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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Lisa A.

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Speaker 1: Bromwoods, along with Tom Keane and Jonathan Ferrow. Join us

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Speaker 1: each day for insight from the best in economics, geopolitics,

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Speaker 1: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 1: Spotify and anywhere you get your podcasts, and always on

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Speaker 1: Bloomberg dot Com, the Bloomberg Terminal and the Bloomberg Business App.

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Speaker 3: Okay, my art theme here, folks, is the change and

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Speaker 3: the changes the media, the immediacy of the imagery. What

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Speaker 3: we see on social media, what we're seeing with all

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Speaker 3: the modern technology, makes for a different conflict, a different

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Speaker 3: war with wonderful perspective on this as John Lieber, head

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Speaker 3: of Research Managing Director at Eurasia for the United States,

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Speaker 3: has worked with a Senator from Kentucky for years on

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Speaker 3: the hill. Hey, John, honor to speak to you. I

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Speaker 3: want to go back to your classroom at Tufts University

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Speaker 3: years ago. You and I lived, You and I studied

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Speaker 3: nineteen sixty seven, in nineteen seventy three. This is totally different.

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Speaker 3: And yet are we fighting the last war?

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Speaker 4: I mean, this conflict has been raging for decades and

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Speaker 4: you know the difference right now, of course, is Israel

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Speaker 4: is targeting Hamas in Gaza and trying to wipe out

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Speaker 4: their leadership. So it's an enemy that doesn't have tanks

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Speaker 4: and doesn't have planes. It's an enemy that they're trying

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Speaker 4: Toy're going to have to go into civilian areas to target,

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Speaker 4: and you know, the Israeli defense forces over the years

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Speaker 4: have become have been attacking these lands and it's really

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Speaker 4: difficult to get after Hamas that way. I think one

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Speaker 4: of the big questions is the Webinar. There's going to

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Speaker 4: be a ground invasion anytime soon, and I suspect that

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Speaker 4: one of the things Biden is in the Middle East

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Speaker 4: trying to hold off on is that ground invasion because

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Speaker 4: of the risks of these horrible atrocities that happened against

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Speaker 4: civilians in times of war. And that's got to be

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Speaker 4: one of Biden's main objectives, in addition to trying to

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Speaker 4: stabilize the region and make sure that most importantly Aron

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Speaker 4: stays out of this.

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Speaker 5: Joem, we know what is for our's objective is the

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Speaker 5: automate objective you alluded to it wipe out her mass.

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Speaker 5: Let's talk about how difficult that is to achieve. Where

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Speaker 5: is the leadership of a mass, where's the financing full

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Speaker 5: ha mass come from. How do you wipe out her

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Speaker 5: mask purely just by going into Gasa and having a

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Speaker 5: full ground invasion.

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Speaker 6: Well, obviously you can't.

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Speaker 4: And I think what time is shown is that when

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Speaker 4: going after these terrorist organizations, even when you go after

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Speaker 4: the head of the head, when you successfully take out

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Speaker 4: the head of these organizations, there's other leaders who will

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Speaker 4: rise up. The US has been targeting Hamas financing networks

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Speaker 4: for decades through money laundering efforts. They're going after their

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Speaker 4: ability to conduct financial transactions in crypto.

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Speaker 2: But it's unlikely to.

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Speaker 4: Me that even if the Israelis are completely successful in

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Speaker 4: this campaign, that the thread on their borders is going

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Speaker 4: to go away because of the fact that there's so

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Speaker 4: much history and anger here and you know, getting rid

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Speaker 4: of Hamas probably means somebody else comes up.

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Speaker 1: Especially given all of the protests and anger. There's been

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Speaker 1: some fiery rhetoric out of Iran over the past couple

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Speaker 1: of days threatening some full scale invasion of Israel. If

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Speaker 1: there is any kind of ground escalation into Gaza, how

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Speaker 1: can you read between the lines to understand just how

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Speaker 1: much resolved there is by Iran to get more intimately

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Speaker 1: involved to order has blowed troops to come in from

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Speaker 1: the north.

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Speaker 4: Yeah, that's one of the big questions in this war

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Speaker 4: right now is does has Blah get involved? Does the

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Speaker 4: war expand Israel's northern border. I think it's notable and

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Speaker 4: interesting that the US and Israel have really gone out

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Speaker 4: of their way to say, you know, we don't think

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Speaker 4: Iran was directly involved in the attacks against Israel that

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Speaker 4: occurred last weekend. Of course, Aaran is complicit in financing Hamas,

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Speaker 4: financing Habola and giving them support over the years. So

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Speaker 4: right now it looks like, you know, the US goal

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Speaker 4: and the Israeli goals to keep the Iranians out of it.

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Speaker 4: That doesn't mean you won't see, over a longer period

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Speaker 4: of time kind of a shadow war that the Israelis

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Speaker 4: a big conducting against Iran continue. That may not mean

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Speaker 4: direct armed conflict, but it could mean cyber attacks, potentially

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Speaker 4: targeted assassinations and things like that. So far, Iran's giving

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Speaker 4: no indication that it wants to be involved, but is

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Speaker 4: sending really strong warnings that if the Israelis escalate, they

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Speaker 4: could get involved and that is really what makes the

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Speaker 4: situation such a powder cake.

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Speaker 1: John and Tom earlier this morning, we're really rightly pointing

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Speaker 1: out how little we actually know, how difficult it is

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Speaker 1: to ascertain with any clarity the facts on the ground

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Speaker 1: in a fast moving war with a lot of sort

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Speaker 1: of people of varying dependency giving information. John, how much

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Speaker 1: has the landscape shifted over the past twelve to eighteen hours,

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Speaker 1: given all the protests, given the outrage, given the statements

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Speaker 1: from Egyptian and Cutter and Saudi Arabian leaders, spawning at.

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Speaker 4: The hospital was obviously a maj your event in the

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Speaker 4: course of this short war so far. But you know,

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Speaker 4: there's a lot of ambiguity about who did it, how

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Speaker 4: many people were killed, and it's really really difficult to

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Speaker 4: ascertain the facts because there's no there's not a lot

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Speaker 4: of independent media on the ground. It's not like a

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Speaker 4: lot of forensic investigators can get into Gaza to figure

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Speaker 4: out what actually happened. Some of the photographic evidence that

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Speaker 4: came out this morning suggests the blast wasn't as large

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Speaker 4: as initially said. But I think the key point here

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Speaker 4: is that with Israel launching attacks on civilian populated areas,

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Speaker 4: If it wasn't this hospital attack, it would have been

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Speaker 4: something else. And it was only a matter of time

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Speaker 4: before anger at the Israeli defense forces spilled over into

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Speaker 4: the you know, the Arab streets and led to some

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Speaker 4: blowback on Israel just because of the nature of these operations.

