1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and am Marie Hortern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:35,840 Speaker 2: Bloomberg Terminal and the Bloomberg Business app. 10 00:00:36,479 --> 00:00:39,400 Speaker 3: Joining us now is Amanda Liner of a Black Rock. 11 00:00:39,520 --> 00:00:41,680 Speaker 1: Amanda, a difficult time for the Federal Reserved to. 12 00:00:41,680 --> 00:00:44,480 Speaker 3: Be meeting, given that their dueling risks seem to be 13 00:00:45,000 --> 00:00:48,960 Speaker 3: their double mandate seems to be very much increasingly in conflict. 14 00:00:49,080 --> 00:00:50,400 Speaker 1: Do you think we're going to learn anything at all 15 00:00:50,400 --> 00:00:50,720 Speaker 1: this week? 16 00:00:50,960 --> 00:00:53,640 Speaker 4: Good morning, Thank you for having me. That's the one 17 00:00:53,680 --> 00:00:55,320 Speaker 4: thing that we are focused on. I would say the 18 00:00:55,320 --> 00:00:58,440 Speaker 4: Summary of Economic projections has the potential to give us 19 00:00:58,480 --> 00:01:01,000 Speaker 4: some incremental clarity on their reaction function. We think on 20 00:01:01,080 --> 00:01:04,039 Speaker 4: the margin it will reflect a more challenging growth inflation mix. 21 00:01:04,160 --> 00:01:06,320 Speaker 4: But keep in mind this is just the median of 22 00:01:06,400 --> 00:01:09,240 Speaker 4: all of the different committee members. It's not actually a 23 00:01:09,240 --> 00:01:11,560 Speaker 4: cohesive projection from the committee, so we need to kind 24 00:01:11,560 --> 00:01:13,840 Speaker 4: of discount that. What we are most focused on is 25 00:01:14,120 --> 00:01:17,520 Speaker 4: what would be the scenario analysis the reaction function if 26 00:01:17,520 --> 00:01:20,640 Speaker 4: the dual mandate comes into tension. A few months ago 27 00:01:20,720 --> 00:01:24,200 Speaker 4: you started see Chair pal Beth Hammock talk about that 28 00:01:24,360 --> 00:01:26,920 Speaker 4: being on the radar. I think the incremental news it 29 00:01:26,959 --> 00:01:29,280 Speaker 4: has become, as you alluded to, even more challenging with 30 00:01:29,319 --> 00:01:32,360 Speaker 4: the geopolitical situation, So that would be the hopefully the 31 00:01:32,360 --> 00:01:34,319 Speaker 4: one nugget that we will be looking for is how 32 00:01:34,319 --> 00:01:38,080 Speaker 4: would they navigate that backdrop? What would they prioritize. The 33 00:01:38,200 --> 00:01:41,160 Speaker 4: SEP already reflects an unemployment rate of four point four 34 00:01:41,200 --> 00:01:43,399 Speaker 4: percent for this year, so we know that they are 35 00:01:43,440 --> 00:01:46,200 Speaker 4: baking in some weakning in the labor market. How much 36 00:01:46,200 --> 00:01:48,200 Speaker 4: weakening would we need to see in order for their 37 00:01:48,320 --> 00:01:49,040 Speaker 4: posture to change. 38 00:01:49,080 --> 00:01:51,760 Speaker 3: Earlier this year, there was a feeling that any inflationary 39 00:01:51,800 --> 00:01:54,960 Speaker 3: shock from tariffs or trade tensions in general would be 40 00:01:55,000 --> 00:01:57,400 Speaker 3: transitory they even use that word, or even short lived. 41 00:01:57,760 --> 00:01:59,320 Speaker 1: Now there's a question of the dual shocks. 42 00:01:59,360 --> 00:02:01,240 Speaker 3: You have the terror for risk, and then you also 43 00:02:01,320 --> 00:02:03,880 Speaker 3: have potentially some sort of oil shop that is persistent. 44 00:02:03,920 --> 00:02:04,640 Speaker 1: Even if it's not. 45 00:02:04,760 --> 00:02:06,760 Speaker 3: The closure of the strait of removes, there is this 46 00:02:06,840 --> 00:02:09,480 Speaker 3: feeling that there's going to be a higher premium. How 47 00:02:09,560 --> 00:02:12,119 Speaker 3: much does that complicate things and create a more sort 48 00:02:12,120 --> 00:02:14,160 Speaker 3: of long lasting inflationary impulse. 49 00:02:14,320 --> 00:02:15,440 Speaker 5: I think you nailed it. 50 00:02:15,440 --> 00:02:18,680 Speaker 4: It's not just the inflation data, but inflation expectations. So 51 00:02:18,760 --> 00:02:22,080 Speaker 4: even though they're navigating to core PCE, which would exclude energy, 52 00:02:22,560 --> 00:02:24,480 Speaker 4: if we do have a rise in oil prices that 53 00:02:24,600 --> 00:02:28,080 Speaker 4: is sustained, does that alter inflation expectations for consumers and 54 00:02:28,120 --> 00:02:30,839 Speaker 4: could not cause them to react. I would say there's 55 00:02:30,919 --> 00:02:32,959 Speaker 4: kind of two fold impacts that we see from this 56 00:02:33,160 --> 00:02:36,240 Speaker 4: geopolitical backdrop. Its one, should there be higher U premias 57 00:02:36,280 --> 00:02:38,799 Speaker 4: and corporate credit? And then two are there actually sector 58 00:02:38,840 --> 00:02:42,440 Speaker 4: specific implications if there are sustained supply chain disruptions. We 59 00:02:42,480 --> 00:02:44,600 Speaker 4: haven't seen that yet, hopefully we don't, but those are 60 00:02:44,600 --> 00:02:46,799 Speaker 4: really what we're focused on. And then the magnitude and 61 00:02:46,840 --> 00:02:49,240 Speaker 4: the duration of that has yet to be seen. Even 62 00:02:49,280 --> 00:02:51,440 Speaker 4: when the FED was I would think casually using the 63 00:02:51,440 --> 00:02:53,800 Speaker 4: word transitory, when was that back in the March meeting? 64 00:02:54,200 --> 00:02:56,400 Speaker 4: It was also CAVEATD with the healthy dose of we're 65 00:02:56,440 --> 00:02:59,320 Speaker 4: not quite sure really where this is going. I remember 66 00:02:59,320 --> 00:03:01,600 Speaker 4: that meeting very well, and so I think they're even 67 00:03:01,639 --> 00:03:03,519 Speaker 4: hesitant to say that they'll be able to look through it. 68 00:03:03,560 --> 00:03:05,919 Speaker 4: I think they're just raising the possibility that maybe they 69 00:03:05,960 --> 00:03:07,280 Speaker 4: can look through it well. 70 00:03:07,320 --> 00:03:10,720 Speaker 6: To the point of credit markets, again, it's another thing 71 00:03:10,800 --> 00:03:13,160 Speaker 6: where we see spreads widen a little bit and then 72 00:03:13,240 --> 00:03:15,280 Speaker 6: not really react that much. Where you have seen some 73 00:03:15,360 --> 00:03:18,280 Speaker 6: weaknesses in the junkiest part of the market, is the 74 00:03:18,360 --> 00:03:20,560 Speaker 6: risk real there? Could you start to see defaults pick 75 00:03:20,600 --> 00:03:21,160 Speaker 6: up in that area? 76 00:03:21,240 --> 00:03:23,560 Speaker 4: Sure, So two things I would say, our conversations and 77 00:03:23,639 --> 00:03:26,760 Speaker 4: really since early may have focused on two sided risks 78 00:03:26,800 --> 00:03:29,880 Speaker 4: exactly as you noted, widening episodes have been short lived, 79 00:03:29,880 --> 00:03:32,280 Speaker 4: and actually the common refrain from a lot of investors is, oh, 80 00:03:32,280 --> 00:03:34,440 Speaker 4: I wish I would have taken advantage of that. More So, 81 00:03:34,440 --> 00:03:36,560 Speaker 4: that's a very real risk, and so we're very focused 82 00:03:36,600 --> 00:03:37,600 Speaker 4: on the two sided risks. 