Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Lisa A.
Speaker 1: Bromwoods, along with Tom Keane and Jonathan Ferrow. Join us
Speaker 1: each day for insight from the best in economics, geopolitics,
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Speaker 3: Okay, my art theme here, folks, is the change and
Speaker 3: the changes the media, the immediacy of the imagery. What
Speaker 3: we see on social media, what we're seeing with all
Speaker 3: the modern technology, makes for a different conflict, a different
Speaker 3: war with wonderful perspective on this as John Lieber, head
Speaker 3: of Research Managing Director at Eurasia for the United States,
Speaker 3: has worked with a Senator from Kentucky for years on
Speaker 3: the hill. Hey, John, honor to speak to you. I
Speaker 3: want to go back to your classroom at Tufts University
Speaker 3: years ago. You and I lived, You and I studied
Speaker 3: nineteen sixty seven, in nineteen seventy three. This is totally different.
Speaker 3: And yet are we fighting the last war?
Speaker 4: I mean, this conflict has been raging for decades and
Speaker 4: you know the difference right now, of course, is Israel
Speaker 4: is targeting Hamas in Gaza and trying to wipe out
Speaker 4: their leadership. So it's an enemy that doesn't have tanks
Speaker 4: and doesn't have planes. It's an enemy that they're trying
Speaker 4: Toy're going to have to go into civilian areas to target,
Speaker 4: and you know, the Israeli defense forces over the years
Speaker 4: have become have been attacking these lands and it's really
Speaker 4: difficult to get after Hamas that way. I think one
Speaker 4: of the big questions is the Webinar. There's going to
Speaker 4: be a ground invasion anytime soon, and I suspect that
Speaker 4: one of the things Biden is in the Middle East
Speaker 4: trying to hold off on is that ground invasion because
Speaker 4: of the risks of these horrible atrocities that happened against
Speaker 4: civilians in times of war. And that's got to be
Speaker 4: one of Biden's main objectives, in addition to trying to
Speaker 4: stabilize the region and make sure that most importantly Aron
Speaker 4: stays out of this.
Speaker 5: Joem, we know what is for our's objective is the
Speaker 5: automate objective you alluded to it wipe out her mass.
Speaker 5: Let's talk about how difficult that is to achieve. Where
Speaker 5: is the leadership of a mass, where's the financing full
Speaker 5: ha mass come from. How do you wipe out her
Speaker 5: mask purely just by going into Gasa and having a
Speaker 5: full ground invasion.
Speaker 6: Well, obviously you can't.
Speaker 4: And I think what time is shown is that when
Speaker 4: going after these terrorist organizations, even when you go after
Speaker 4: the head of the head, when you successfully take out
Speaker 4: the head of these organizations, there's other leaders who will
Speaker 4: rise up. The US has been targeting Hamas financing networks
Speaker 4: for decades through money laundering efforts. They're going after their
Speaker 4: ability to conduct financial transactions in crypto.
Speaker 2: But it's unlikely to.
Speaker 4: Me that even if the Israelis are completely successful in
Speaker 4: this campaign, that the thread on their borders is going
Speaker 4: to go away because of the fact that there's so
Speaker 4: much history and anger here and you know, getting rid
Speaker 4: of Hamas probably means somebody else comes up.
Speaker 1: Especially given all of the protests and anger. There's been
Speaker 1: some fiery rhetoric out of Iran over the past couple
Speaker 1: of days threatening some full scale invasion of Israel. If
Speaker 1: there is any kind of ground escalation into Gaza, how
Speaker 1: can you read between the lines to understand just how
Speaker 1: much resolved there is by Iran to get more intimately
Speaker 1: involved to order has blowed troops to come in from
Speaker 1: the north.
Speaker 4: Yeah, that's one of the big questions in this war
Speaker 4: right now is does has Blah get involved? Does the
Speaker 4: war expand Israel's northern border. I think it's notable and
Speaker 4: interesting that the US and Israel have really gone out
Speaker 4: of their way to say, you know, we don't think
Speaker 4: Iran was directly involved in the attacks against Israel that
Speaker 4: occurred last weekend. Of course, Aaran is complicit in financing Hamas,
Speaker 4: financing Habola and giving them support over the years. So
Speaker 4: right now it looks like, you know, the US goal
Speaker 4: and the Israeli goals to keep the Iranians out of it.
Speaker 4: That doesn't mean you won't see, over a longer period
Speaker 4: of time kind of a shadow war that the Israelis
Speaker 4: a big conducting against Iran continue. That may not mean
Speaker 4: direct armed conflict, but it could mean cyber attacks, potentially
Speaker 4: targeted assassinations and things like that. So far, Iran's giving
Speaker 4: no indication that it wants to be involved, but is
Speaker 4: sending really strong warnings that if the Israelis escalate, they
Speaker 4: could get involved and that is really what makes the
Speaker 4: situation such a powder cake.