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Speaker 4: And so you've got a very uncertain information environment and

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Speaker 4: a very deadly military environment, and that the battle of

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Speaker 4: the narrative is going to be really, really difficult for

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Speaker 4: any one side to win in this situation.

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Speaker 5: John, Let's talk about the military aspect of this as well,

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Speaker 5: and let's finish there just going through this major monster

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Speaker 5: de terrance that the US has been building gap in

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Speaker 5: the Eastern Mediterranean. In addition to two aircraft carriers and

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Speaker 5: the ships escorting them. Had a report from the Washington

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Speaker 5: Post yesterday, the US is also sending an amphibious task

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Speaker 5: force aboard warships. John, How meaningful is that as a

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Speaker 5: deterrance in the Eastern met.

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Speaker 4: I mean, militarily, nobody can defeat the United States, right,

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Speaker 4: I mean, it's the most powerful army that's ever existed.

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Speaker 4: It's got vast, seemingly limited resource, limitless resources. There's some

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Speaker 4: question as the what ability they'd have to fight and

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Speaker 4: to you know, support the Ukrainian effort and support the Israelis.

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Speaker 4: But I think that the real question, uh, if I'm

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Speaker 4: one of the regional players who are looking at getting

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Speaker 4: involved in this in this conflict, is does the US

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Speaker 4: have the political will to get involved in such a conflict.

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Speaker 4: And I mean, you know, it's it's difficult. It's difficult

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Speaker 4: to see the US committing troops on the ground here,

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Speaker 4: but they obviously so are been supporting the Israelis, And

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Speaker 4: I think what this really is is a show of

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Speaker 4: force that's meant to deter any action. So there's no

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Speaker 4: question that if there were to be any additional strikes

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Speaker 4: beyond Gaza, that the US could get involved and win

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Speaker 4: this decisively.

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Speaker 5: Hi, John, going to get your perspective. We'll catch up soon, hopefully, John.

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Speaker 2: Leave there.

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Speaker 5: If you write a group on the current situation on

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Speaker 5: the ground in Israel and across the Middle East of

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Speaker 5: the moment, we do have to focus.

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Speaker 1: On oil, given that we have seen that as the

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Speaker 1: place that people are expressing some of their concern about

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Speaker 1: the unrest percolating around some of the attacks, the explosions,

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Speaker 1: the situation in the Middle East. Joining US now is

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Speaker 1: Bloomberg's Will Kennedy in London, and Will, I just want

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Speaker 1: to get your sense of what people in the oil

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Speaker 1: market are looking at to understand how to play a

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Speaker 1: fraud and very unclear story.

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Speaker 7: Fort and unclear, I think is exactly right. And I

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Speaker 7: think that the old market feels out of something, and

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Speaker 7: I think the word I would use is twitchy. As

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Speaker 7: things stand, there is no particular reason that oil flow

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Speaker 7: should be disrupted or the oil should go a lot

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Speaker 7: higher than here, although there were scenarios where things become

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Speaker 7: a lot more drastic, and that's what is making people

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Speaker 7: slightly twitchy. As I say. The most extreme scenario is,

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Speaker 7: of course, Iran's involvement in a broader conflict, and that's

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Speaker 7: why some of the headlines today where Iran said that

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Speaker 7: they would embargo Israeli oil imports got the market going. Now,

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Speaker 7: it's a rhetorical device. Iran imports very little oil two

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Speaker 7: hundred thousand dollars a day. It gets it from non

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Speaker 7: Middle Eastern countries, places like Azerbaijan and Kazakhstan, and other

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Speaker 7: people wouldn't join in the embargo anyway, so it's not

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Speaker 7: a fundamentally important piece of news. But this increasing rhetoric

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Speaker 7: gets the market excited.

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Speaker 3: Will the map about in nineteen sixty seven and nineteen

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Speaker 3: seventy three is something like one hundred and forty miles

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Speaker 3: from the southern edge of Gaza into Egypt, spilled into

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Speaker 3: Egypt down to the Suez Canal. In any of this

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Speaker 3: is the Suez Canal at risk.

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Speaker 7: I don't think that's a fundamental concern for oil traders,

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Speaker 7: but I think that shipping is a concern in more

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Speaker 7: extreme and so the place, so the place that people

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Speaker 7: worry about, the straits of all moves the gap of

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Speaker 7: the the place at which the Persian Gulf joins the

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Speaker 7: Indian Ocean, through which all the a exports from southern Iraq,

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Speaker 7: from Iran, from Q eight, from Saudi Arabia, from the Oe.

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Speaker 7: They all go through this pinch point, over which Iran

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Speaker 7: has a big amount of control. So the most extreme

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Speaker 7: MiG scenario that people worry about, the scenario that would

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Speaker 7: send oil way past one hundred and fifty dollars, is

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Speaker 7: if shipping became impeded through the straights formats. Now it's

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Speaker 7: not likely. I don't think people need to worry about

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Speaker 7: that right now. But that is the extreme case, the

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Speaker 7: worst case scenario that people think about as this situation develops.

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Speaker 3: Interesting to see, Will Kennedy, If I look then at oil,

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Speaker 3: here are you it's Jave Blast and your entire team,

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Speaker 3: particularly the team and the trenches here of hydrocarbons? Are

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Speaker 3: you framing out a path to one hundred? Are you

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Speaker 3: even able to do that with this geopolitical uncertainty?

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Speaker 7: I think it's quite binary. I think the main scenario

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Speaker 7: is that we stay in the sort of eighty to

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Speaker 7: ninety five range. There's a sort of five dollars risk

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Speaker 7: premium in the market. Now, that's what a senior oil

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Speaker 7: trader described to me in a conversation yesterday, that this

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Speaker 7: whole crisis has probably added five bucks. But in most scenarios,

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Speaker 7: there's not significant disruption to oil flows and things carry

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Speaker 7: on pretty much as they are, and there's concerned about

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Speaker 7: the macro and the buypack. But there is a binary

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Speaker 7: scenario that there's an extreme but unlikely scenario quas go

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Speaker 7: much higher. And one interesting thing we've seen is some

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Speaker 7: activity in the options market where people are buying calls

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Speaker 7: well above one hundred dollars, which shows that they're people

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Speaker 7: who are buying protection against those unlikely but sevia scenario.