83 00:03:38,000 --> 00:03:39,800 Speaker 5: Where we are trading carefully. 84 00:03:39,400 --> 00:03:41,760 Speaker 4: And have been are those kind of left tail pockets 85 00:03:41,760 --> 00:03:44,720 Speaker 4: of the market that we're already under pressure before the 86 00:03:44,760 --> 00:03:48,640 Speaker 4: economic data deteriated. So, for example, US Triple c's had 87 00:03:48,680 --> 00:03:52,280 Speaker 4: interest coverage below one time's already last quarter, it's rebounded 88 00:03:52,280 --> 00:03:55,560 Speaker 4: a bit. That was before the economic data deteriated. You 89 00:03:55,560 --> 00:03:57,440 Speaker 4: see that in pockets of the leverage level market, you 90 00:03:57,440 --> 00:03:59,720 Speaker 4: see it in pockets of private credit. So that's really 91 00:03:59,760 --> 00:04:02,800 Speaker 4: where we need to focus is saying, Okay, let's not 92 00:04:02,920 --> 00:04:05,760 Speaker 4: be too defensive. There's a real opportunity cost to being 93 00:04:05,840 --> 00:04:08,400 Speaker 4: under risked. But at the same time, if a company 94 00:04:08,480 --> 00:04:11,320 Speaker 4: was already having trouble growing into its capital structure, or 95 00:04:11,360 --> 00:04:14,720 Speaker 4: a sector was already having trouble navigating this environment, nothing 96 00:04:14,720 --> 00:04:16,520 Speaker 4: on the horizon's going to make it easier. And so 97 00:04:16,640 --> 00:04:18,800 Speaker 4: that's really I think where we are are mindful. I 98 00:04:18,839 --> 00:04:21,400 Speaker 4: will add, though the high yield and leverage learned default 99 00:04:21,440 --> 00:04:23,960 Speaker 4: rates have been quietly creeping for the past year and 100 00:04:24,000 --> 00:04:27,159 Speaker 4: a half and it has not derailed the performance of 101 00:04:27,240 --> 00:04:29,040 Speaker 4: the speculative grade parts of the market. So I think 102 00:04:29,080 --> 00:04:31,680 Speaker 4: what that's telling you is it's the smallest capital structures 103 00:04:31,680 --> 00:04:35,120 Speaker 4: that are defaulting. It's oftentimes repeat defaulters, and that is 104 00:04:35,200 --> 00:04:36,640 Speaker 4: by definition priced into the market. 105 00:04:36,680 --> 00:04:38,640 Speaker 6: Well, if we do see I said, that falls in 106 00:04:38,720 --> 00:04:41,120 Speaker 6: between that dual mandate and they can't take action and 107 00:04:41,160 --> 00:04:44,080 Speaker 6: they can't cut and rates do remain elevated, does that 108 00:04:44,120 --> 00:04:45,839 Speaker 6: start to spread well. 109 00:04:46,000 --> 00:04:50,200 Speaker 4: Actually, somewhat counterintuitively, it's probably going to support the yield 110 00:04:50,240 --> 00:04:52,760 Speaker 4: base bid for corporate credit, which has been a really 111 00:04:52,839 --> 00:04:55,679 Speaker 4: powerful technical force. I would say the yield based buyer 112 00:04:55,680 --> 00:04:59,320 Speaker 4: has exhibited some patients on and off, so they're sitting 113 00:04:59,400 --> 00:05:03,279 Speaker 4: it out sometimes. But in general, structurally higher interest rates 114 00:05:03,279 --> 00:05:07,000 Speaker 4: coupled with okay growth, even below trend growth, that's not 115 00:05:07,080 --> 00:05:09,839 Speaker 4: a bad recipe for corporate credit. That would probably bring 116 00:05:09,880 --> 00:05:11,960 Speaker 4: some of that yield based demand in off the simelines. 117 00:05:12,200 --> 00:05:13,880 Speaker 4: This is also part of the reason why we like 118 00:05:13,920 --> 00:05:16,560 Speaker 4: selectively moving down in quality. You were talking about the 119 00:05:16,600 --> 00:05:19,440 Speaker 4: volatility and the treasury market. Kind of one of the 120 00:05:19,520 --> 00:05:22,920 Speaker 4: understated differences between IG and highyield is high yeld as 121 00:05:22,920 --> 00:05:25,640 Speaker 4: a shorter duration market, so you're kind of less exposed 122 00:05:25,680 --> 00:05:27,840 Speaker 4: to those swings and treasuries, especially at the long end. 123 00:05:28,080 --> 00:05:30,600 Speaker 3: Just real quickly, here is the private credit market exposed 124 00:05:30,600 --> 00:05:33,000 Speaker 3: to for selling based the fact that you're seeing endowments 125 00:05:33,160 --> 00:05:36,080 Speaker 3: of universities looking to raise money, not for selling. 126 00:05:36,200 --> 00:05:38,520 Speaker 4: Illiquidity is a feature, not a bug, of private credit. 127 00:05:38,600 --> 00:05:41,080 Speaker 4: What I think that is reflective of as a multitude 128 00:05:41,080 --> 00:05:43,680 Speaker 4: of factors, and I think it's a positive that actually 129 00:05:43,800 --> 00:05:46,760 Speaker 4: folks can make acid allocation shifts over time when they 130 00:05:46,760 --> 00:05:48,880 Speaker 4: need to with liquid assets, but it's not a liquid 131 00:05:48,880 --> 00:05:49,800 Speaker 4: market by design. 132 00:05:50,000 --> 00:05:52,240 Speaker 3: Amandal Adam of Blackcroc, thank you so much for being 133 00:05:52,279 --> 00:05:53,800 Speaker 3: with us as always. 134 00:06:03,120 --> 00:06:03,480 Speaker 1: Right now. 135 00:06:03,520 --> 00:06:06,080 Speaker 3: Aaron David Miller of the Carnegie and Townment for International 136 00:06:06,080 --> 00:06:08,760 Speaker 3: Peace joins us erin. I just want to get your 137 00:06:08,800 --> 00:06:12,359 Speaker 3: sense of how realistic it is for the calls for 138 00:06:12,440 --> 00:06:16,440 Speaker 3: de escalation to actually resonate with either not on Yahoo 139 00:06:16,600 --> 00:06:18,120 Speaker 3: or with Iran at. 140 00:06:18,000 --> 00:06:19,880 Speaker 1: A time or both of them seem to be really 141 00:06:19,920 --> 00:06:20,440 Speaker 1: digging in. 142 00:06:20,960 --> 00:06:22,600 Speaker 7: Great question, Lucia, thanks for having me. 143 00:06:22,720 --> 00:06:25,680 Speaker 8: I think it's completely unrealistic and detached from the current 144 00:06:25,720 --> 00:06:29,800 Speaker 8: reality for three reasons. The Israelis want to destroy as 145 00:06:29,880 --> 00:06:32,240 Speaker 8: much of Iran's nuclear program as possible, but they're going 146 00:06:32,320 --> 00:06:34,720 Speaker 8: to have a very difficult time doing it, and they 147 00:06:34,760 --> 00:06:39,159 Speaker 8: have escalation dominance and their superiority and political superiority. There's 148 00:06:39,200 --> 00:06:42,640 Speaker 8: absolutely no pushback from anyone in the region, Europe, from 149 00:06:42,680 --> 00:06:45,600 Speaker 8: the United States, from the Trump administration for the Israelis 150 00:06:45,600 --> 00:06:48,960 Speaker 8: to stop. As one Israeli general put it, retired, we're 151 00:06:49,000 --> 00:06:51,719 Speaker 8: playing soccer with the Iranians, but they have no goalie. 