Speaker 1: John and Tom earlier this morning, we're really rightly pointing
Speaker 1: out how little we actually know, how difficult it is
Speaker 1: to ascertain with any clarity the facts on the ground
Speaker 1: in a fast moving war with a lot of sort
Speaker 1: of people of varying dependency giving information. John, how much
Speaker 1: has the landscape shifted over the past twelve to eighteen hours,
Speaker 1: given all the protests, given the outrage, given the statements
Speaker 1: from Egyptian and Cutter and Saudi Arabian leaders, spawning at.
Speaker 4: The hospital was obviously a maj your event in the
Speaker 4: course of this short war so far. But you know,
Speaker 4: there's a lot of ambiguity about who did it, how
Speaker 4: many people were killed, and it's really really difficult to
Speaker 4: ascertain the facts because there's no there's not a lot
Speaker 4: of independent media on the ground. It's not like a
Speaker 4: lot of forensic investigators can get into Gaza to figure
Speaker 4: out what actually happened. Some of the photographic evidence that
Speaker 4: came out this morning suggests the blast wasn't as large
Speaker 4: as initially said. But I think the key point here
Speaker 4: is that with Israel launching attacks on civilian populated areas,
Speaker 4: If it wasn't this hospital attack, it would have been
Speaker 4: something else. And it was only a matter of time
Speaker 4: before anger at the Israeli defense forces spilled over into
Speaker 4: the you know, the Arab streets and led to some
Speaker 4: blowback on Israel just because of the nature of these operations.
Speaker 4: And so you've got a very uncertain information environment and
Speaker 4: a very deadly military environment, and that the battle of
Speaker 4: the narrative is going to be really, really difficult for
Speaker 4: any one side to win in this situation.
Speaker 5: John, Let's talk about the military aspect of this as well,
Speaker 5: and let's finish there just going through this major monster
Speaker 5: de terrance that the US has been building gap in
Speaker 5: the Eastern Mediterranean. In addition to two aircraft carriers and
Speaker 5: the ships escorting them. Had a report from the Washington
Speaker 5: Post yesterday, the US is also sending an amphibious task
Speaker 5: force aboard warships. John, How meaningful is that as a
Speaker 5: deterrance in the Eastern met.
Speaker 4: I mean, militarily, nobody can defeat the United States, right,
Speaker 4: I mean, it's the most powerful army that's ever existed.
Speaker 4: It's got vast, seemingly limited resource, limitless resources. There's some
Speaker 4: question as the what ability they'd have to fight and
Speaker 4: to you know, support the Ukrainian effort and support the Israelis.
Speaker 4: But I think that the real question, uh, if I'm
Speaker 4: one of the regional players who are looking at getting
Speaker 4: involved in this in this conflict, is does the US
Speaker 4: have the political will to get involved in such a conflict.
Speaker 4: And I mean, you know, it's it's difficult. It's difficult
Speaker 4: to see the US committing troops on the ground here,
Speaker 4: but they obviously so are been supporting the Israelis, And
Speaker 4: I think what this really is is a show of
Speaker 4: force that's meant to deter any action. So there's no
Speaker 4: question that if there were to be any additional strikes
Speaker 4: beyond Gaza, that the US could get involved and win
Speaker 4: this decisively.
Speaker 5: Hi, John, going to get your perspective. We'll catch up soon, hopefully, John.
Speaker 2: Leave there.
Speaker 5: If you write a group on the current situation on
Speaker 5: the ground in Israel and across the Middle East of
Speaker 5: the moment, we do have to focus.
Speaker 1: On oil, given that we have seen that as the
Speaker 1: place that people are expressing some of their concern about
Speaker 1: the unrest percolating around some of the attacks, the explosions,
Speaker 1: the situation in the Middle East. Joining US now is
Speaker 1: Bloomberg's Will Kennedy in London, and Will, I just want
Speaker 1: to get your sense of what people in the oil
Speaker 1: market are looking at to understand how to play a
Speaker 1: fraud and very unclear story.
Speaker 7: Fort and unclear, I think is exactly right. And I
Speaker 7: think that the old market feels out of something, and
Speaker 7: I think the word I would use is twitchy. As
Speaker 7: things stand, there is no particular reason that oil flow
Speaker 7: should be disrupted or the oil should go a lot
Speaker 7: higher than here, although there were scenarios where things become
Speaker 7: a lot more drastic, and that's what is making people
Speaker 7: slightly twitchy. As I say. The most extreme scenario is,
Speaker 7: of course, Iran's involvement in a broader conflict, and that's
Speaker 7: why some of the headlines today where Iran said that
Speaker 7: they would embargo Israeli oil imports got the market going. Now,
Speaker 7: it's a rhetorical device. Iran imports very little oil two
Speaker 7: hundred thousand dollars a day. It gets it from non
Speaker 7: Middle Eastern countries, places like Azerbaijan and Kazakhstan, and other
Speaker 7: people wouldn't join in the embargo anyway, so it's not
Speaker 7: a fundamentally important piece of news. But this increasing rhetoric
Speaker 7: gets the market excited.