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Speaker 3: Well, Kennedy, stay where this is, Lisa. The emotion of

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Speaker 3: the President of the United States speaking to people first

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Speaker 3: responders and people who are directly associated with the horror

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Speaker 3: in the Eastern Mediterranean, in Israel and in Gossom.

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Speaker 1: This comes after a reported meeting between President Biden and

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Speaker 1: the war cabinet, including but you mean Natanyahu. A big

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Speaker 1: question around what the focus was given. A diplomacy has

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Speaker 1: really been at least put on pause, if not shattered

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Speaker 1: due to some of the reactions overnight. Now President Biden

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Speaker 1: going around and meeting with some of those in Israel

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Speaker 1: in the show of support that he is that he

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Speaker 1: is demonstrated.

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Speaker 3: It's a diplomatic issue here. But what I find so

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Speaker 3: fundamental is the immediacy of this new war or the

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Speaker 3: immediacy you know, to take it away from more of conflict,

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Speaker 3: and that the film is in real time and it

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Speaker 3: adjusts the diploma see and the optionality in real time.

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Speaker 1: There's a question also about any kind of escalation, which

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Speaker 1: is what people in the market have been watching. I

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Speaker 1: am curious, will Kennedy with us still here and I

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Speaker 1: am curious from your vantage point. How you interpreted some

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Speaker 1: of the Iranian rhetorics saying that they were going to

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Speaker 1: call for an Israeli embargo on oil, talking about the

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Speaker 1: potential for escalation. How are people in your industry reading

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Speaker 1: through this to understand what's real, what's potentially disruptive, and

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Speaker 1: what's not.

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Speaker 7: I think the comments from Iran today were rhetoric. I

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Speaker 7: don't think they will have much real world impact. As

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Speaker 7: I said, Iran sorry, Israel imports just over two hundred

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Speaker 7: thousand dollars a day. That's minuscule in the context of

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Speaker 7: the global market. It gets that oil mostly from countries

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Speaker 7: in the form of Soviet Union. But the rhetoric matters here,

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Speaker 7: the background matters here, and as the situation deteriorates, as

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Speaker 7: Iran's words become more severe. I think that Wabi's trade

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Speaker 7: is that they have to think about worst case in AliOS,

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Speaker 7: as I said earlier, and that's the background they're looking at.

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Speaker 7: Any signs wise, I'm about it. I stepping out up.

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Speaker 3: Well, Kennedy, thank you for the oil brief from you

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Speaker 3: and your team, particularly in Europe and in Dubai. Joining

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Speaker 3: us now with decades of perspective on the shifts in

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Speaker 3: Global Wall Street. Gerard Cassidy to say he's large bank

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Speaker 3: analyst at Canada's RBC Capital Markets, barely describes a perspective.

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Speaker 6: Gerard to rephrase.

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Speaker 3: My question to Shanali where she beat me down and said, Tom,

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Speaker 3: you don't know what you're talking about. Let me go

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Speaker 3: to you, Gerard, to save the day. And that is

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Speaker 3: I'm sensing a new Global Wall Street. They really want

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Speaker 3: persistent cares. Is James Gorman showing the future to the

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Speaker 3: other banks.

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Speaker 8: Tommy, I think you're really onto something. And you've got

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Speaker 8: to give James Gorman credit. He's really changed Morgan Stanley

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Speaker 8: from where it was back in two thousand and nine

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Speaker 8: when it was heavily reliant on trading and investment banking,

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Speaker 8: and diversified into the wealth management or retail brokerage business

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Speaker 8: if you want, as well as asset management.

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Speaker 6: And it really comes down to consistency.

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Speaker 8: Of earnings or consistency of cash flow, as you point out,

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Speaker 8: and that's what Golman tried to do with their expansion

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Speaker 8: into the consumer banking business, which has failed miserably, of course,

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Speaker 8: and they're exiting that now. They want the model like

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Speaker 8: a JP Morgan, which is diverse fight revenue or Morgan Stanley,

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Speaker 8: which is less diverse fight than JP Morgan, but it's

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Speaker 8: still more diverse fight than where it was back in O.

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Speaker 5: Nine, Jodas you know, banks have been a pretty lousy

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Speaker 5: investment in the stock market this year. Is JP Morgan

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Speaker 5: versus everyone else? JP Morgan up here today by ten percent?

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Speaker 5: Everybody asked down the down hard, Jeff. What separates what's

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Speaker 5: happened at JP Morgan from the rest. Is it just

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Speaker 5: First Republic?

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Speaker 6: John, That's part of it.

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Speaker 8: But the performance for JP Morgan, even prior to them

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Speaker 8: acquiring First Republic, was better than the back And I

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Speaker 8: think what you have here is a flight to quality.

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Speaker 8: Everybody knows JP Morgan is one of the premier US

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Speaker 8: global bank. He's demonstrated that with very good results, strong

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Speaker 8: leadership of course under Jamie Diamond and his senior management team.

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Speaker 8: And every time John we go out and talk to

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Speaker 8: institutional investors, the scar tissue from March and May is

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Speaker 8: very thick and people are underweight the banks, and when

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Speaker 8: we talk to them, they always tell us we're underweight

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Speaker 8: the banks, but we own one.

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Speaker 6: Bank, JP Morgan. JP Morgan is owned around the world.

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Speaker 1: When we look back at this period your ard, Are

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Speaker 1: we going to say that this was the year the

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Speaker 1: JP Morgan consolidated its heft at the expense of a

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Speaker 1: lot of smaller banks.

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Speaker 8: I always say, Lisa that what JP Morgan has done

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Speaker 8: has shown that the diversity of revenue and very sharp,

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Speaker 8: you know, very focused management by the Jamie Diamond and

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Speaker 8: his senior team really has demonstrated really strong numbers. We

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Speaker 8: were talking a moment ago, Tom mentioned return on equity

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Speaker 8: and if you look at the consumer banking business for

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Speaker 8: Bank America on the morning hand Diamond at JP Morgan,

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Speaker 8: the consumer banking businesses are earning close to forty percent

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Speaker 8: return on equity and as we all know, that's incredibly

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Speaker 8: I for banking businesses.

