Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day
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Speaker 2: Terminal and the Bloomberg Business app. Also tracking the latest
Speaker 2: developments between Iran and the United States. The latest from
Speaker 2: axios This morning, A round gave the US a new
Speaker 2: proposal for reaching a deal on reopening the streadufor mers
Speaker 2: and ending the war, with nuclear negotiations postponed for a
Speaker 2: later stage. This is a view from Normal Rule of
Speaker 2: csis this morning. Right in the following, the most likely
Speaker 2: course over the coming week is continuation of the current
Speaker 2: blockade and indirect diplomacy and narrow maritime arrangement remains possible.
Speaker 2: Norm joined us now for more Normal One. Welcome to
Speaker 2: the program. That last line a narrow maritime arrangement remains possible.
Speaker 2: Normal what do you mean by that? And what kind
Speaker 2: of arrangement might we see?
Speaker 3: Good morning, And first, it's good to see Anne Marie
Speaker 3: here and I'm glad that she is safe, and obviously
Speaker 3: the President and the other attendees. It's possible that some
Speaker 3: sort of arrangement to allow a limited amount of humanitarian
Speaker 3: goods could go through, but that itself remains unlikely. And
Speaker 3: here's why. In essence, the United States and Iran each
Speaker 3: see the straight up horror moves is normally the focal
Speaker 3: point for this, but their main pressure point over the other.
Speaker 3: We're now on a three o'clock contest. The United States
Speaker 3: sees the control over the straight of horror moves is
Speaker 3: its sole opportunity to squeeze the Iranian economy, and that's
Speaker 3: a real pressure point. Inflation is rising in Iran and
Speaker 3: it's enduring. Real economic pain is it's oil industry shuts down.
Speaker 3: But the Iranians know the war power situation is coming
Speaker 3: to a head this Friday. It's only a political issue
Speaker 3: in the near term for the president, but it's a
Speaker 3: real one. And of course economic pressure in the world
Speaker 3: is coming forward. So you've got a situation where each
Speaker 3: side is in this viewpoint that the straight uphoor moves
Speaker 3: is the central pressure point for each other. But there's
Speaker 3: just a narrow, narrow deal that is out there. But
Speaker 3: we're in essence negotiating on whether we should be negotiating,
Speaker 3: and the Iranians see the straight uphom moves as their
Speaker 3: chance to get out of jail economically.
Speaker 4: No, I'm nice to see you too this morning. Could
Speaker 4: this maritime arrangement mean or is accepted by the United States?
Speaker 4: If Iran continues to have a toll and continue to
Speaker 4: control it, even if ships can pass through.
Speaker 3: That's unlikely. And let me explain why the United States
Speaker 3: sees that the only way that it's been able to
Speaker 3: bring Iran to the table is for meaningful talks has
Speaker 3: been through economic pressure and military pressure. If the straight
Speaker 3: up removes is open, well, the first thing that's going
Speaker 3: to happen is what is the purpose of the entire
Speaker 3: US military presence in the region. Are we going to
Speaker 3: maintain three aircraft carriers in the region if there was
Speaker 3: no blockade? That's unlikely. So if the military pressure is removed,
Speaker 3: if the economic pressure is removed, what do you think
Speaker 3: the chances are that the Iranians are going to come
Speaker 3: to the table with any serious negotiating position. Now, they'll
Speaker 3: come to the table, and they have done this for
Speaker 3: years with multiple administrations. But its history is shown with
Speaker 3: the Iranians. They come to the table to talk. That
Speaker 3: doesn't mean they come to the table to talk about
Speaker 3: anything seriously. And the Trump administration, in fairness, knows this
Speaker 3: history quite well.
Speaker 4: Mohammagolibov on Twitter was talking about supply cars that the
Speaker 4: regime could still use. The bab al Mundeb straight, he says,
Speaker 4: is unplayed as well as pipelines. Is this just a
Speaker 4: threat or do you think that we could see real escalation.
Speaker 3: Well, it's probably more accurate to say someone typing on
Speaker 3: Twitter and the name of or Colliboth is stating this.
Speaker 3: The Iranians do have the capability of resuming hostilities, but
Speaker 3: bellicost rhetoric has long been a mainstay of Iran's public diplomacy.
Speaker 3: It's a possibility, but at the same time, we have
Speaker 3: three aircraft carrier task forces in the region, which have
Speaker 3: an enormous military capacity to produce quite a significant amount
Speaker 3: of destruction against Iran's and civilian infrastructure.