Speaker 3: Will the map about in nineteen sixty seven and nineteen
Speaker 3: seventy three is something like one hundred and forty miles
Speaker 3: from the southern edge of Gaza into Egypt, spilled into
Speaker 3: Egypt down to the Suez Canal. In any of this
Speaker 3: is the Suez Canal at risk.
Speaker 7: I don't think that's a fundamental concern for oil traders,
Speaker 7: but I think that shipping is a concern in more
Speaker 7: extreme and so the place, so the place that people
Speaker 7: worry about, the straits of all moves the gap of
Speaker 7: the the place at which the Persian Gulf joins the
Speaker 7: Indian Ocean, through which all the a exports from southern Iraq,
Speaker 7: from Iran, from Q eight, from Saudi Arabia, from the Oe.
Speaker 7: They all go through this pinch point, over which Iran
Speaker 7: has a big amount of control. So the most extreme
Speaker 7: MiG scenario that people worry about, the scenario that would
Speaker 7: send oil way past one hundred and fifty dollars, is
Speaker 7: if shipping became impeded through the straights formats. Now it's
Speaker 7: not likely. I don't think people need to worry about
Speaker 7: that right now. But that is the extreme case, the
Speaker 7: worst case scenario that people think about as this situation develops.
Speaker 3: Interesting to see, Will Kennedy, If I look then at oil,
Speaker 3: here are you it's Jave Blast and your entire team,
Speaker 3: particularly the team and the trenches here of hydrocarbons? Are
Speaker 3: you framing out a path to one hundred? Are you
Speaker 3: even able to do that with this geopolitical uncertainty?
Speaker 7: I think it's quite binary. I think the main scenario
Speaker 7: is that we stay in the sort of eighty to
Speaker 7: ninety five range. There's a sort of five dollars risk
Speaker 7: premium in the market. Now, that's what a senior oil
Speaker 7: trader described to me in a conversation yesterday, that this
Speaker 7: whole crisis has probably added five bucks. But in most scenarios,
Speaker 7: there's not significant disruption to oil flows and things carry
Speaker 7: on pretty much as they are, and there's concerned about
Speaker 7: the macro and the buypack. But there is a binary
Speaker 7: scenario that there's an extreme but unlikely scenario quas go
Speaker 7: much higher. And one interesting thing we've seen is some
Speaker 7: activity in the options market where people are buying calls
Speaker 7: well above one hundred dollars, which shows that they're people
Speaker 7: who are buying protection against those unlikely but sevia scenario.
Speaker 3: Well, Kennedy, stay where this is, Lisa. The emotion of
Speaker 3: the President of the United States speaking to people first
Speaker 3: responders and people who are directly associated with the horror
Speaker 3: in the Eastern Mediterranean, in Israel and in Gossom.
Speaker 1: This comes after a reported meeting between President Biden and
Speaker 1: the war cabinet, including but you mean Natanyahu. A big
Speaker 1: question around what the focus was given. A diplomacy has
Speaker 1: really been at least put on pause, if not shattered
Speaker 1: due to some of the reactions overnight. Now President Biden
Speaker 1: going around and meeting with some of those in Israel
Speaker 1: in the show of support that he is that he
Speaker 1: is demonstrated.
Speaker 3: It's a diplomatic issue here. But what I find so
Speaker 3: fundamental is the immediacy of this new war or the
Speaker 3: immediacy you know, to take it away from more of conflict,
Speaker 3: and that the film is in real time and it
Speaker 3: adjusts the diploma see and the optionality in real time.
Speaker 1: There's a question also about any kind of escalation, which
Speaker 1: is what people in the market have been watching. I
Speaker 1: am curious, will Kennedy with us still here and I
Speaker 1: am curious from your vantage point. How you interpreted some
Speaker 1: of the Iranian rhetorics saying that they were going to
Speaker 1: call for an Israeli embargo on oil, talking about the
Speaker 1: potential for escalation. How are people in your industry reading
Speaker 1: through this to understand what's real, what's potentially disruptive, and
Speaker 1: what's not.
Speaker 7: I think the comments from Iran today were rhetoric. I
Speaker 7: don't think they will have much real world impact. As
Speaker 7: I said, Iran sorry, Israel imports just over two hundred
Speaker 7: thousand dollars a day. That's minuscule in the context of
Speaker 7: the global market. It gets that oil mostly from countries
Speaker 7: in the form of Soviet Union. But the rhetoric matters here,
Speaker 7: the background matters here, and as the situation deteriorates, as
Speaker 7: Iran's words become more severe. I think that Wabi's trade
Speaker 7: is that they have to think about worst case in AliOS,
Speaker 7: as I said earlier, and that's the background they're looking at.