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Speaker 6: That's what's driving it.

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Speaker 8: And JP Morgan as well on the leaders in consumer

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Speaker 8: banking such as in Bank.

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Speaker 1: America, they are though the leading players at a time

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Speaker 1: when they can be selective for the top rated consumers.

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Speaker 3: Right.

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Speaker 1: And this is something that we pointed out according to

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Speaker 1: Shanelli Bosik or own Hinelli Bossic yesterday this morning. What

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Speaker 1: we're not talking about citizens financial missing on net interest income,

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Speaker 1: United Community missing on net interest income. Ally financial missing

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Speaker 1: on net interest in margin and also having fewer Autoland originations,

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Speaker 1: and previously thought, how much is this story dividing even

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Speaker 1: further between the biggest banks and the regionals that are

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Speaker 1: still in a world of hurt.

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Speaker 8: Liza, it's a good point because some of them have

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Speaker 8: this she picked out amongst the big regional bank citizens

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Speaker 8: it's actually the only one that has missed today when

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Speaker 8: you look at mnt US Bancorp.

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Speaker 6: And others, their in line is slightly better.

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Speaker 8: But you're right about certain banks have missed and it

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Speaker 8: has to do with and you touched on it in

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Speaker 8: your earlier comments about the non interest bearing deposits. The

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Speaker 8: banks with the non interest bearing deposits are going to

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Speaker 8: do very well in this higher rate environment because those

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Speaker 8: deposits don't pay any just obviously, but they don't move either.

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Speaker 8: People need operational accounts personally, we all do, as you know,

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Speaker 8: as well as companies, and that money is gold in

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Speaker 8: an environment like today, and the banks with the higher

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Speaker 8: levels of non interest bearing deposits will do pretty well.

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Speaker 5: Jared, I have to admit, whenever the comments from Brian

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Speaker 5: Monahan with David Westone, I was kind of surprised job

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Speaker 5: because he was talking about the consumer slow down.

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Speaker 2: Can we just finish there.

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Speaker 5: Retail sounds look great yesterday, really broad based, big upside surprise.

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Speaker 5: Then the Bank for America boss comes out and says,

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Speaker 5: the FED is basically achieve what it wanted to achieve.

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Speaker 5: We've got a consumer slow down, jod, Is that consumer

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Speaker 5: slowed down for Bank for America or is that a

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Speaker 5: broader story for the economy? Which one is it?

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Speaker 6: John good point?

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Speaker 8: And the cross currents today, it's always easy to say

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Speaker 8: today is more challenging than ten years ago or during

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Speaker 8: the financial crisis. It's always challenging. But the cross currents

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Speaker 8: today are pretty strong. And you just summed it up

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Speaker 8: very well. So we're hearing from some folks the consumer

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Speaker 8: is slowing down. But then you see the retail sales

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Speaker 8: number and it was quite impressive. And if you look

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Speaker 8: at the real GDP now number which comes out of

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Speaker 8: the Atlanta FED, which is the current estimate for real

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Speaker 8: GDP this quarter third quarter is over five percent.

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Speaker 6: Is crazy. But I would say that it's not Bank

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Speaker 6: America specific, and.

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Speaker 8: I would say morning hand and response to my question

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Speaker 8: on the call, actually he was pointing out that he

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Speaker 8: thinks it's going to stay around this level. The higher

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Speaker 8: spending a year ago was unusually strong for them, high

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Speaker 8: single digits. Now it's a round four percent should drop

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Speaker 8: out about these levels, but it's still positive growth.

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Speaker 5: They've been more selective about the clients they serve at LEASTA,

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Speaker 5: and I've been talking about this for the last twenty

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Speaker 5: four rounds actually off the back of the data that

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Speaker 5: Shnadi shared with us. These credit scores of these customers,

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Speaker 5: Gerard are so so high. Who are they serving in

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Speaker 5: this country just a really small slice of the economy.

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Speaker 8: I think they're serving guys like you, John, and they're

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Speaker 8: deserving all the you know, the higher propity credits.

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Speaker 5: So it's close to way hundred Yerrard, don't disrupt it.

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Speaker 2: Yeah, I am at two forty, very focused on it.

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Speaker 2: How's your credit RNGWO? It doesn't quick but.

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Speaker 8: Quickly, John, You're bringing up a really good point, and

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Speaker 8: I recommend. I know you guys are busy, but look

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Speaker 8: at their slide they put in their deck Bank America

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Speaker 8: where they compare themselves today to two thousand and nine,

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Speaker 8: totally different company d risk and you put your thumb

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Speaker 8: on it.

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Speaker 6: You're going, you know, higher score consumer as well as corporates.

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Speaker 5: Joe Cassidy John go to catch up always, says a

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Speaker 5: zombie SI.

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Speaker 3: He is senior vice president of Stability at Deutsche Bank.

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Speaker 3: Binkram Chada joins US now chief Global Strategist head an

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Speaker 3: asset allocation as well. What an urge to go to

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Speaker 3: cash right now? Or go to five and point x

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Speaker 3: x percent money market fund? Describe how you tell the

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Speaker 3: Deutsche Bank world don't go to kesh.

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Speaker 9: I think that you know, if you think about the

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Speaker 9: equity market, you think about earnings most important, basically fundamental

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Speaker 9: near and medium term. I would argue, and the story

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Speaker 9: with earnings is a very simple story. They bottomed in

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Speaker 9: the fourth quarter of last year. We've had solid sequential

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Speaker 9: growth in the first quarter. Is the second quarter, we

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Speaker 9: are pretty constructive. When we get in the third quarter

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Speaker 9: so far, what we've gotten better than our constructive.

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Speaker 10: View is the way I would put it.

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Speaker 3: How did but I went back yesterday, Benkie, and I

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Speaker 3: looked at World War two and I went right for

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Speaker 3: you can do this on the Bloomberg folks. You look

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Speaker 3: right from Pearl Harbor out the VJ Day and it

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Speaker 3: was a nice vector up through the nominal GDP of

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Speaker 3: a war economy and all that. Now this is not

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Speaker 3: an analog to that, but the emotion is still there.