152 00:06:51,880 --> 00:06:55,600 Speaker 8: The Iranians having invested five trillion dollars into this nuclear program, 153 00:06:55,760 --> 00:06:58,800 Speaker 8: having been embarrassed and humiliated to a degree that is 154 00:06:58,920 --> 00:07:01,760 Speaker 8: unprecedented problem in the history of Islamic Republic. 155 00:07:02,160 --> 00:07:03,600 Speaker 7: Are not going to yield on this. 156 00:07:04,240 --> 00:07:10,040 Speaker 8: How deep their ballistic missile inventory is, what twenty twenty 157 00:07:10,040 --> 00:07:12,800 Speaker 8: five hundred ballistic missiles. They can keep this up for 158 00:07:12,840 --> 00:07:15,480 Speaker 8: some time, and the Americans, I think, are faced. 159 00:07:15,480 --> 00:07:17,400 Speaker 7: Trump administration is faced with a dilemma. 160 00:07:17,440 --> 00:07:19,760 Speaker 8: He does not want to answer this war, but he 161 00:07:19,920 --> 00:07:24,200 Speaker 8: cannot stop it. It reminds me of Lennon Johnson's description 162 00:07:24,320 --> 00:07:28,120 Speaker 8: in the Vietnam War of a hitchhiker in a Texas hailstorm. 163 00:07:28,280 --> 00:07:30,400 Speaker 8: I can't run, I can't hide, and I can't make 164 00:07:30,440 --> 00:07:33,680 Speaker 8: it stop. Question for Trump, for all of this, I'm 165 00:07:33,720 --> 00:07:35,360 Speaker 8: not sure Trump wants to make it stop. 166 00:07:35,760 --> 00:07:38,080 Speaker 3: Well, that's actually something he's hinted at, this question of 167 00:07:38,080 --> 00:07:40,800 Speaker 3: maybe they have to fight it out and just complete it. 168 00:07:40,800 --> 00:07:43,520 Speaker 3: From that perspective, what is the ultimate goal though, Erin, 169 00:07:43,560 --> 00:07:45,920 Speaker 3: I mean, given the fact that you just said that, 170 00:07:46,720 --> 00:07:50,000 Speaker 3: as one general told you, Israel is playing soccer and 171 00:07:50,040 --> 00:07:51,320 Speaker 3: Iran has no goalie. 172 00:07:51,520 --> 00:07:52,760 Speaker 9: But what's the ultimate aim? 173 00:07:52,920 --> 00:07:54,120 Speaker 1: Is it regime change? 174 00:07:54,360 --> 00:07:57,760 Speaker 3: How do they achieve something that actually can be sustainable 175 00:07:57,800 --> 00:07:58,760 Speaker 3: for the entire region. 176 00:07:59,200 --> 00:08:00,360 Speaker 7: I mean critical question. 177 00:08:00,440 --> 00:08:03,080 Speaker 8: Have you told me on October eighth that eighteen months 178 00:08:03,080 --> 00:08:06,800 Speaker 8: into the Israeli Hamas Warren Gaza there will be absolutely 179 00:08:06,920 --> 00:08:09,360 Speaker 8: no sign of this conflict debating, I would have said, 180 00:08:09,440 --> 00:08:13,520 Speaker 8: you basically are a bad analyst. The fact is the 181 00:08:13,560 --> 00:08:16,960 Speaker 8: Prime Minister in Gaza has identified. 182 00:08:16,360 --> 00:08:19,160 Speaker 7: Total victory as a goal. I think what he would 183 00:08:19,240 --> 00:08:19,720 Speaker 7: like to do. 184 00:08:19,840 --> 00:08:23,960 Speaker 8: His aspirations would be regime change on one hand, and 185 00:08:24,040 --> 00:08:28,160 Speaker 8: number two deploying the United States if he can to 186 00:08:28,240 --> 00:08:32,240 Speaker 8: do what the Israelis cannot, which is to destroy four 187 00:08:32,360 --> 00:08:36,760 Speaker 8: though and really make a not a dent, but a 188 00:08:36,880 --> 00:08:40,520 Speaker 8: major crippling of the Iranian nuclear program, which would set 189 00:08:40,520 --> 00:08:44,000 Speaker 8: it back at least at least two years. So I 190 00:08:44,040 --> 00:08:47,160 Speaker 8: think right now there's no reason for Ninitaannao to stop. 191 00:08:48,000 --> 00:08:52,440 Speaker 7: Ballistic missiles in Israel are very problematic. 192 00:08:52,559 --> 00:08:55,679 Speaker 8: I mean, the Iranians are launching, maybe ten to fifteen 193 00:08:55,720 --> 00:08:59,640 Speaker 8: percent are actually getting through and striking. But you've seen 194 00:08:59,640 --> 00:09:02,280 Speaker 8: Ethan reported, you've seen some of the damage. Twenty four 195 00:09:02,400 --> 00:09:05,480 Speaker 8: Israelis killed. I think the public will endure this for 196 00:09:05,559 --> 00:09:09,080 Speaker 8: quite some time. So right now I see absolutely no 197 00:09:09,480 --> 00:09:12,640 Speaker 8: way no off ramp, no possibility. 198 00:09:12,760 --> 00:09:14,120 Speaker 7: And then you, of course raise the. 199 00:09:14,120 --> 00:09:18,439 Speaker 8: Question is what, in fact would a negotiation, other than 200 00:09:18,520 --> 00:09:22,480 Speaker 8: cessational hostilities, what would a negotiation between the United States 201 00:09:22,520 --> 00:09:29,480 Speaker 8: and Iran produce? Two months of negotiations produced an impast 202 00:09:29,720 --> 00:09:32,000 Speaker 8: and I think your writings are in no mood frankly 203 00:09:32,160 --> 00:09:35,360 Speaker 8: right now for compromise erin. 204 00:09:35,320 --> 00:09:38,079 Speaker 10: I hear you saying that there is not a likely 205 00:09:38,120 --> 00:09:41,680 Speaker 10: off ramp in the near term. But for investors, what 206 00:09:41,760 --> 00:09:46,319 Speaker 10: can we watch to look for any signs of de 207 00:09:46,600 --> 00:09:50,040 Speaker 10: escalation or escalation from here? You know, what are the 208 00:09:50,120 --> 00:09:52,880 Speaker 10: key points that you are looking for? 209 00:09:53,360 --> 00:09:53,440 Speaker 7: Right? 210 00:09:53,520 --> 00:09:56,520 Speaker 8: I mean d escalation I think right now is not 211 00:09:56,640 --> 00:09:58,840 Speaker 8: in the cards. I think there's a really good chance 212 00:09:58,880 --> 00:10:01,720 Speaker 8: that we'll be in for weeks in It's the escalatory 213 00:10:02,360 --> 00:10:04,120 Speaker 8: possibilities that concerned me. 214 00:10:05,559 --> 00:10:09,680 Speaker 7: This is your guys business, not mine. Would concern investors 215 00:10:09,679 --> 00:10:09,959 Speaker 7: as well. 216 00:10:10,000 --> 00:10:13,840 Speaker 8: And escalation, I think could occur in one of two ways. 217 00:10:14,040 --> 00:10:18,480 Speaker 8: Number One, Iranian ballistic missiles actually end up surging and 218 00:10:19,000 --> 00:10:19,520 Speaker 8: you end up. 219 00:10:19,440 --> 00:10:21,200 Speaker 7: With a mass casualty event in Israel. 220 00:10:22,559 --> 00:10:25,760 Speaker 8: Scores hundreds of Israelis are killed or wounded. 