Speaker 7: Any signs wise, I'm about it. I stepping out up.
Speaker 3: Well, Kennedy, thank you for the oil brief from you
Speaker 3: and your team, particularly in Europe and in Dubai. Joining
Speaker 3: us now with decades of perspective on the shifts in
Speaker 3: Global Wall Street. Gerard Cassidy to say he's large bank
Speaker 3: analyst at Canada's RBC Capital Markets, barely describes a perspective.
Speaker 6: Gerard to rephrase.
Speaker 3: My question to Shanali where she beat me down and said, Tom,
Speaker 3: you don't know what you're talking about. Let me go
Speaker 3: to you, Gerard, to save the day. And that is
Speaker 3: I'm sensing a new Global Wall Street. They really want
Speaker 3: persistent cares. Is James Gorman showing the future to the
Speaker 3: other banks.
Speaker 8: Tommy, I think you're really onto something. And you've got
Speaker 8: to give James Gorman credit. He's really changed Morgan Stanley
Speaker 8: from where it was back in two thousand and nine
Speaker 8: when it was heavily reliant on trading and investment banking,
Speaker 8: and diversified into the wealth management or retail brokerage business
Speaker 8: if you want, as well as asset management.
Speaker 6: And it really comes down to consistency.
Speaker 8: Of earnings or consistency of cash flow, as you point out,
Speaker 8: and that's what Golman tried to do with their expansion
Speaker 8: into the consumer banking business, which has failed miserably, of course,
Speaker 8: and they're exiting that now. They want the model like
Speaker 8: a JP Morgan, which is diverse fight revenue or Morgan Stanley,
Speaker 8: which is less diverse fight than JP Morgan, but it's
Speaker 8: still more diverse fight than where it was back in O.
Speaker 5: Nine, Jodas you know, banks have been a pretty lousy
Speaker 5: investment in the stock market this year. Is JP Morgan
Speaker 5: versus everyone else? JP Morgan up here today by ten percent?
Speaker 5: Everybody asked down the down hard, Jeff. What separates what's
Speaker 5: happened at JP Morgan from the rest. Is it just
Speaker 5: First Republic?
Speaker 6: John, That's part of it.
Speaker 8: But the performance for JP Morgan, even prior to them
Speaker 8: acquiring First Republic, was better than the back And I
Speaker 8: think what you have here is a flight to quality.
Speaker 8: Everybody knows JP Morgan is one of the premier US
Speaker 8: global bank. He's demonstrated that with very good results, strong
Speaker 8: leadership of course under Jamie Diamond and his senior management team.
Speaker 8: And every time John we go out and talk to
Speaker 8: institutional investors, the scar tissue from March and May is
Speaker 8: very thick and people are underweight the banks, and when
Speaker 8: we talk to them, they always tell us we're underweight
Speaker 8: the banks, but we own one.
Speaker 6: Bank, JP Morgan. JP Morgan is owned around the world.
Speaker 1: When we look back at this period your ard, Are
Speaker 1: we going to say that this was the year the
Speaker 1: JP Morgan consolidated its heft at the expense of a
Speaker 1: lot of smaller banks.
Speaker 8: I always say, Lisa that what JP Morgan has done
Speaker 8: has shown that the diversity of revenue and very sharp,
Speaker 8: you know, very focused management by the Jamie Diamond and
Speaker 8: his senior team really has demonstrated really strong numbers. We
Speaker 8: were talking a moment ago, Tom mentioned return on equity
Speaker 8: and if you look at the consumer banking business for
Speaker 8: Bank America on the morning hand Diamond at JP Morgan,
Speaker 8: the consumer banking businesses are earning close to forty percent
Speaker 8: return on equity and as we all know, that's incredibly
Speaker 8: I for banking businesses.
Speaker 6: That's what's driving it.
Speaker 8: And JP Morgan as well on the leaders in consumer
Speaker 8: banking such as in Bank.
Speaker 1: America, they are though the leading players at a time
Speaker 1: when they can be selective for the top rated consumers.
Speaker 3: Right.
Speaker 1: And this is something that we pointed out according to
Speaker 1: Shanelli Bosik or own Hinelli Bossic yesterday this morning. What
Speaker 1: we're not talking about citizens financial missing on net interest income,
Speaker 1: United Community missing on net interest income. Ally financial missing
Speaker 1: on net interest in margin and also having fewer Autoland originations,
Speaker 1: and previously thought, how much is this story dividing even
Speaker 1: further between the biggest banks and the regionals that are
Speaker 1: still in a world of hurt.