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Speaker 3: How do you contain your emotion when your asset allocating

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Speaker 3: with bond price down yield up.

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Speaker 9: So I think actually the S and P five hundred,

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Speaker 9: the market is controlling its emotions, and I think the

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Speaker 9: reason is it understands pretty well what happened the last

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Speaker 9: time around, which is, you know, not very long ago,

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Speaker 9: a year and a half ago, when Russia Ukraine started,

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Speaker 9: you know, the market sold off, we were down eight

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Speaker 9: percent three weeks.

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Speaker 10: We recovered in another three.

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Speaker 9: Weeks right back to where we were, and so you know,

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Speaker 9: it just tells you that, by the way, happens to

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Speaker 9: be almost exactly the typical playbook for geopolitical risks and events.

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Speaker 9: And so you know, given that the market saw this

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Speaker 9: movie not very long ago, it is a bit hesitant

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Speaker 9: basically to you know, do the same thing again.

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Speaker 5: What we had last year, as you know, was an

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Speaker 5: energy shop. Sure, arguably in some ways a little bit

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Speaker 5: more insulated relative to the seventies. Given where crude production

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Speaker 5: is in America currently, which is at all time highs

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Speaker 5: through thirteen million bars a day. The concern now it's

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Speaker 5: about America's ability to support these wars. There was a

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Speaker 5: headline yesterday from our team here at Bloomberg that the

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Speaker 5: White House designed one hundred billion dollars of Ukraine, Israel

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Speaker 5: and border rate. Can this country afford those kind of

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Speaker 5: things given where yields are at the moment, Yeah.

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Speaker 10: I think that, you know, it's still can.

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Speaker 9: I would say that the rise in interest rates and

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Speaker 9: the focus on the interest cost of the US government,

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Speaker 9: which is not high, but what everybody looks that is

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Speaker 9: the projection going forward, and that's what you should focus. So,

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Speaker 9: you know, it's become a talking point. It's a good

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Speaker 9: starting point for actually discussing the fiscal sustainability of the US.

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Speaker 10: I'd say, so.

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Speaker 9: Far, when interest rates were so low, you know, nobody

439
00:23:15,960 --> 00:23:18,000
Speaker 9: was really talking about the deficit and what needs to

440
00:23:18,040 --> 00:23:18,720
Speaker 9: be done about it.

441
00:23:18,800 --> 00:23:22,320
Speaker 1: You talked about the conditioning of the Russian invasion of Ukraine,

442
00:23:22,400 --> 00:23:25,639
Speaker 1: the conditioning of the recessionistas that were wrong and that

443
00:23:25,960 --> 00:23:28,800
Speaker 1: people are saying put this time around. Does that make

444
00:23:28,840 --> 00:23:32,399
Speaker 1: this market more vulnerable to an actual pullback in the

445
00:23:32,400 --> 00:23:34,359
Speaker 1: face of some sort of surprise. Does that make you

446
00:23:34,440 --> 00:23:37,399
Speaker 1: more concerned about your base case of an above average rally.

447
00:23:37,680 --> 00:23:39,520
Speaker 9: I think the way that you want to answer that

448
00:23:39,640 --> 00:23:41,840
Speaker 9: question is by taking a look or through the lens

449
00:23:41,960 --> 00:23:47,879
Speaker 9: basically of equity market positioning. And here I would focus on.

450
00:23:48,000 --> 00:23:51,160
Speaker 9: I would break up the positioning. You know, there's systematic strategies,

451
00:23:51,560 --> 00:23:55,120
Speaker 9: which is rules based, and then there's everybody else, which

452
00:23:55,160 --> 00:23:59,399
Speaker 9: is who we call the discretionary equity investors. And you know,

453
00:24:00,280 --> 00:24:03,000
Speaker 9: in July they raised their positioning for the first time

454
00:24:03,119 --> 00:24:05,840
Speaker 9: in more than a year. I would say, you know,

455
00:24:05,920 --> 00:24:09,160
Speaker 9: it's really a fomo pressure. We look for a pullback.

456
00:24:09,280 --> 00:24:12,120
Speaker 9: You look at that positioning today, it has come in.

457
00:24:12,680 --> 00:24:15,000
Speaker 9: It is sitting right back in the range that it's

458
00:24:15,080 --> 00:24:17,719
Speaker 9: been in since April May of last year, which is

459
00:24:17,880 --> 00:24:21,840
Speaker 9: just a little bit underweight. So you know, year and

460
00:24:21,840 --> 00:24:25,640
Speaker 9: a half, there have been plenty of concerns. I understand

461
00:24:25,640 --> 00:24:27,679
Speaker 9: this is a new concern, of course, but there've been

462
00:24:27,680 --> 00:24:29,879
Speaker 9: plenty of concerns and shocks over the last year and

463
00:24:29,920 --> 00:24:33,399
Speaker 9: a half, and they didn't budge. So you know, I

464
00:24:33,400 --> 00:24:36,680
Speaker 9: would argue, I mean, we were in the middle of

465
00:24:36,720 --> 00:24:40,800
Speaker 9: a pullback already, so you know that's why positioning went down.

466
00:24:40,840 --> 00:24:45,640
Speaker 9: And so positioning is already basically at or slightly below neutral.

467
00:24:46,040 --> 00:24:47,399
Speaker 10: What history would tell.

468
00:24:47,280 --> 00:24:50,920
Speaker 9: You is that you don't necessarily want to go underweight

469
00:24:51,000 --> 00:24:53,639
Speaker 9: here unless you know you can time. I mean, the

470
00:24:53,640 --> 00:24:56,200
Speaker 9: playbook would tell you it's really tough because it's three

471
00:24:56,200 --> 00:24:58,360
Speaker 9: weeks and it's big move down, big move up.

472
00:24:58,600 --> 00:24:59,240
Speaker 10: Yeah.

473
00:24:59,280 --> 00:25:02,240
Speaker 1: How much have you changed any aspect of your view

474
00:25:02,280 --> 00:25:05,160
Speaker 1: over the past, say two weeks, three weeks, as we've

475
00:25:05,200 --> 00:25:07,240
Speaker 1: seen a complete change in the yield regime and we've

476
00:25:07,240 --> 00:25:10,640
Speaker 1: seen a complete shift in potential geopolitical tensions.