221 00:10:26,559 --> 00:10:27,520 Speaker 7: The Trump administration. 222 00:10:27,600 --> 00:10:30,640 Speaker 8: Under those circumstances, Congress are going to be hard pressed, 223 00:10:30,800 --> 00:10:35,240 Speaker 8: I think to enter the conflict, and the second path escalation, 224 00:10:36,360 --> 00:10:39,040 Speaker 8: or maybe there are three. Second path escalation, would be 225 00:10:39,160 --> 00:10:42,000 Speaker 8: a bad decision in the part of the Islamic Republic 226 00:10:42,480 --> 00:10:47,600 Speaker 8: to go after American assets, US forces in Iraq, Syria 227 00:10:48,600 --> 00:10:51,959 Speaker 8: or obviously forces thirty to thirty five thousand Americans that 228 00:10:52,040 --> 00:10:54,560 Speaker 8: are deployed in the Gulf, and they have many short 229 00:10:54,640 --> 00:10:58,600 Speaker 8: range ballistic missiles, thousands of them that could produce that. 230 00:10:58,920 --> 00:11:02,640 Speaker 8: The third possibility is that the Iranians try some sort 231 00:11:02,640 --> 00:11:07,480 Speaker 8: of asymmetrical strategy in which they go after Israeli interests 232 00:11:07,480 --> 00:11:12,520 Speaker 8: abroad Jewish interests abroad in a terror attack. I think 233 00:11:12,600 --> 00:11:17,440 Speaker 8: that's a back door that would also probably bring in 234 00:11:17,440 --> 00:11:20,880 Speaker 8: in the United States. But again we've watched over the 235 00:11:20,880 --> 00:11:24,000 Speaker 8: course of the last eighteen months. We've steered clear of 236 00:11:24,040 --> 00:11:26,840 Speaker 8: the one thing that investors worry about, the one thing 237 00:11:27,000 --> 00:11:29,559 Speaker 8: I would worry about, the one thing the region worries. 238 00:11:29,320 --> 00:11:31,440 Speaker 7: About, and that would be a major regional war. 239 00:11:31,760 --> 00:11:35,920 Speaker 8: We've avoided that this is bringing us. The longer this 240 00:11:36,000 --> 00:11:40,560 Speaker 8: goes on, the greater the chances of an escalatory cycle, 241 00:11:42,520 --> 00:11:46,439 Speaker 8: an Iranian Saudi conflict and a US conflict, which would 242 00:11:46,520 --> 00:11:50,280 Speaker 8: essentially push oil prices, probably well in excess one hundred dollars. 243 00:11:50,480 --> 00:11:53,000 Speaker 3: Aron, just quickly, here one thing that the market keeps 244 00:11:53,000 --> 00:11:56,080 Speaker 3: focusing on that could catalyze that kind of regional lord 245 00:11:56,160 --> 00:11:58,680 Speaker 3: be shutting down the streets for moves. How realistic is 246 00:11:58,720 --> 00:12:01,680 Speaker 3: that given the fact that to anger everybody in the neighborhood, 247 00:12:02,400 --> 00:12:03,160 Speaker 3: I mean, the. 248 00:12:03,240 --> 00:12:06,440 Speaker 8: Rinians could probably close it, and the Americans would definitely 249 00:12:06,520 --> 00:12:07,000 Speaker 8: open it. 250 00:12:07,240 --> 00:12:08,800 Speaker 7: But again we're talking about a. 251 00:12:08,760 --> 00:12:13,720 Speaker 8: Prolonged delay, filled with uncertainties, all sorts of exit ramps 252 00:12:13,760 --> 00:12:16,560 Speaker 8: of an unpleasant nature that is going to make this 253 00:12:16,720 --> 00:12:18,800 Speaker 8: extremely unpredictable. 254 00:12:19,120 --> 00:12:21,760 Speaker 3: Aaron David Miller of the Carnegie Endowment for International Piece, 255 00:12:21,800 --> 00:12:22,720 Speaker 3: Thank you so much. 256 00:12:22,760 --> 00:12:35,880 Speaker 1: For the insight. Here's eldest the Federal Reserves today meeting 257 00:12:36,040 --> 00:12:38,480 Speaker 1: kicking off tomorrow. The f ONEC widely. 258 00:12:38,120 --> 00:12:41,880 Speaker 3: Expected to hold rate steady but update its economic forecast, 259 00:12:41,920 --> 00:12:45,080 Speaker 3: giving markets a clue about how officials will handle tariffs, 260 00:12:45,320 --> 00:12:48,600 Speaker 3: inflation and more. Joining us now for that potential scenario 261 00:12:48,600 --> 00:12:50,559 Speaker 3: analysis is Steve Verstudo of Mizuho. 262 00:12:50,640 --> 00:12:52,160 Speaker 1: Steve, great to see you, Thank you so much for 263 00:12:52,200 --> 00:12:52,680 Speaker 1: being here. 264 00:12:53,120 --> 00:12:53,679 Speaker 9: Just before we. 265 00:12:53,640 --> 00:12:55,520 Speaker 3: Get into what the Fed does, I want to bring 266 00:12:55,600 --> 00:12:58,040 Speaker 3: you into the debate that Kelsey and I were having earlier. 267 00:12:58,320 --> 00:13:01,600 Speaker 3: How important is it that in the risk on Friday 268 00:13:01,720 --> 00:13:04,839 Speaker 3: and today you are not seeing bonds full faith and 269 00:13:04,880 --> 00:13:05,920 Speaker 3: credit rally. 270 00:13:06,800 --> 00:13:08,360 Speaker 5: I think there's a number of things. 271 00:13:08,400 --> 00:13:13,640 Speaker 11: A people have questioned the dollars reserve currency status, people 272 00:13:13,640 --> 00:13:16,920 Speaker 11: have questioned a lot of interesting information about where people 273 00:13:16,960 --> 00:13:19,360 Speaker 11: are going from a global perspective in terms of investing 274 00:13:19,360 --> 00:13:20,360 Speaker 11: in the United States. 275 00:13:20,679 --> 00:13:22,520 Speaker 5: The reality is we haven't seen much. 276 00:13:22,720 --> 00:13:25,880 Speaker 11: Okay, so yeah, the dollar is down a little bit, 277 00:13:25,920 --> 00:13:28,520 Speaker 11: but on a DXY basis, it's still very, very healthy. 278 00:13:28,559 --> 00:13:31,560 Speaker 11: Under Joe Biden, we were at ninety on a DXY basis, 279 00:13:31,600 --> 00:13:33,800 Speaker 11: and we're talking about ninety seven ninety eight. 280 00:13:33,880 --> 00:13:35,640 Speaker 5: Now, what's the big deal? 281 00:13:36,480 --> 00:13:38,600 Speaker 11: The reality is, when you look at most markets, there's 282 00:13:38,720 --> 00:13:41,959 Speaker 11: very little impact of anything. And I think this goes 283 00:13:42,000 --> 00:13:44,000 Speaker 11: to the fact that there is no systemic risk in 284 00:13:44,040 --> 00:13:44,679 Speaker 11: the economy. 285 00:13:44,840 --> 00:13:46,480 Speaker 5: There is no balance sheet related risk. 286 00:13:47,000 --> 00:13:50,600 Speaker 11: There's excess liquidity, there's excess global savings, and there's a 287 00:13:50,600 --> 00:13:52,360 Speaker 11: lot of oil floating around in the world. And I 288 00:13:52,360 --> 00:13:54,600 Speaker 11: think when you put all of that together, you can 289 00:13:54,640 --> 00:13:57,520 Speaker 11: easily see why Marcus are just sitting there saying, Okay, 290 00:13:57,840 --> 00:13:59,840 Speaker 11: we've tried to sell off several times. 291 00:14:00,000 --> 00:14:04,280 Speaker 5: I've tried to rally several times. We've had eight recession calls. 