Speaker 8: Liza, it's a good point because some of them have
Speaker 8: this she picked out amongst the big regional bank citizens
Speaker 8: it's actually the only one that has missed today when
Speaker 8: you look at mnt US Bancorp.
Speaker 6: And others, their in line is slightly better.
Speaker 8: But you're right about certain banks have missed and it
Speaker 8: has to do with and you touched on it in
Speaker 8: your earlier comments about the non interest bearing deposits. The
Speaker 8: banks with the non interest bearing deposits are going to
Speaker 8: do very well in this higher rate environment because those
Speaker 8: deposits don't pay any just obviously, but they don't move either.
Speaker 8: People need operational accounts personally, we all do, as you know,
Speaker 8: as well as companies, and that money is gold in
Speaker 8: an environment like today, and the banks with the higher
Speaker 8: levels of non interest bearing deposits will do pretty well.
Speaker 5: Jared, I have to admit, whenever the comments from Brian
Speaker 5: Monahan with David Westone, I was kind of surprised job
Speaker 5: because he was talking about the consumer slow down.
Speaker 2: Can we just finish there.
Speaker 5: Retail sounds look great yesterday, really broad based, big upside surprise.
Speaker 5: Then the Bank for America boss comes out and says,
Speaker 5: the FED is basically achieve what it wanted to achieve.
Speaker 5: We've got a consumer slow down, jod, Is that consumer
Speaker 5: slowed down for Bank for America or is that a
Speaker 5: broader story for the economy? Which one is it?
Speaker 6: John good point?
Speaker 8: And the cross currents today, it's always easy to say
Speaker 8: today is more challenging than ten years ago or during
Speaker 8: the financial crisis. It's always challenging. But the cross currents
Speaker 8: today are pretty strong. And you just summed it up
Speaker 8: very well. So we're hearing from some folks the consumer
Speaker 8: is slowing down. But then you see the retail sales
Speaker 8: number and it was quite impressive. And if you look
Speaker 8: at the real GDP now number which comes out of
Speaker 8: the Atlanta FED, which is the current estimate for real
Speaker 8: GDP this quarter third quarter is over five percent.
Speaker 6: Is crazy. But I would say that it's not Bank
Speaker 6: America specific, and.
Speaker 8: I would say morning hand and response to my question
Speaker 8: on the call, actually he was pointing out that he
Speaker 8: thinks it's going to stay around this level. The higher
Speaker 8: spending a year ago was unusually strong for them, high
Speaker 8: single digits. Now it's a round four percent should drop
Speaker 8: out about these levels, but it's still positive growth.
Speaker 5: They've been more selective about the clients they serve at LEASTA,
Speaker 5: and I've been talking about this for the last twenty
Speaker 5: four rounds actually off the back of the data that
Speaker 5: Shnadi shared with us. These credit scores of these customers,
Speaker 5: Gerard are so so high. Who are they serving in
Speaker 5: this country just a really small slice of the economy.
Speaker 8: I think they're serving guys like you, John, and they're
Speaker 8: deserving all the you know, the higher propity credits.
Speaker 5: So it's close to way hundred Yerrard, don't disrupt it.
Speaker 2: Yeah, I am at two forty, very focused on it.
Speaker 2: How's your credit RNGWO? It doesn't quick but.
Speaker 8: Quickly, John, You're bringing up a really good point, and
Speaker 8: I recommend. I know you guys are busy, but look
Speaker 8: at their slide they put in their deck Bank America
Speaker 8: where they compare themselves today to two thousand and nine,
Speaker 8: totally different company d risk and you put your thumb
Speaker 8: on it.
Speaker 6: You're going, you know, higher score consumer as well as corporates.
Speaker 5: Joe Cassidy John go to catch up always, says a
Speaker 5: zombie SI.
Speaker 3: He is senior vice president of Stability at Deutsche Bank.
Speaker 3: Binkram Chada joins US now chief Global Strategist head an
Speaker 3: asset allocation as well. What an urge to go to
Speaker 3: cash right now? Or go to five and point x
Speaker 3: x percent money market fund? Describe how you tell the
Speaker 3: Deutsche Bank world don't go to kesh.
Speaker 9: I think that you know, if you think about the
Speaker 9: equity market, you think about earnings most important, basically fundamental
Speaker 9: near and medium term. I would argue, and the story
Speaker 9: with earnings is a very simple story. They bottomed in
Speaker 9: the fourth quarter of last year. We've had solid sequential
Speaker 9: growth in the first quarter. Is the second quarter, we
Speaker 9: are pretty constructive. When we get in the third quarter
Speaker 9: so far, what we've gotten better than our constructive.
Speaker 10: View is the way I would put it.
Speaker 3: How did but I went back yesterday, Benkie, and I
Speaker 3: looked at World War two and I went right for
Speaker 3: you can do this on the Bloomberg folks. You look
Speaker 3: right from Pearl Harbor out the VJ Day and it
Speaker 3: was a nice vector up through the nominal GDP of
Speaker 3: a war economy and all that. Now this is not
Speaker 3: an analog to that, but the emotion is still there.