477
00:25:12,920 --> 00:25:16,800
Speaker 10: I haven't changed my view at all. I would argue, of.

478
00:25:16,720 --> 00:25:19,760
Speaker 9: Course, you know this new negative shock, and I would

479
00:25:19,800 --> 00:25:23,280
Speaker 9: argue it's probably a restraining factor on the upside because

480
00:25:23,800 --> 00:25:26,280
Speaker 9: risk appetite is going to be a little bit cautious.

481
00:25:27,320 --> 00:25:30,000
Speaker 9: But you know, the view is based on what's happening

482
00:25:30,040 --> 00:25:33,800
Speaker 9: with the fundamentals, and I would say, so far, you know,

483
00:25:35,640 --> 00:25:38,640
Speaker 9: the data actually reinforces view rather than anything else.

484
00:25:39,320 --> 00:25:43,879
Speaker 3: I'm looking at Chata the Great Alan Ruskin, Young, George

485
00:25:43,920 --> 00:25:47,760
Speaker 3: Sarahvellos take the combination of all your work at Deutsche Bank,

486
00:25:48,320 --> 00:25:50,600
Speaker 3: and to me, the immovable force here, which is a

487
00:25:50,680 --> 00:25:54,920
Speaker 3: Lawrence McDonald idea, there's just a pile of money out

488
00:25:54,960 --> 00:25:59,440
Speaker 3: there to support the bid across most if not all

489
00:25:59,520 --> 00:26:02,760
Speaker 3: asse classes. Is that true that you and I have

490
00:26:02,880 --> 00:26:07,600
Speaker 3: never seen the trillion dollar pile of money that's got

491
00:26:07,600 --> 00:26:08,800
Speaker 3: to find a warm place to go?

492
00:26:09,359 --> 00:26:09,760
Speaker 10: Is so?

493
00:26:09,760 --> 00:26:13,960
Speaker 9: So I don't really think, you know, the equity market

494
00:26:14,000 --> 00:26:17,760
Speaker 9: performance or resilience is really coming from that. I think

495
00:26:17,840 --> 00:26:21,560
Speaker 9: it's actually just simply you know, the economy is playing out.

496
00:26:21,640 --> 00:26:25,280
Speaker 9: I mean, you look at yesterday's data, where you know,

497
00:26:25,280 --> 00:26:29,000
Speaker 9: you got this very very strong response in the bond market.

498
00:26:30,080 --> 00:26:31,320
Speaker 9: But if you take a look at the data, I

499
00:26:31,320 --> 00:26:34,479
Speaker 9: mean retail sales, you know is in nominal variable. So

500
00:26:34,520 --> 00:26:36,639
Speaker 9: the first thing that you should do is look at

501
00:26:36,680 --> 00:26:39,119
Speaker 9: it in real terms, which would tell you something about

502
00:26:39,240 --> 00:26:41,360
Speaker 9: the volumes that people are consuming.

503
00:26:41,920 --> 00:26:46,199
Speaker 10: Once you do that, the picture changes completely. Retail sales,

504
00:26:46,359 --> 00:26:47,760
Speaker 10: real retail sales were.

505
00:26:47,640 --> 00:26:51,520
Speaker 9: Growing in a very clear trend channel prior to the pandemic.

506
00:26:52,000 --> 00:26:55,800
Speaker 9: The pandemic for reasons that we all know caused you know,

507
00:26:55,920 --> 00:26:58,920
Speaker 9: spending to go up, came down a little bit when

508
00:26:59,000 --> 00:26:59,960
Speaker 9: sideways for a while.

509
00:27:00,600 --> 00:27:02,400
Speaker 10: But for the last nine months.

510
00:27:02,200 --> 00:27:07,720
Speaker 9: Year, including yesterday's data point, there is nothing to see there.

511
00:27:07,800 --> 00:27:10,240
Speaker 10: We are just growing in the middle of the trend channel.

512
00:27:10,640 --> 00:27:11,400
Speaker 10: I think the.

513
00:27:11,400 --> 00:27:15,520
Speaker 9: Surprise is that everybody's looking for things to fall. It's

514
00:27:15,760 --> 00:27:20,080
Speaker 9: a year now, and so you know, I think it's

515
00:27:20,119 --> 00:27:23,720
Speaker 9: the expectations that are allowed rather than thank.

516
00:27:23,560 --> 00:27:26,160
Speaker 2: You, thank you, thank you. Chata the Deutsche Bank.

517
00:27:36,760 --> 00:27:39,919
Speaker 3: We had the same conversation I believe it was April

518
00:27:40,240 --> 00:27:44,080
Speaker 3: at other institutional meetings of the concern of EM with

519
00:27:44,200 --> 00:27:47,280
Speaker 3: a brief this morning with all the newsflow, including in

520
00:27:47,280 --> 00:27:51,479
Speaker 3: the Eastern Mediterranean, Diana mo joins US with Kirkiswald asset

521
00:27:51,560 --> 00:27:55,959
Speaker 3: Management and on desks of EM market makers for years,

522
00:27:57,280 --> 00:27:59,399
Speaker 3: it's so good to talk to you, particularly off the

523
00:27:59,440 --> 00:28:03,000
Speaker 3: Berry Green paper at Jackson Hall and what Joyce Chang

524
00:28:03,040 --> 00:28:08,000
Speaker 3: talked about IMF, how bad is it? Mexico is stellar

525
00:28:08,160 --> 00:28:12,280
Speaker 3: performer even there. Peso off the high is a weaker

526
00:28:12,359 --> 00:28:13,040
Speaker 3: eight percent.

527
00:28:15,160 --> 00:28:17,960
Speaker 11: Well, I think what's happening right now is actually the

528
00:28:18,040 --> 00:28:22,760
Speaker 11: dollar has remaged again. There's been a huge amount of

529
00:28:22,880 --> 00:28:26,560
Speaker 11: upside surprises from a US economy perspective, and that's giving

530
00:28:26,640 --> 00:28:30,520
Speaker 11: a bid to the dollar. Additionally, you have geopolitics and

531
00:28:30,680 --> 00:28:32,760
Speaker 11: people are buying dollars as a safe haven. So the

532
00:28:32,800 --> 00:28:34,840
Speaker 11: combination of those two is taking off some of the

533
00:28:34,880 --> 00:28:38,160
Speaker 11: shine in emerging market currencies that we've seen up until

534
00:28:38,360 --> 00:28:38,880
Speaker 11: the summer.