Speaker 1: Normal I'm curious about the economic blockade that the US
Speaker 1: is engaging with, and how much leverage is giving the
Speaker 1: United States versus Iran given the fact that it is
Speaker 1: starving them of much needed dollars and there's discussion about
Speaker 1: descent among the ranks who aren't getting paid. Do you
Speaker 1: have a sense of how long Iran has to hold
Speaker 1: out versus the US and its allies.
Speaker 3: No, and that information is not going to be known
Speaker 3: outside of probably Iran and intelligence services. Now, Iran is
Speaker 3: going to hold that data very close. It doesn't want
Speaker 3: the world to see that the pain of that being
Speaker 3: imposed by the economic blockade, nor the military damage is
Speaker 3: how serious that is going is to actually being felt
Speaker 3: because it's going to want to appear to be robust, defiant.
Speaker 3: Not much is happening, but the pain is genuine, and
Speaker 3: it's likely that the administration has a good idea of
Speaker 3: this and for this reason is willing to hold off
Speaker 3: on negotiations. So you've got each side understanding the pain
Speaker 3: of the other. It's just that the Iranians can see
Speaker 3: the US political pain because our system is open for
Speaker 3: the United States, it's going to have to assess this
Speaker 3: through other means.
Speaker 2: Stay with US. Mul Bloomberg surveillance coming up after this.
Speaker 2: So here's the LAist this morning, Kevin Walsh clearing a
Speaker 2: major hurdle to become the next FED chair after the
Speaker 2: d O j drompt It's probe into the Central Bank
Speaker 2: the Senate Banking Committee Center on Wednesday, Sona Designed Franklin
Speaker 2: Templeton joins us now for more. So, good morning, good morning.
Speaker 2: We can get into the future of a Federal Reserve
Speaker 2: under Kevin Walsh in just the moment. I just want
Speaker 2: to get through the Federal Reserve current chair Chairman Powell
Speaker 2: and what's going to happen to him. So some key dates.
Speaker 2: So May twenty fifth is when his term finishes as
Speaker 2: FED chair. Twenty twenty eight you can stay on the
Speaker 2: board as a FED governor. Which date do you think
Speaker 2: is going to choose here?
Speaker 5: You know, number one, I don't know. It really depends
Speaker 5: on what he wants to do. But number two, I'm
Speaker 5: not sure it matters. It really doesn't matter. This notion
Speaker 5: that somehow the current Feed chair is the only thing
Speaker 5: standing behind complete loss of credibility of the FED and
Speaker 5: whatever else lies ahead, I think that's misguided. I think
Speaker 5: that the institution is relatively strong and enormously dubvish. So
Speaker 5: I don't think that it's just J Powell.
Speaker 2: Who stands between enormously duvish. Does that change with the
Speaker 2: change of one man then no?
Speaker 5: I actually, you know so again, this entire focus on
Speaker 5: loss of credibility for the FED seems to really focus
Speaker 5: on the idea that this is what is going to
Speaker 5: cause the FED to lose credibility. And I would argue
Speaker 5: the FED actually did it to itself, and it monetized
Speaker 5: fiscal deficits of close to twenty five percent of GDP
Speaker 5: over a two year period. I'll just repeat twenty twenty one,
Speaker 5: twenty twenty two. So everything since then is the FED
Speaker 5: trying to regain credibility. And I don't happen to think
Speaker 5: that Kevin Walsh is going to change that dynamic.
Speaker 1: Well, there is this question about whether he is going
Speaker 1: to be dubbish, whether he's going to cut rates even
Speaker 1: in the face of inflation that potentially is stickier for
Speaker 1: longer as a result of what's going on with oil prices.
Speaker 6: Do you agree with that?
Speaker 1: I mean, do you think that this is ultimately someone who,
Speaker 1: even though he has been hawkished for most of his
Speaker 1: career will skew dubbish in the face of political pressure.
Speaker 5: So I would say if he does q dubvish, I
Speaker 5: would be surprised because the biggest thing he's talked about
Speaker 5: is the idea of taking monetary policy back to its
Speaker 5: orthodox roots, which mean you don't buy long end treasury
Speaker 5: the US FEDS. If the Fed's overall balance sheet had
Speaker 5: expanded at the average base of nominal GDP, we would
Speaker 5: be looking at a balance sheet of around one and
Speaker 5: a half to one point six trillion today as opposed
Speaker 5: to close it to what is it, eight trillion, So
Speaker 5: we're looking at somebody who's taking the FED back to
Speaker 5: its roots, and I think that's on balance.
Speaker 6: What is more important?
Speaker 5: Will he cut rates? I think if the situation demands it.