Speaker 3: How do you contain your emotion when your asset allocating
Speaker 3: with bond price down yield up.
Speaker 9: So I think actually the S and P five hundred,
Speaker 9: the market is controlling its emotions, and I think the
Speaker 9: reason is it understands pretty well what happened the last
Speaker 9: time around, which is, you know, not very long ago,
Speaker 9: a year and a half ago, when Russia Ukraine started,
Speaker 9: you know, the market sold off, we were down eight
Speaker 9: percent three weeks.
Speaker 10: We recovered in another three.
Speaker 9: Weeks right back to where we were, and so you know,
Speaker 9: it just tells you that, by the way, happens to
Speaker 9: be almost exactly the typical playbook for geopolitical risks and events.
Speaker 9: And so you know, given that the market saw this
Speaker 9: movie not very long ago, it is a bit hesitant
Speaker 9: basically to you know, do the same thing again.
Speaker 5: What we had last year, as you know, was an
Speaker 5: energy shop. Sure, arguably in some ways a little bit
Speaker 5: more insulated relative to the seventies. Given where crude production
Speaker 5: is in America currently, which is at all time highs
Speaker 5: through thirteen million bars a day. The concern now it's
Speaker 5: about America's ability to support these wars. There was a
Speaker 5: headline yesterday from our team here at Bloomberg that the
Speaker 5: White House designed one hundred billion dollars of Ukraine, Israel
Speaker 5: and border rate. Can this country afford those kind of
Speaker 5: things given where yields are at the moment, Yeah.
Speaker 10: I think that, you know, it's still can.
Speaker 9: I would say that the rise in interest rates and
Speaker 9: the focus on the interest cost of the US government,
Speaker 9: which is not high, but what everybody looks that is
Speaker 9: the projection going forward, and that's what you should focus. So,
Speaker 9: you know, it's become a talking point. It's a good
Speaker 9: starting point for actually discussing the fiscal sustainability of the US.
Speaker 10: I'd say, so.
Speaker 9: Far, when interest rates were so low, you know, nobody
Speaker 9: was really talking about the deficit and what needs to
Speaker 9: be done about it.
Speaker 1: You talked about the conditioning of the Russian invasion of Ukraine,
Speaker 1: the conditioning of the recessionistas that were wrong and that
Speaker 1: people are saying put this time around. Does that make
Speaker 1: this market more vulnerable to an actual pullback in the
Speaker 1: face of some sort of surprise. Does that make you
Speaker 1: more concerned about your base case of an above average rally.
Speaker 9: I think the way that you want to answer that
Speaker 9: question is by taking a look or through the lens
Speaker 9: basically of equity market positioning. And here I would focus on.
Speaker 9: I would break up the positioning. You know, there's systematic strategies,
Speaker 9: which is rules based, and then there's everybody else, which
Speaker 9: is who we call the discretionary equity investors. And you know,
Speaker 9: in July they raised their positioning for the first time
Speaker 9: in more than a year. I would say, you know,
Speaker 9: it's really a fomo pressure. We look for a pullback.
Speaker 9: You look at that positioning today, it has come in.
Speaker 9: It is sitting right back in the range that it's
Speaker 9: been in since April May of last year, which is
Speaker 9: just a little bit underweight. So you know, year and
Speaker 9: a half, there have been plenty of concerns. I understand
Speaker 9: this is a new concern, of course, but there've been
Speaker 9: plenty of concerns and shocks over the last year and
Speaker 9: a half, and they didn't budge. So you know, I
Speaker 9: would argue, I mean, we were in the middle of
Speaker 9: a pullback already, so you know that's why positioning went down.
Speaker 9: And so positioning is already basically at or slightly below neutral.
Speaker 10: What history would tell.
Speaker 9: You is that you don't necessarily want to go underweight
Speaker 9: here unless you know you can time. I mean, the
Speaker 9: playbook would tell you it's really tough because it's three
Speaker 9: weeks and it's big move down, big move up.
Speaker 10: Yeah.
Speaker 1: How much have you changed any aspect of your view
Speaker 1: over the past, say two weeks, three weeks, as we've
Speaker 1: seen a complete change in the yield regime and we've
Speaker 1: seen a complete shift in potential geopolitical tensions.
Speaker 10: I haven't changed my view at all. I would argue, of.
Speaker 9: Course, you know this new negative shock, and I would
Speaker 9: argue it's probably a restraining factor on the upside because
Speaker 9: risk appetite is going to be a little bit cautious.
Speaker 9: But you know, the view is based on what's happening
Speaker 9: with the fundamentals, and I would say, so far, you know,
Speaker 9: the data actually reinforces view rather than anything else.