535
00:28:39,280 --> 00:28:42,240
Speaker 3: Stan Fisher wrote that little red book everybody was forced

536
00:28:42,240 --> 00:28:44,320
Speaker 3: to read. I think it was nineteen ninety nine, one

537
00:28:44,400 --> 00:28:47,720
Speaker 3: year after nineteen ninety eight. Are we anywhere near the

538
00:28:47,800 --> 00:28:52,080
Speaker 3: instabilities of a giving crisis in Ecuador, a crisis in

539
00:28:52,120 --> 00:28:55,360
Speaker 3: Mexico for that matter, or a crisis in Southeast Asia?

540
00:28:55,440 --> 00:28:58,560
Speaker 3: What's the level of instability you perceive in them?

541
00:28:59,400 --> 00:29:03,400
Speaker 11: Much less than during COVID, because I think a lot

542
00:29:03,440 --> 00:29:08,000
Speaker 11: of the vulnerabilities were addressed during that period. The insolvent

543
00:29:08,080 --> 00:29:11,160
Speaker 11: economies already talking to the IMF, and I'm sure you

544
00:29:11,280 --> 00:29:14,200
Speaker 11: had a lot of that in Morocco the IMF.

545
00:29:14,440 --> 00:29:17,240
Speaker 3: I've don't asked the urgent you know, okay, continue?

546
00:29:17,520 --> 00:29:22,040
Speaker 11: The IMF is standing ready to support economies. So we

547
00:29:22,040 --> 00:29:24,480
Speaker 11: don't necessarily think in the next one to two years

548
00:29:24,480 --> 00:29:26,400
Speaker 11: we're likely to see anything. There's maybe one or two

549
00:29:26,440 --> 00:29:30,160
Speaker 11: credits that look vulnerable that have maturities coming, But broadly speaking,

550
00:29:30,200 --> 00:29:32,480
Speaker 11: I think em should be able to model through.

551
00:29:32,480 --> 00:29:33,280
Speaker 2: In thirty years time.

552
00:29:33,280 --> 00:29:35,280
Speaker 5: Where we have a restructuring plan for the United States,

553
00:29:35,320 --> 00:29:37,080
Speaker 5: for America, is that where things are going?

554
00:29:37,200 --> 00:29:38,920
Speaker 2: Where's this headed? Where is this going?

555
00:29:39,280 --> 00:29:41,400
Speaker 5: When you speak to emerging market nations, how are they

556
00:29:41,480 --> 00:29:44,600
Speaker 5: thinking about what's taking place in America for the preaching

557
00:29:44,640 --> 00:29:47,080
Speaker 5: they've heard about how they should manage their finances. What

558
00:29:47,120 --> 00:29:49,400
Speaker 5: are they saying about this in Washington, Well.

559
00:29:49,160 --> 00:29:51,880
Speaker 11: They've clearly lost the handle on physical In the US,

560
00:29:52,080 --> 00:29:55,520
Speaker 11: it feels like whatever is happening, whether it's political impulse,

561
00:29:56,000 --> 00:29:59,760
Speaker 11: the answer is let's spend some more. When it's geopolitics,

562
00:30:00,040 --> 00:30:02,720
Speaker 11: says let's spend some more, and you've lost your price

563
00:30:02,760 --> 00:30:07,520
Speaker 11: in sensitive buyer. We had the QE that was supporting this.

564
00:30:07,760 --> 00:30:10,200
Speaker 11: Now the markets have to figure out how much premium

565
00:30:10,200 --> 00:30:12,560
Speaker 11: you need to be if you expect more issuance to

566
00:30:12,600 --> 00:30:14,640
Speaker 11: come forward months ago.

567
00:30:14,720 --> 00:30:17,560
Speaker 3: Lisa Damien says, are watching this, and he makes cleary

568
00:30:17,640 --> 00:30:21,280
Speaker 3: agrees with Diana. He sees quality reserves at.

569
00:30:21,200 --> 00:30:23,960
Speaker 1: Em right, What does quality mean at a time where

570
00:30:23,960 --> 00:30:24,920
Speaker 1: you've got a treasure yell?

571
00:30:24,960 --> 00:30:27,200
Speaker 2: That is that going up, up and away?

572
00:30:27,480 --> 00:30:29,000
Speaker 1: Diana, I do want to just sort of put a

573
00:30:29,000 --> 00:30:32,120
Speaker 1: boat on that point. Are you saying that we have

574
00:30:32,200 --> 00:30:35,160
Speaker 1: seen the reaction function to weakness. We have seen the

575
00:30:35,200 --> 00:30:39,320
Speaker 1: reaction function amid of search for safe havens and treasuries

576
00:30:39,480 --> 00:30:41,880
Speaker 1: no longer get that bid in a repliable way.

577
00:30:42,600 --> 00:30:45,600
Speaker 11: Well, they got the bid when we had the geopolitic headlines.

578
00:30:45,600 --> 00:30:48,400
Speaker 11: A couple of weeks ago, you saw them move in treasuries,

579
00:30:48,880 --> 00:30:51,400
Speaker 11: which rally does. People still saw them as a safe haven.

580
00:30:51,880 --> 00:30:54,200
Speaker 11: But despite that ongoing, as soon as we had a

581
00:30:54,240 --> 00:30:57,360
Speaker 11: bit of stability, markets were quick to unload these treasuries

582
00:30:57,400 --> 00:31:00,160
Speaker 11: because what are we hearing There's another hundred billies and

583
00:31:00,200 --> 00:31:03,720
Speaker 11: potentially that's going to be spent to support these economies,

584
00:31:03,760 --> 00:31:05,800
Speaker 11: and markets simply don't have the appetite.

585
00:31:06,200 --> 00:31:08,239
Speaker 1: Do you think that this pain will be reserved the

586
00:31:08,400 --> 00:31:10,920
Speaker 1: US government debt market or is it the kind of

587
00:31:10,960 --> 00:31:13,760
Speaker 1: theory where when the US catches a cold, the rest

588
00:31:13,800 --> 00:31:15,440
Speaker 1: of the developing world catches a flu.