292 00:14:03,920 --> 00:14:06,839 Speaker 11: Since twenty twenty two. None of them have worked. Let's 293 00:14:06,880 --> 00:14:07,960 Speaker 11: just get on with life. 294 00:14:08,120 --> 00:14:11,319 Speaker 10: So you're essentially describing a bit of an equilibrium where 295 00:14:11,320 --> 00:14:12,000 Speaker 10: everything is just. 296 00:14:12,000 --> 00:14:13,880 Speaker 5: Kind of at this steady state. 297 00:14:14,080 --> 00:14:17,440 Speaker 10: And so that gets me thinking about this concept of 298 00:14:17,480 --> 00:14:21,200 Speaker 10: the neutral rate, which the FED estimates in the dot plot, 299 00:14:21,280 --> 00:14:22,520 Speaker 10: and they're going to do another. 300 00:14:22,360 --> 00:14:23,400 Speaker 9: Crack at that. 301 00:14:23,400 --> 00:14:26,120 Speaker 10: That neutral rate has been taking higher, It's about fifty 302 00:14:26,120 --> 00:14:28,840 Speaker 10: basis points higher over the last year, but the Fed 303 00:14:28,920 --> 00:14:32,680 Speaker 10: still thinks that the current level of policy is restrictive. 304 00:14:33,160 --> 00:14:33,960 Speaker 9: What do you think. 305 00:14:35,120 --> 00:14:37,280 Speaker 11: I don't think the current level of policy is restrictive, 306 00:14:37,280 --> 00:14:39,600 Speaker 11: having for quite some time, I think the FED rate 307 00:14:39,640 --> 00:14:42,000 Speaker 11: cuts last year were a disaster. I think trying to 308 00:14:42,040 --> 00:14:44,120 Speaker 11: repeat that again this year would be a bigger mistake. 309 00:14:45,320 --> 00:14:46,480 Speaker 5: I think when you look at a two. 310 00:14:46,400 --> 00:14:48,760 Speaker 11: Percent real greater growth in the economy, an inflation rate 311 00:14:48,800 --> 00:14:51,080 Speaker 11: that's running about two two and a half percent, you're 312 00:14:51,120 --> 00:14:54,080 Speaker 11: looking at four and a half percent neutral rate from 313 00:14:54,080 --> 00:14:57,160 Speaker 11: a nominal FED funds rate perspective, And to me, where 314 00:14:57,160 --> 00:14:59,200 Speaker 11: are we right now four and a half percent? I 315 00:14:59,200 --> 00:15:01,640 Speaker 11: think we should be ending the year closer to five percent, 316 00:15:01,680 --> 00:15:03,480 Speaker 11: because I think inflation will be three percent. 317 00:15:03,920 --> 00:15:06,120 Speaker 5: And I think the only reason why you haven't seen 318 00:15:06,200 --> 00:15:08,560 Speaker 5: inflation from tariffs coming. 319 00:15:08,240 --> 00:15:11,840 Speaker 11: Through is because in this environment, while there's negotiations going on, 320 00:15:11,920 --> 00:15:14,120 Speaker 11: a lot of CEOs are sitting there saying I'm not 321 00:15:14,160 --> 00:15:15,760 Speaker 11: going to be the first one to move to raise 322 00:15:15,800 --> 00:15:18,320 Speaker 11: prices because I don't want to lose market share. I 323 00:15:18,400 --> 00:15:21,200 Speaker 11: pre inventoried a lot of stuff. I've got time, I've 324 00:15:21,200 --> 00:15:24,040 Speaker 11: got opportunity. Let's see how this plays out before I'm 325 00:15:24,080 --> 00:15:24,920 Speaker 11: make any decisions. 326 00:15:25,040 --> 00:15:27,000 Speaker 10: Well, we would certainly agree with you in terms of 327 00:15:27,080 --> 00:15:29,640 Speaker 10: the inflation assessment. We also took a look at that 328 00:15:29,720 --> 00:15:31,800 Speaker 10: and said, yeah, I mean, you're not going to get 329 00:15:31,880 --> 00:15:35,000 Speaker 10: negative goods prices on goods prices month over month on 330 00:15:35,040 --> 00:15:37,600 Speaker 10: a persistent basis. But I do want to kind of 331 00:15:37,680 --> 00:15:41,600 Speaker 10: drill into this idea of goldilocks and how long it 332 00:15:41,640 --> 00:15:46,080 Speaker 10: can persist this equilibrium, particularly on the labor market side, 333 00:15:46,120 --> 00:15:49,600 Speaker 10: because what caught my eye last week was continuing claims 334 00:15:49,640 --> 00:15:53,280 Speaker 10: which continue to rise. Use just those cracks under the surface. 335 00:15:53,360 --> 00:15:55,640 Speaker 10: Do you see those as a concern? Is there anything 336 00:15:55,640 --> 00:15:57,520 Speaker 10: there for the FED to be worried about claims? 337 00:15:57,520 --> 00:16:00,280 Speaker 11: And continuing claims on a forward moving average or at 338 00:16:00,360 --> 00:16:04,080 Speaker 11: exceptionally low levels. When you look at the covered employment there, 339 00:16:04,280 --> 00:16:08,040 Speaker 11: even at a lower level, there's no risk whatsoever in 340 00:16:08,080 --> 00:16:09,080 Speaker 11: this labor market. 341 00:16:09,120 --> 00:16:10,320 Speaker 5: And I think that's the key. 342 00:16:10,520 --> 00:16:12,760 Speaker 11: I think if you're looking for one market where there's 343 00:16:12,800 --> 00:16:17,240 Speaker 11: potentially a movement out of equilibrium, it is the labor market. 344 00:16:17,480 --> 00:16:20,920 Speaker 11: But that is only a move towards a tighter labor market. Okay, 345 00:16:21,120 --> 00:16:23,320 Speaker 11: once you get this tax cut done, and this tax 346 00:16:23,320 --> 00:16:26,280 Speaker 11: cut I think will be bigger than anyone still currently thanks, 347 00:16:26,520 --> 00:16:28,080 Speaker 11: I think you don't wind up seeing what a much 348 00:16:28,120 --> 00:16:30,920 Speaker 11: tighter labor market and much greater push on inflation. And 349 00:16:30,960 --> 00:16:32,920 Speaker 11: therefore I question whether or not the Fed's going to 350 00:16:32,960 --> 00:16:34,840 Speaker 11: get the so called two rate cuts out this year. 351 00:16:34,880 --> 00:16:36,680 Speaker 1: So you think that maybe the Fed's not going to cut. 352 00:16:36,720 --> 00:16:37,440 Speaker 5: Is that kind of your call? 353 00:16:37,520 --> 00:16:40,000 Speaker 11: Hour call has been the Fed shouldn't cut whatsoever, And 354 00:16:40,080 --> 00:16:41,680 Speaker 11: therefore we believe the Fed won't cut. 355 00:16:41,920 --> 00:16:44,520 Speaker 3: So there's a question here about longer term bonds and 356 00:16:44,520 --> 00:16:47,560 Speaker 3: how that really bleeds through at a time when people 357 00:16:47,600 --> 00:16:49,640 Speaker 3: have not seen this as a haven, and there's been 358 00:16:49,640 --> 00:16:52,240 Speaker 3: a real question about the inflation risk being priced in 359 00:16:52,480 --> 00:16:54,720 Speaker 3: or not. And I'm just wondering do you see yields 360 00:16:54,760 --> 00:16:57,680 Speaker 3: going higher from here with questions about US assets as 361 00:16:57,720 --> 00:17:02,200 Speaker 3: a haven as well as potential that's only exacerbated potentially 362 00:17:03,080 --> 00:17:06,120 Speaker 3: by inefficiencies and oil shocks that might come up along 363 00:17:06,160 --> 00:17:06,440 Speaker 3: the way. 364 00:17:06,680 --> 00:17:08,320 Speaker 11: I mean, I think we're supposed to get to five 365 00:17:08,400 --> 00:17:10,040 Speaker 11: percent on the tenure note. 366 00:17:10,160 --> 00:17:11,560 Speaker 5: I don't think that's a disaster. 