Speaker 3: I'm looking at Chata the Great Alan Ruskin, Young, George
Speaker 3: Sarahvellos take the combination of all your work at Deutsche Bank,
Speaker 3: and to me, the immovable force here, which is a
Speaker 3: Lawrence McDonald idea, there's just a pile of money out
Speaker 3: there to support the bid across most if not all
Speaker 3: asse classes. Is that true that you and I have
Speaker 3: never seen the trillion dollar pile of money that's got
Speaker 3: to find a warm place to go?
Speaker 10: Is so?
Speaker 9: So I don't really think, you know, the equity market
Speaker 9: performance or resilience is really coming from that. I think
Speaker 9: it's actually just simply you know, the economy is playing out.
Speaker 9: I mean, you look at yesterday's data, where you know,
Speaker 9: you got this very very strong response in the bond market.
Speaker 9: But if you take a look at the data, I
Speaker 9: mean retail sales, you know is in nominal variable. So
Speaker 9: the first thing that you should do is look at
Speaker 9: it in real terms, which would tell you something about
Speaker 9: the volumes that people are consuming.
Speaker 10: Once you do that, the picture changes completely. Retail sales,
Speaker 10: real retail sales were.
Speaker 9: Growing in a very clear trend channel prior to the pandemic.
Speaker 9: The pandemic for reasons that we all know caused you know,
Speaker 9: spending to go up, came down a little bit when
Speaker 9: sideways for a while.
Speaker 10: But for the last nine months.
Speaker 9: Year, including yesterday's data point, there is nothing to see there.
Speaker 10: We are just growing in the middle of the trend channel.
Speaker 10: I think the.
Speaker 9: Surprise is that everybody's looking for things to fall. It's
Speaker 9: a year now, and so you know, I think it's
Speaker 9: the expectations that are allowed rather than thank.
Speaker 2: You, thank you, thank you. Chata the Deutsche Bank.
Speaker 3: We had the same conversation I believe it was April
Speaker 3: at other institutional meetings of the concern of EM with
Speaker 3: a brief this morning with all the newsflow, including in
Speaker 3: the Eastern Mediterranean, Diana mo joins US with Kirkiswald asset
Speaker 3: Management and on desks of EM market makers for years,
Speaker 3: it's so good to talk to you, particularly off the
Speaker 3: Berry Green paper at Jackson Hall and what Joyce Chang
Speaker 3: talked about IMF, how bad is it? Mexico is stellar
Speaker 3: performer even there. Peso off the high is a weaker
Speaker 3: eight percent.
Speaker 11: Well, I think what's happening right now is actually the
Speaker 11: dollar has remaged again. There's been a huge amount of
Speaker 11: upside surprises from a US economy perspective, and that's giving
Speaker 11: a bid to the dollar. Additionally, you have geopolitics and
Speaker 11: people are buying dollars as a safe haven. So the
Speaker 11: combination of those two is taking off some of the
Speaker 11: shine in emerging market currencies that we've seen up until
Speaker 11: the summer.
Speaker 3: Stan Fisher wrote that little red book everybody was forced
Speaker 3: to read. I think it was nineteen ninety nine, one
Speaker 3: year after nineteen ninety eight. Are we anywhere near the
Speaker 3: instabilities of a giving crisis in Ecuador, a crisis in
Speaker 3: Mexico for that matter, or a crisis in Southeast Asia?
Speaker 3: What's the level of instability you perceive in them?
Speaker 11: Much less than during COVID, because I think a lot
Speaker 11: of the vulnerabilities were addressed during that period. The insolvent
Speaker 11: economies already talking to the IMF, and I'm sure you
Speaker 11: had a lot of that in Morocco the IMF.
Speaker 3: I've don't asked the urgent you know, okay, continue?
Speaker 11: The IMF is standing ready to support economies. So we
Speaker 11: don't necessarily think in the next one to two years
Speaker 11: we're likely to see anything. There's maybe one or two
Speaker 11: credits that look vulnerable that have maturities coming, But broadly speaking,
Speaker 11: I think em should be able to model through.
Speaker 2: In thirty years time.
Speaker 5: Where we have a restructuring plan for the United States,
Speaker 5: for America, is that where things are going?
Speaker 2: Where's this headed? Where is this going?
Speaker 5: When you speak to emerging market nations, how are they
Speaker 5: thinking about what's taking place in America for the preaching
Speaker 5: they've heard about how they should manage their finances. What
Speaker 5: are they saying about this in Washington, Well.
Speaker 11: They've clearly lost the handle on physical In the US,
Speaker 11: it feels like whatever is happening, whether it's political impulse,
Speaker 11: the answer is let's spend some more. When it's geopolitics,
Speaker 11: says let's spend some more, and you've lost your price
Speaker 11: in sensitive buyer. We had the QE that was supporting this.