589
00:31:16,360 --> 00:31:19,160
Speaker 11: Well, I think there's two big elephants in the room,

590
00:31:19,400 --> 00:31:23,440
Speaker 11: the US and the bog where sovereign debt issues or

591
00:31:23,440 --> 00:31:27,840
Speaker 11: sustainability have been a concern, but more of a slow

592
00:31:27,840 --> 00:31:30,920
Speaker 11: burning concern for a while now. While these are playing out,

593
00:31:30,960 --> 00:31:33,080
Speaker 11: I think they will tend to take everything with them.

594
00:31:33,560 --> 00:31:36,000
Speaker 11: But it's the speed of the move that matters, and

595
00:31:36,040 --> 00:31:38,760
Speaker 11: we've had a pretty aggressive move in treasuries. So if

596
00:31:38,880 --> 00:31:41,880
Speaker 11: you know, going forward, we say maybe treasuries can go

597
00:31:42,040 --> 00:31:44,480
Speaker 11: from four and a half to five and a half,

598
00:31:44,560 --> 00:31:46,520
Speaker 11: but we are not necessarily going to see that happening

599
00:31:46,560 --> 00:31:50,000
Speaker 11: in a six week period. I think markets can handle that.

600
00:31:50,440 --> 00:31:52,480
Speaker 2: Where can we hide? Where can we hide?

601
00:31:52,480 --> 00:31:55,160
Speaker 11: An Aya know what I'm going to say, Emergine markets,

602
00:31:55,760 --> 00:31:58,160
Speaker 11: you're actually getting paid to do the walk nine am,

603
00:31:58,280 --> 00:32:02,600
Speaker 11: em HI yielding north of ten percent, EMIG yielding north

604
00:32:02,600 --> 00:32:07,200
Speaker 11: of six percent looks like an interesting space. That said,

605
00:32:07,240 --> 00:32:10,680
Speaker 11: it's not a one size fits all. Tom mentioned Argentina.

606
00:32:10,680 --> 00:32:12,760
Speaker 11: You know we still have cases like that that look

607
00:32:12,880 --> 00:32:16,560
Speaker 11: very vulnerable. I think this is a period where if

608
00:32:16,600 --> 00:32:19,000
Speaker 11: you do your bottom up security analysis and you know

609
00:32:19,040 --> 00:32:21,520
Speaker 11: the stories that you're buying really well, there's a lot

610
00:32:21,520 --> 00:32:23,400
Speaker 11: of opportunities in the margin market.

611
00:32:23,600 --> 00:32:27,760
Speaker 5: What about Turkey, fascinating leadership shift taking place in that country.

612
00:32:27,800 --> 00:32:28,400
Speaker 2: What is going on?

613
00:32:28,440 --> 00:32:30,720
Speaker 11: I mean, it's like a total we have the same

614
00:32:31,160 --> 00:32:35,600
Speaker 11: outcome in the elections, but it's like a totally different leadership.

615
00:32:35,640 --> 00:32:36,280
Speaker 2: It's amazing.

616
00:32:36,480 --> 00:32:41,280
Speaker 11: Yeah, So they've embraced orthodox policies. Now they're speaking the

617
00:32:41,320 --> 00:32:44,480
Speaker 11: market talk, and markets are responding well to that. We've

618
00:32:44,480 --> 00:32:48,640
Speaker 11: seen aggressive rate hikes and a commitment to actually fight inflation,

619
00:32:48,720 --> 00:32:50,120
Speaker 11: which is refreshing to see.

620
00:32:50,360 --> 00:32:52,520
Speaker 1: When you talk about developing markets, I have to think

621
00:32:52,520 --> 00:32:54,600
Speaker 1: about what's going on right now, excuse me, in the

622
00:32:54,640 --> 00:32:57,360
Speaker 1: Middle East, and just wonder how closely you're following this

623
00:32:57,680 --> 00:33:02,160
Speaker 1: as a potential not only humanitarian and question around what's

624
00:33:02,200 --> 00:33:04,200
Speaker 1: going to happen and how why the conflagration goes, but

625
00:33:04,640 --> 00:33:07,040
Speaker 1: what this means for the ability to invest in some

626
00:33:07,120 --> 00:33:07,920
Speaker 1: of these nations.

627
00:33:08,520 --> 00:33:11,360
Speaker 11: Well, it's clearly a sad ton of events, so and

628
00:33:11,440 --> 00:33:15,560
Speaker 11: we're obviously following it very closely. I think what the

629
00:33:15,600 --> 00:33:20,239
Speaker 11: big concern is, beyond the humanitarian cost of lives, is

630
00:33:20,760 --> 00:33:25,200
Speaker 11: what does this actually mean for one, the region stability

631
00:33:25,200 --> 00:33:28,320
Speaker 11: within the broader region? Are we going to see spillover

632
00:33:28,360 --> 00:33:30,680
Speaker 11: effects in the Middle East? That arether countries going to

633
00:33:30,720 --> 00:33:34,480
Speaker 11: get pulled into this? And you've seen actually markets repricing,

634
00:33:34,560 --> 00:33:36,480
Speaker 11: You've seen CDs in some of these Middle East and

635
00:33:36,560 --> 00:33:39,720
Speaker 11: economies actually move quite high because markets are assigning a

636
00:33:39,920 --> 00:33:43,120
Speaker 11: premium that it's a non insignificant risk that you could

637
00:33:43,200 --> 00:33:44,480
Speaker 11: see spillover.

638
00:33:44,520 --> 00:33:45,239
Speaker 2: Risks coming in.

639
00:33:45,440 --> 00:33:48,280
Speaker 11: And I think broadly speaking, beyond the Middle East, it's

640
00:33:48,320 --> 00:33:51,400
Speaker 11: oil prices. Obviously it's the next big one because you

641
00:33:51,480 --> 00:33:55,040
Speaker 11: have this potential supply side shock and that could actually

642
00:33:55,080 --> 00:33:57,720
Speaker 11: make monetary policy much trickier going forward. If you see

643
00:33:57,760 --> 00:33:59,360
Speaker 11: inflation starting to pick up again.

644
00:34:00,000 --> 00:34:01,640
Speaker 2: This was great. It always says it's going to catch up.

645
00:34:01,720 --> 00:34:05,080
Speaker 5: Don't be a stranger, Dna Ramota of Kirkus World Asset Management.

646
00:34:05,920 --> 00:34:09,360
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647
00:34:09,440 --> 00:34:12,840
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648
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651
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652
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