367 00:17:12,680 --> 00:17:14,840 Speaker 11: When you look at what's happening in the boj market, 368 00:17:14,840 --> 00:17:17,560 Speaker 11: for example, they're having a significant amount of problems. 369 00:17:17,560 --> 00:17:19,240 Speaker 5: There is yields rise in Japan. 370 00:17:19,640 --> 00:17:22,159 Speaker 11: You look at Europe, European rates probably aren't going to 371 00:17:22,160 --> 00:17:25,800 Speaker 11: go up because Europe's a mess, and Christine Legard doesn't 372 00:17:25,840 --> 00:17:27,800 Speaker 11: think she needs to cut interest rates and she does, 373 00:17:28,680 --> 00:17:31,200 Speaker 11: so I think you've got this situation. Well, I'd rather 374 00:17:31,240 --> 00:17:34,280 Speaker 11: buy Europe because Europe's more likely to go into deflation 375 00:17:34,640 --> 00:17:36,760 Speaker 11: than by the US, where we're likely to have three 376 00:17:36,760 --> 00:17:39,120 Speaker 11: percent inflation. So I don't think we have to get 377 00:17:39,160 --> 00:17:45,040 Speaker 11: beyond the macro into this geopolitical concern about solvency and 378 00:17:45,119 --> 00:17:48,159 Speaker 11: sovereignty and all this other garbage and reserve currency to 379 00:17:48,280 --> 00:17:51,840 Speaker 11: explain what's happening in markets. What's happening in markets is 380 00:17:52,080 --> 00:17:56,160 Speaker 11: you're reflecting relative interest rate differentials based on relative inflation 381 00:17:56,280 --> 00:17:57,480 Speaker 11: differentials and. 382 00:17:57,400 --> 00:17:58,359 Speaker 5: Relative real growth. 383 00:17:58,400 --> 00:18:01,320 Speaker 11: And there's nothing that's mysterious about this. 384 00:18:01,359 --> 00:18:03,040 Speaker 5: It's traditional macroeconomics. 385 00:18:03,280 --> 00:18:06,760 Speaker 10: So we're continuing to work through one big, beautiful bill 386 00:18:06,880 --> 00:18:11,400 Speaker 10: that's going on underneath all of these headlines that we've 387 00:18:11,400 --> 00:18:14,520 Speaker 10: been dealing with. And I was curious, you know, the 388 00:18:14,560 --> 00:18:17,840 Speaker 10: way I think about deficit expansion is there's deficit expansion 389 00:18:17,880 --> 00:18:19,240 Speaker 10: and then there's fiscal impulse. 390 00:18:19,440 --> 00:18:23,000 Speaker 5: So some of the improvement or. 391 00:18:23,000 --> 00:18:26,720 Speaker 10: Deterioration in the deficit is a function of just extending 392 00:18:27,080 --> 00:18:31,119 Speaker 10: the tax cut was isn't necessarily a fiscal impulse. How 393 00:18:31,160 --> 00:18:32,919 Speaker 10: do you differentiate between the two? 394 00:18:33,000 --> 00:18:34,080 Speaker 5: And you mentioned. 395 00:18:33,720 --> 00:18:36,920 Speaker 10: Already that you see the risk is actually to more 396 00:18:37,040 --> 00:18:40,600 Speaker 10: fiscal impulse and more deficit expansion from here. 397 00:18:41,080 --> 00:18:42,119 Speaker 5: Yeah, no, I agree with you. 398 00:18:42,119 --> 00:18:43,639 Speaker 11: I mean, if you were just going to extend the 399 00:18:43,680 --> 00:18:46,480 Speaker 11: tax cut alone, you would not have a major positive 400 00:18:46,520 --> 00:18:49,199 Speaker 11: impulse into the economy. But we're not going to do that. 401 00:18:50,240 --> 00:18:52,520 Speaker 11: And I think the interesting thing is all this stuff 402 00:18:52,560 --> 00:18:55,640 Speaker 11: is going on, and the bill is working its way 403 00:18:55,680 --> 00:18:59,639 Speaker 11: through the system without the political without the news oversight 404 00:18:59,680 --> 00:19:01,960 Speaker 11: to it that it would normally deserve to get. And 405 00:19:02,000 --> 00:19:06,320 Speaker 11: this is what happened when suddenly the House passed the bill. 406 00:19:06,440 --> 00:19:08,440 Speaker 5: Okay, when it came out of committee. 407 00:19:08,000 --> 00:19:09,920 Speaker 11: In the House, so many people walk up, Oh my god, 408 00:19:09,960 --> 00:19:13,480 Speaker 11: it's not just extending, you know, the Trump tax cuts. 409 00:19:13,480 --> 00:19:14,760 Speaker 11: And I think, you know, this is part of the 410 00:19:14,800 --> 00:19:17,440 Speaker 11: process of how the bill is getting done as quickly 411 00:19:17,520 --> 00:19:19,760 Speaker 11: as it is. And I still think their game plan 412 00:19:19,840 --> 00:19:22,159 Speaker 11: is to get it done by July fourth and have 413 00:19:22,240 --> 00:19:24,400 Speaker 11: it implemented by October one. 414 00:19:24,600 --> 00:19:26,800 Speaker 5: So they could have a full year of real. 415 00:19:26,640 --> 00:19:30,440 Speaker 11: Tax cuts coming through the economy going into the November elections. 416 00:19:30,720 --> 00:19:32,119 Speaker 5: And I think that's the game plan here. 417 00:19:32,119 --> 00:19:34,320 Speaker 11: I think the game plan is teriffts of the diversion 418 00:19:34,320 --> 00:19:36,960 Speaker 11: to get the tax cut, tax cuts are the reason 419 00:19:37,000 --> 00:19:39,760 Speaker 11: to get the midterm. The midterm is to get to 420 00:19:39,760 --> 00:19:40,960 Speaker 11: what they really want to do, which is. 421 00:19:41,000 --> 00:19:41,760 Speaker 5: Drain the swamp. 422 00:19:41,960 --> 00:19:43,560 Speaker 3: Well, this is what we're going to try to focus 423 00:19:43,600 --> 00:19:46,119 Speaker 3: on as we parse through all the different risks that 424 00:19:46,160 --> 00:19:48,280 Speaker 3: are coming up and dominating the new stever Shudo of 425 00:19:48,320 --> 00:19:50,280 Speaker 3: a zooha, thank you so much for being with us. 426 00:20:00,320 --> 00:20:02,320 Speaker 3: Back to our top story for market, it's a fourth 427 00:20:02,400 --> 00:20:05,760 Speaker 3: day of fighting between Israel and Iran, raising uncertainty for 428 00:20:05,920 --> 00:20:09,120 Speaker 3: energy markets. Ellen Walls of the Atlantic Council, writing, if 429 00:20:09,200 --> 00:20:13,160 Speaker 3: Israel can take out Iran's ability to produce gasoline, diesel 430 00:20:13,280 --> 00:20:17,400 Speaker 3: and provide electricity, the situation becomes significantly more dire. If 431 00:20:17,440 --> 00:20:20,480 Speaker 3: the regime cannot maintain control through the use of force, 432 00:20:20,880 --> 00:20:22,480 Speaker 3: it will likely fall. 433 00:20:22,600 --> 00:20:23,359 Speaker 1: Ellen joins us. 434 00:20:23,400 --> 00:20:25,719 Speaker 3: Now, Ellen, thank you so much for being with us, 435 00:20:25,800 --> 00:20:28,200 Speaker 3: and we are just getting word from the Prime Minister 436 00:20:28,240 --> 00:20:31,280 Speaker 3: of Benjamin Natan Yahoo that Israel is on the way 437 00:20:31,320 --> 00:20:34,800 Speaker 3: to destroying Iran's nuclear and missile threats. Do you have 438 00:20:34,880 --> 00:20:37,359 Speaker 3: a sense, Ellen of what the endgame could possibly be? 439 00:20:38,680 --> 00:20:41,080 Speaker 12: You know, it's interesting because I think for Israel, the 440 00:20:41,119 --> 00:20:44,240 Speaker 12: real endgame is just to take out all of the 441 00:20:45,400 --> 00:20:48,600 Speaker 12: Iran's ability to threaten them, so the missile sites, the 442 00:20:48,680 --> 00:20:49,560 Speaker 12: nuclear sites. 