Speaker 11: Now the markets have to figure out how much premium
Speaker 11: you need to be if you expect more issuance to
Speaker 11: come forward months ago.
Speaker 3: Lisa Damien says, are watching this, and he makes cleary
Speaker 3: agrees with Diana. He sees quality reserves at.
Speaker 1: Em right, What does quality mean at a time where
Speaker 1: you've got a treasure yell?
Speaker 2: That is that going up, up and away?
Speaker 1: Diana, I do want to just sort of put a
Speaker 1: boat on that point. Are you saying that we have
Speaker 1: seen the reaction function to weakness. We have seen the
Speaker 1: reaction function amid of search for safe havens and treasuries
Speaker 1: no longer get that bid in a repliable way.
Speaker 11: Well, they got the bid when we had the geopolitic headlines.
Speaker 11: A couple of weeks ago, you saw them move in treasuries,
Speaker 11: which rally does. People still saw them as a safe haven.
Speaker 11: But despite that ongoing, as soon as we had a
Speaker 11: bit of stability, markets were quick to unload these treasuries
Speaker 11: because what are we hearing There's another hundred billies and
Speaker 11: potentially that's going to be spent to support these economies,
Speaker 11: and markets simply don't have the appetite.
Speaker 1: Do you think that this pain will be reserved the
Speaker 1: US government debt market or is it the kind of
Speaker 1: theory where when the US catches a cold, the rest
Speaker 1: of the developing world catches a flu.
Speaker 11: Well, I think there's two big elephants in the room,
Speaker 11: the US and the bog where sovereign debt issues or
Speaker 11: sustainability have been a concern, but more of a slow
Speaker 11: burning concern for a while now. While these are playing out,
Speaker 11: I think they will tend to take everything with them.
Speaker 11: But it's the speed of the move that matters, and
Speaker 11: we've had a pretty aggressive move in treasuries. So if
Speaker 11: you know, going forward, we say maybe treasuries can go
Speaker 11: from four and a half to five and a half,
Speaker 11: but we are not necessarily going to see that happening
Speaker 11: in a six week period. I think markets can handle that.
Speaker 2: Where can we hide? Where can we hide?
Speaker 11: An Aya know what I'm going to say, Emergine markets,
Speaker 11: you're actually getting paid to do the walk nine am,
Speaker 11: em HI yielding north of ten percent, EMIG yielding north
Speaker 11: of six percent looks like an interesting space. That said,
Speaker 11: it's not a one size fits all. Tom mentioned Argentina.
Speaker 11: You know we still have cases like that that look
Speaker 11: very vulnerable. I think this is a period where if
Speaker 11: you do your bottom up security analysis and you know
Speaker 11: the stories that you're buying really well, there's a lot
Speaker 11: of opportunities in the margin market.
Speaker 5: What about Turkey, fascinating leadership shift taking place in that country.
Speaker 2: What is going on?
Speaker 11: I mean, it's like a total we have the same
Speaker 11: outcome in the elections, but it's like a totally different leadership.
Speaker 2: It's amazing.
Speaker 11: Yeah, So they've embraced orthodox policies. Now they're speaking the
Speaker 11: market talk, and markets are responding well to that. We've
Speaker 11: seen aggressive rate hikes and a commitment to actually fight inflation,
Speaker 11: which is refreshing to see.
Speaker 1: When you talk about developing markets, I have to think
Speaker 1: about what's going on right now, excuse me, in the
Speaker 1: Middle East, and just wonder how closely you're following this
Speaker 1: as a potential not only humanitarian and question around what's
Speaker 1: going to happen and how why the conflagration goes, but
Speaker 1: what this means for the ability to invest in some
Speaker 1: of these nations.
Speaker 11: Well, it's clearly a sad ton of events, so and
Speaker 11: we're obviously following it very closely. I think what the
Speaker 11: big concern is, beyond the humanitarian cost of lives, is
Speaker 11: what does this actually mean for one, the region stability
Speaker 11: within the broader region? Are we going to see spillover
Speaker 11: effects in the Middle East? That arether countries going to
Speaker 11: get pulled into this? And you've seen actually markets repricing,
Speaker 11: You've seen CDs in some of these Middle East and
Speaker 11: economies actually move quite high because markets are assigning a
Speaker 11: premium that it's a non insignificant risk that you could
Speaker 11: see spillover.
Speaker 2: Risks coming in.
Speaker 11: And I think broadly speaking, beyond the Middle East, it's
Speaker 11: oil prices. Obviously it's the next big one because you
Speaker 11: have this potential supply side shock and that could actually
Speaker 11: make monetary policy much trickier going forward. If you see
Speaker 11: inflation starting to pick up again.
Speaker 2: This was great. It always says it's going to catch up.
Speaker 5: Don't be a stranger, Dna Ramota of Kirkus World Asset Management.
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