Speaker 5: Right now, I'm not calling for more FED rate cuts
Speaker 5: this year based on fundamentals.
Speaker 1: So where does this leave you in terms of your
Speaker 1: market expectation, Because listening to that, I could make two ideas. One,
Speaker 1: if he really is going to be hawkish potentially based
Speaker 1: on what he's said in the past, or at least
Speaker 1: trying to reframe the FED around its old framework, well,
Speaker 1: then two percent inflation remains two percent inflation. I would
Speaker 1: buy long bonds because ultimately that would be very different
Speaker 1: scenario than.
Speaker 6: Say a Duvish FED. If this is someone who's not
Speaker 6: going to.
Speaker 1: Be buying long term bonds, on the other hand, that's
Speaker 1: potentially a pressure where do you line up on that?
Speaker 5: So right now I'm not buying long bonds here because
Speaker 5: I don't think long bonds are yet fully pricing what
Speaker 5: I think is going to happen, and you've got to
Speaker 5: look into a multi.
Speaker 6: Year period here, and I hear that.
Speaker 5: Where I disagree with Kevin Walsh is his idea that
Speaker 5: productivity stronger productivity growth is necessarily going to lead to
Speaker 5: a lower, call it a neutral nominal FED funds rate.
Speaker 6: I don't actually agree.
Speaker 5: Because that Fed funds rate is a combination of inflation
Speaker 5: and long term productivity. So the idea that the disinflation
Speaker 5: from productivity is going to be enough to make up
Speaker 5: for the increase in productivity, I'm not sure that works.
Speaker 5: I'm not sure that the round of productivity increases we
Speaker 5: are going to get this time will necessarily be disinflationary.
Speaker 5: So what I mean by this is two percent productivity growth,
Speaker 5: two percent inflation, four percent FED funds neutral rate. I'm
Speaker 5: not sure we're at two percent inflation, and I actually
Speaker 5: think we're going to get higher than two percent productivity growth.
Speaker 5: So if anything, I think neutral FED funds is higher.
Speaker 4: Right But this FED has shown it's willing to cut
Speaker 4: interest rates even without two percent. And Foy, oh, absolutely,
Speaker 4: And wouldn't he be able to make a case to
Speaker 4: the the FMCA.
Speaker 6: He could, but not when? Not right now?
Speaker 5: And I don't think not this year. Essentially, I don't
Speaker 5: see oil prices, and this is a headline issue. I
Speaker 5: totally get that headline issue. I don't see oil prices
Speaker 5: coming down. We estimate around twenty five thirty five basis
Speaker 5: points of inflation for each ten percent increase, and oil
Speaker 5: prices you easily comfortably get closer to four.
Speaker 2: Now.
Speaker 5: I get it.
Speaker 6: They're supposed to see through it.
Speaker 5: But after the period we just came through in twenty
Speaker 5: twenty two, twenty twenty one, I doubt.
Speaker 6: That this FED is going to be cutting into that.
Speaker 1: You said something that actually you could argue that the
Speaker 1: neutral or it's higher than where it is currently. Is
Speaker 1: this a federal reserve under Kevin A. Walsh that you
Speaker 1: could see hiking as its next move?
Speaker 5: Only if we thought inflation was significantly higher. I see
Speaker 5: this FED frozen next year, could we see our FED
Speaker 5: funds higher?
Speaker 6: It's possible.
Speaker 5: It's not my baseline right now, but I'm certainly not
Speaker 5: anticipating additional cuts from TE.
Speaker 2: So what would make your baseline? What is significantly higher inflation?
Speaker 2: What is that going from three to four, four to five?
Speaker 5: What is that? So to me, it's more four to five,
Speaker 5: three to four, I believe they probably look through you
Speaker 5: start going to four to five, you're looking at second round.
Speaker 2: Do you think this labor market is strong enough, tight
Speaker 2: enough to generate that kind of inflation?
Speaker 5: You know, the labor market is pretty balanced, and I
Speaker 5: think it's improving. It's not deteriorating. Here. The data which
Speaker 5: has come out is all hawkish. It's a very difficult
Speaker 5: situation for anybody to come in and start cutting.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Let's talk about the ongoing closure of the stratoform most
Speaker 2: sending fuel prices higher and highlighting the need for reliable energy.
Speaker 2: Olivia Wassonov, Global head of the Apollo Infrastructure Group, writing,
Speaker 2: we see rising need for investment across midstream energy and
Speaker 2: power infrastructure areas where private capital is increasingly playing an
Speaker 2: important role. Olivia joins is now for more.
Speaker 6: Ol good to see you, good morning. Thanks for having
Speaker 6: me back.