443 00:20:50,160 --> 00:20:51,080 Speaker 9: I don't think that. 444 00:20:51,359 --> 00:20:55,080 Speaker 12: They're really aiming for regime change. I mean, they don't 445 00:20:55,080 --> 00:20:58,040 Speaker 12: want to participate in that. I think that there's also 446 00:20:58,119 --> 00:21:02,359 Speaker 12: the understanding amongst them and also amongst US policy makers 447 00:21:02,400 --> 00:21:05,840 Speaker 12: that what would take its place, and sometimes. 448 00:21:05,600 --> 00:21:09,360 Speaker 9: Uh, the a lack of a regime or a power. 449 00:21:09,200 --> 00:21:12,159 Speaker 12: Vacuum could be even more dangerous. I mean, you know, 450 00:21:12,240 --> 00:21:17,080 Speaker 12: there's the IRGC is probably the strongest entity in Iran, 451 00:21:17,280 --> 00:21:20,440 Speaker 12: and so if you know the civil government falls, It's 452 00:21:20,480 --> 00:21:24,000 Speaker 12: possible the IRGC or what's left of it, would take over, 453 00:21:24,119 --> 00:21:27,080 Speaker 12: seeing that they have you know, control of most of 454 00:21:27,119 --> 00:21:29,720 Speaker 12: the use of force there, and that could be you know, 455 00:21:29,840 --> 00:21:32,639 Speaker 12: potentially a worse situation than they're in now. So I 456 00:21:32,640 --> 00:21:36,520 Speaker 12: think there's a very delicate balance here between causing you 457 00:21:36,600 --> 00:21:38,040 Speaker 12: a widespread destruction. 458 00:21:38,119 --> 00:21:41,240 Speaker 9: If you're going to take out you know, multiple. 459 00:21:40,920 --> 00:21:44,440 Speaker 12: Fueling stations and you're going to take out multiple refineries, 460 00:21:44,560 --> 00:21:48,639 Speaker 12: then you're going to essentially, you know, send around to 461 00:21:48,720 --> 00:21:51,879 Speaker 12: the dark ages for a period of time, and things 462 00:21:51,880 --> 00:21:53,760 Speaker 12: could really fall apart at. 463 00:21:53,560 --> 00:21:56,159 Speaker 9: The individual and city level. 464 00:21:56,680 --> 00:21:58,960 Speaker 12: So I think that they're they're really, i think, working 465 00:21:59,000 --> 00:22:03,760 Speaker 12: more towards taking out the military capabilities as opposed to 466 00:22:03,800 --> 00:22:06,160 Speaker 12: trying to say, foment widespread destruction. 467 00:22:06,600 --> 00:22:08,760 Speaker 3: Allen, A lot of people have talked about the idea 468 00:22:08,800 --> 00:22:10,600 Speaker 3: of some sort of broadening out of the conflict and 469 00:22:10,640 --> 00:22:13,880 Speaker 3: embroiling a greater number of countries in the region in 470 00:22:14,240 --> 00:22:14,840 Speaker 3: this war. 471 00:22:15,200 --> 00:22:17,119 Speaker 9: I just wonder, who's Iron's friend. 472 00:22:17,280 --> 00:22:20,399 Speaker 3: Why is there anyone or is there anyone coming to 473 00:22:21,000 --> 00:22:24,480 Speaker 3: Iran's defense in any capacity, or are more of the 474 00:22:24,600 --> 00:22:27,119 Speaker 3: nations on Israel side, or just frankly don't want to 475 00:22:27,119 --> 00:22:29,359 Speaker 3: get involved in any way, shape or form. 476 00:22:29,920 --> 00:22:32,399 Speaker 12: So I think that in terms of say friends, I 477 00:22:32,440 --> 00:22:38,320 Speaker 12: think that Iran has potentially has maybe some strategic allies 478 00:22:38,359 --> 00:22:42,480 Speaker 12: that could be useful in maybe arguing Iran's case in 479 00:22:42,560 --> 00:22:46,480 Speaker 12: a diplomatic situation. So take China for example, China buys 480 00:22:46,520 --> 00:22:48,040 Speaker 12: a lot of oil from the Iran. 481 00:22:48,359 --> 00:22:54,000 Speaker 9: Relatively they're Iran's largest customer. But because Iran. 482 00:22:54,000 --> 00:22:57,639 Speaker 12: Buys that oil and they accept Chinese currency, they have 483 00:22:57,720 --> 00:23:00,200 Speaker 12: to spend a lot of that Chinese currency on good. 484 00:23:00,080 --> 00:23:01,240 Speaker 9: And services from China. 485 00:23:01,440 --> 00:23:03,919 Speaker 12: So China does a lot of business in Iran, and 486 00:23:04,040 --> 00:23:08,560 Speaker 12: China doesn't want to see this situation fall apart. If, 487 00:23:08,640 --> 00:23:11,720 Speaker 12: in fact, it gets so dire that there are threats 488 00:23:11,800 --> 00:23:15,439 Speaker 12: to Chinese ships or oil tankers that are heading for China, 489 00:23:15,720 --> 00:23:17,680 Speaker 12: you know, coming out of the Persian Gulf, and that's 490 00:23:17,720 --> 00:23:20,240 Speaker 12: not just Irani and ships that could also be ships 491 00:23:20,240 --> 00:23:23,400 Speaker 12: coming from Saudi Arabia, from Krewate, from other oil suppliers, 492 00:23:23,520 --> 00:23:26,200 Speaker 12: then China is definitely going to exert the full weight 493 00:23:26,200 --> 00:23:30,840 Speaker 12: of its economic might internationally and on Iran and say, okay, 494 00:23:30,960 --> 00:23:32,480 Speaker 12: you know you've got to cut a deal. 495 00:23:32,720 --> 00:23:33,560 Speaker 9: This has to end. 496 00:23:34,080 --> 00:23:36,879 Speaker 12: You know, this is not worth threatening our you know, 497 00:23:36,960 --> 00:23:41,200 Speaker 12: economic relationship Russia likewise. In fact, we saw Russia saying, now, hey, 498 00:23:41,280 --> 00:23:45,080 Speaker 12: we want to We're ready to, you know, facilitate negotiations 499 00:23:45,119 --> 00:23:49,119 Speaker 12: and we'll accept all of your uranium Iran, which you know, 500 00:23:49,200 --> 00:23:50,159 Speaker 12: is kind of an. 501 00:23:50,040 --> 00:23:52,720 Speaker 9: Interesting offer from Russia. 502 00:23:52,800 --> 00:23:55,840 Speaker 12: But they're definitely, I wouldn't say they're necessarily on Iran's side. 503 00:23:55,880 --> 00:23:57,720 Speaker 12: They're not going to come e them in the event 504 00:23:57,800 --> 00:24:03,080 Speaker 12: of military catashph but they would definitely be there to 505 00:24:03,160 --> 00:24:04,160 Speaker 12: support them. 506 00:24:04,040 --> 00:24:06,560 Speaker 9: In a diplomatic sense. And I also think, you know, 507 00:24:06,640 --> 00:24:07,920 Speaker 9: you've got Saudi Arabia. 