israel that are being intercepted by their dome,
Speaker 10: that's a concern as well because they are one of
Speaker 10: our key allies.
Speaker 7: Meghan, thanks so much. Megan Horneman.
Speaker 4: She's chief Investment Officer of at Vernon's Capital Advisors, joining
Speaker 4: us from Maryland on this Monday.
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