Speaker 2: Is it fair to say, and I think it's important
Speaker 2: touch base with you on this issue that this shock
Speaker 2: in the Middle East is not upending investment, it's accelerateing
Speaker 2: geit it is.
Speaker 7: I mean, I think we're all looking at a few things.
Speaker 7: We're looking at redundancy, right, We're looking at the you know,
Speaker 7: the current infrastructure in the Middle East and maybe we're
Speaker 7: there gaps. Right, You're looking at things around existing pipelines.
Speaker 7: How do we max at existing pipelines. How do we
Speaker 7: think about where there's potential for new pipelines? Can you
Speaker 7: restart old pipelines? People are being need to talk about
Speaker 7: things like a rail again. So I do think in
Speaker 7: the Middle East there's this real focus on redundancy. In
Speaker 7: the rest of the world, we're looking at where can
Speaker 7: we commensate. We announced the deal last week for a
Speaker 7: large Canadian gas infrastructure platform. We believe Canada is a
Speaker 7: really attractive market right now, especially if you look at
Speaker 7: what's going on with Canada l G and access to Europe,
Speaker 7: access to Asia really sort of a big part of
Speaker 7: the broader sort of value chain there. So we are
Speaker 7: very actively investing in other parts of the energy infrastructure globally.
Speaker 2: Well, let's go through the Global bank drop on the
Speaker 2: deals right now. You mentioned Canada, we had ADF over
Speaker 2: in the UK. Are there we in Germany? Offshore wind
Speaker 2: or stead? I believe as well. I don't want you
Speaker 2: to pick a favorite baby, but right now it's there
Speaker 2: a theme that really gets your interest out of all
Speaker 2: of those right now, off those deals that you think
Speaker 2: are the ones to watch.
Speaker 6: We've really been investing heavily in Europe.
Speaker 7: We do see this theme around making sure we're giving
Speaker 7: again real redundancy and growth in European power infrastructure. So
Speaker 7: we started RWE around the grid, we looked at EDF
Speaker 7: around nuclear, and now we're really focused on offshore wind
Speaker 7: with the RSTED deal. I mean, this is a tremendous project.
Speaker 7: If you look at the number of homes it's going
Speaker 7: to power across the UK, it's really tremendous. And we're
Speaker 7: also thinking a little bit about you how do you
Speaker 7: give really reliable long term power to supply to areas
Speaker 7: that have previously been really dependent on oil from an
Speaker 7: oil and gas from places like Russia and.
Speaker 6: The Middle East.
Speaker 1: You have a great lens because in having these discussions
Speaker 1: and these investments you have to work with policymakers pretty
Speaker 1: closely to understand exactly what their appetite is and getting clearance,
Speaker 1: et cetera and permitting. Have you noticed it changed when
Speaker 1: it comes to Europe in particular as they try to
Speaker 1: accelerate some of their reliability given the supply shocks that
Speaker 1: have come to them from all angles over the past
Speaker 1: couple of years.
Speaker 6: Absolutely.
Speaker 7: I mean we saw sort of the first start of
Speaker 7: this in twenty twenty two around the Ukraine crisis, right,
Speaker 7: and that was the first time you saw sort of
Speaker 7: a pan European focus on, Okay, how do we make
Speaker 7: sure we're really more prepared longer term.
Speaker 6: Now with what's going on in Middle East.
Speaker 7: You had a big announcement out of Europe last week
Speaker 7: saying we've got to focus on two things, one short
Speaker 7: term around how do we really help the consumers, and
Speaker 7: then long term around how do we look at better permitting,
Speaker 7: faster permitting, how do we speed up electrification, how do
Speaker 7: we speed up things like batteries which are going to
Speaker 7: help smooth out intermittency.
Speaker 6: Right, So there's really such a big foot within.
Speaker 7: Europe on how do we make sure that we're taking
Speaker 7: this reliance away from other areas.
Speaker 3: Of the world.
Speaker 1: The fact that everybody wants to build at the same
Speaker 1: time makes things a bit complicated. How much are you
Speaker 1: experiencing shortages of things like turbines.
Speaker 6: And engines and the actual pipes.
Speaker 1: And things of that nature, given the fact that everyone
Speaker 1: is trying to do this at the same time at
Speaker 1: a time of potential supply chain constraints because of the
Speaker 1: straight removes being blocked.
Speaker 7: Absolutely, I mean, it's a real issue and it's something
Speaker 7: that we're all grappling with in the US. For example,
Speaker 7: if you do not have your sort of components around
Speaker 7: a new gas plant supplied, you're.