508 00:24:08,240 --> 00:24:11,080 Speaker 12: The Saudis definitely aren't best friends with the Iranians, but 509 00:24:11,600 --> 00:24:14,240 Speaker 12: relations have certainly improved, and I think the fact that 510 00:24:14,320 --> 00:24:18,800 Speaker 12: you see them essentially quiet is really almost. 511 00:24:18,840 --> 00:24:20,639 Speaker 9: A sign of not support. 512 00:24:21,000 --> 00:24:24,119 Speaker 12: They definitely would like to They're more than happy for 513 00:24:24,200 --> 00:24:27,680 Speaker 12: Israel to take out Iran's nuclear you know, nuclear arsenal 514 00:24:27,840 --> 00:24:32,439 Speaker 12: and nuclear reactors, but they don't want to see Iran 515 00:24:32,520 --> 00:24:33,560 Speaker 12: completely devastated. 516 00:24:33,600 --> 00:24:35,120 Speaker 9: That's not a good situation for. 517 00:24:35,119 --> 00:24:37,960 Speaker 12: Them, you know, like a power vacuum in the Gulf 518 00:24:38,040 --> 00:24:40,800 Speaker 12: is not going to be a good situation for the Saudis, 519 00:24:40,840 --> 00:24:42,760 Speaker 12: or for the Amortis, or for anyone else. So if 520 00:24:42,800 --> 00:24:44,600 Speaker 12: it gets to that, you are going to see them 521 00:24:44,720 --> 00:24:49,160 Speaker 12: standing up, and I think trying to support the regime ellen. 522 00:24:49,200 --> 00:24:52,480 Speaker 6: Whenever conflicts arise in the Middle East, concentration quickly goes 523 00:24:52,520 --> 00:24:54,520 Speaker 6: to the strait of horror moose and the likelihood of 524 00:24:54,520 --> 00:24:57,560 Speaker 6: it being closed. Is that the right thing to be 525 00:24:57,640 --> 00:25:00,520 Speaker 6: concerned about? Or is there a scenario or you get 526 00:25:00,520 --> 00:25:02,560 Speaker 6: what's happening in the Red Sea where you get one 527 00:25:02,680 --> 00:25:05,640 Speaker 6: a few tankers attacked and that's enough to convince insurance 528 00:25:05,640 --> 00:25:08,480 Speaker 6: companies that it is not worth trying to ensure ships 529 00:25:08,480 --> 00:25:09,800 Speaker 6: going through the street. 530 00:25:10,520 --> 00:25:12,800 Speaker 9: So it's interesting. I think there are two points there. 531 00:25:12,800 --> 00:25:15,040 Speaker 12: I do think that we're a bit stuck in this 532 00:25:15,080 --> 00:25:19,720 Speaker 12: old paradigm from the twentieth century where we all is 533 00:25:19,760 --> 00:25:24,720 Speaker 12: in the West need oil from the Persian Gulf, and 534 00:25:24,760 --> 00:25:26,800 Speaker 12: we all remember, or at least those of us who 535 00:25:26,840 --> 00:25:30,040 Speaker 12: were alive, and then remember the Iran Iraq War, and 536 00:25:30,080 --> 00:25:33,320 Speaker 12: there was a tanker war and both sides were Iran 537 00:25:33,400 --> 00:25:36,479 Speaker 12: was trying to prevent certain tankers from leaving the Golf, 538 00:25:36,560 --> 00:25:41,440 Speaker 12: and certain tankers needed basically US military escorts in order 539 00:25:41,480 --> 00:25:44,960 Speaker 12: to get out, and that caused havoc with oil prices. 540 00:25:45,240 --> 00:25:46,840 Speaker 12: So I do think the straight up Room is a 541 00:25:46,920 --> 00:25:50,320 Speaker 12: very important waterway, But if you look at the traffic 542 00:25:50,359 --> 00:25:53,040 Speaker 12: patterns and the way that ships go around there, there 543 00:25:53,080 --> 00:25:56,919 Speaker 12: are other ways to traverse the straits that don't involve 544 00:25:57,000 --> 00:25:58,560 Speaker 12: going through Iranian waters. 545 00:25:59,560 --> 00:26:02,240 Speaker 9: So if it did threaten the security of ships there, 546 00:26:02,480 --> 00:26:03,720 Speaker 9: there are workarounds. 547 00:26:03,880 --> 00:26:06,320 Speaker 12: They're not that easy and would take some time to 548 00:26:06,840 --> 00:26:10,480 Speaker 12: work through, but it is absolutely possible. The other issue though, 549 00:26:10,640 --> 00:26:14,720 Speaker 12: is that, like you said, that can Ron actually do this. 550 00:26:14,880 --> 00:26:18,520 Speaker 12: It's not clear that they could physically that they could 551 00:26:18,520 --> 00:26:22,360 Speaker 12: physically close the straights. On the other hand, they could 552 00:26:22,400 --> 00:26:25,520 Speaker 12: cause enough trouble that insurance companies are going to raise 553 00:26:25,560 --> 00:26:27,440 Speaker 12: their rates through the roof. Now, does that make it 554 00:26:27,520 --> 00:26:31,520 Speaker 12: impossible for ships to go No, people will pay, but 555 00:26:31,600 --> 00:26:34,199 Speaker 12: oil prices will have to go up. Customers will have 556 00:26:34,240 --> 00:26:37,320 Speaker 12: to pay more in order to compensate for that insurance rate. 557 00:26:37,480 --> 00:26:40,560 Speaker 12: When you look at the Red Sea, that's a little 558 00:26:40,560 --> 00:26:42,959 Speaker 12: bit different because there is an alternative route you can 559 00:26:43,000 --> 00:26:46,359 Speaker 12: go around Africa and a lot of you know, large 560 00:26:46,400 --> 00:26:47,560 Speaker 12: ships are equipped. 561 00:26:47,240 --> 00:26:47,679 Speaker 5: To do that. 562 00:26:47,880 --> 00:26:50,800 Speaker 12: So, but with the straight Ufore moves and the Persian Gulf, 563 00:26:51,480 --> 00:26:55,399 Speaker 12: other than a couple pipelines that are able to get 564 00:26:55,400 --> 00:26:58,720 Speaker 12: oil and other products out without going through the streets. 565 00:26:58,760 --> 00:27:00,240 Speaker 9: There really is no other way out. 566 00:27:00,320 --> 00:27:06,399 Speaker 12: So for a rock cut, some Saudi oil, Bachrainy oil, 567 00:27:06,640 --> 00:27:10,160 Speaker 12: there's no other way. The UE has a workaround and 568 00:27:10,200 --> 00:27:13,320 Speaker 12: so modifications could be made, but there's nothing else they 569 00:27:13,359 --> 00:27:15,080 Speaker 12: can do, so they're going to just have to pay 570 00:27:15,119 --> 00:27:16,359 Speaker 12: the higher insurance rates. 571 00:27:16,600 --> 00:27:18,720 Speaker 3: Ellen Waalds of the Atlantic Council, thank you so much, 572 00:27:18,760 --> 00:27:20,760 Speaker 3: as always for your insights. 573 00:27:21,320 --> 00:27:24,840 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 574 00:27:24,920 --> 00:27:28,000 Speaker 2: in markets, economics, an gio politics. You can watch the 575 00:27:28,000 --> 00:27:31,000 Speaker 2: show live on Bloomberg TV weekday mornings from six am 576 00:27:31,160 --> 00:27:35,119 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 577 00:27:35,280 --> 00:27:37,480 Speaker 2: or anywhere else you listen, and as always on the 578 00:27:37,480 --> 00:27:39,880 Speaker 2: Bloomberg Terminal and the Bloomberg Business Out