Speaker 6: Looking at five years, right.
Speaker 7: That's a long period of time to get to really
Speaker 7: get the new components in place.
Speaker 6: So this supply chain is just compounding.
Speaker 7: And when we look at what we're going to see
Speaker 7: around the rebuild in the Middle East whenever this conflict
Speaker 7: is over, that is only going to add to the
Speaker 7: need for some of these components.
Speaker 4: Every single Middle East country is coming out now basically
Speaker 4: saying we won't the Saudi's have. We want an East
Speaker 4: West pie, we want to be able to bypass the
Speaker 4: strait of Formos. Can you get the appetite for that
Speaker 4: kind of investment when Iran and the Iergy still remain
Speaker 4: a threat.
Speaker 6: I do think you're going to need to see some stability.
Speaker 7: But you saw it out of the eating last week
Speaker 7: saying hey, how can we help with investment in the
Speaker 7: region to really again help this redundancy piece. When you
Speaker 7: look at pipelines, that's helpful for crude, but when you
Speaker 7: look at things like refined products like jet fuel for example,
Speaker 7: and energy, these are things that are not going through pipelines,
Speaker 7: so we need to think of other ways to be
Speaker 7: able to transport these and really ensure that security.
Speaker 4: To get that confidence though it's not even just for
Speaker 4: oil and gas. There's all this money put to data
Speaker 4: centers and people now talking about them having.
Speaker 6: To go underground.
Speaker 4: Do you still see the optimism for people wanting to
Speaker 4: be invested heavily in this region.
Speaker 7: I do, And the offer on the data center side
Speaker 7: was very clear for a while, right. I mean, if
Speaker 7: you look at it, there was cheap power in the
Speaker 7: Middle East, there was abundancy of land, there was lots
Speaker 7: of local capital and for many years of real perceived
Speaker 7: political stability.
Speaker 6: You've sort of taken the last point of that off.
Speaker 7: I do think you still see the other components there,
Speaker 7: but there is going to be a little bit of
Speaker 7: confidence coming back to the region before you see people
Speaker 7: really wanting to reinvest in this AI phenomenon.
Speaker 2: You don't have to worry too much about the political
Speaker 2: cycle in certain parts in the Middle East. And that's
Speaker 2: a different conversation with Europe maybe you do and with
Speaker 2: the US as well. How relevant is the political cycle
Speaker 2: to some of these decisions.
Speaker 7: You see a lot around, for example, renewal energy, right,
Speaker 7: and we've certainly seen I mean I've been investing in
Speaker 7: renewal energy for twenty five years.
Speaker 6: You've seen real sort of booms and.
Speaker 7: Bus Over time, what I will say is it begins
Speaker 7: to be tied more into security than it ever has before.
Speaker 7: I mean, again, as we look at Europe, right, this
Speaker 7: sort of dependency, whether it's on Russia or on the
Speaker 7: Middle East, and all of a sudden looking in saying
Speaker 7: what can we do internally?
Speaker 6: What resources do we have?
Speaker 7: We have sun, we have wind, right, these are things
Speaker 7: that we continue to build up internally, we can look
Speaker 7: at electrification, so worre again less reliant on these commodities
Speaker 7: coming from other parts of the world.
Speaker 2: Do you think there is a bigger focus now on abundance.
Speaker 2: I just wondered to what extent the conversation really has changed.
Speaker 2: Lisa mentioned that it seems to me that everything's become
Speaker 2: very polarized. That for certain political groups, particularly in Europe,
Speaker 2: they believe everything that is fossil fuels or touches fossil
Speaker 2: fuels is bad and everything that's renewable is fantastic under
Speaker 2: any situation, in any circumstance, and for whatever reason, the
Speaker 2: other side sees it completely differently. Do you think we
Speaker 2: have got some kind of moment here where we can
Speaker 2: just accept we need something from both worlds, We need abundance.
Speaker 6: I think that's absolutely spot on.
Speaker 7: Right now, you're looking at a crisis, right, and everyone's
Speaker 7: trying to figure out how do we fix this?
Speaker 6: Right?
Speaker 7: If you look at Europe, Europe has spent about twenty
Speaker 7: five billion over the last few months since the war started,
Speaker 7: do you get the same amount of energy supply they
Speaker 7: had before? So they're looking at it saying, gosh, you
Speaker 7: know rather than making this highly politicized, Let's figure out
Speaker 7: again how we can have homegrown energy supplies so that
Speaker 7: we're not dealing with these massive pray shocks going forward.
Speaker 2: This is The Bloombergs, a Bayans podcast bringing you the
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