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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Terminal and the Bloomberg Business app. So here's the laces
Speaker 2: this morning, A round threatening to retaliate if the US
Speaker 2: blogs the stratiform most the ships that stop at its
Speaker 2: ports one quote, no port in the Persian Gulf and
Speaker 2: the Sea of Verman will be safe. Normal rule of
Speaker 2: csis writing it's the sharpest escalation since the ceasefire. This
Speaker 2: may not mark the formal end of the ceasefire, but
Speaker 2: it could represent the beginning of its unraveling. Norman joins
Speaker 2: us now for more. Norman, Welcome back to the program,
Speaker 2: Sir Norman. In your mind what happens several lasts from
Speaker 2: now at ten am Eastern.
Speaker 3: Sign at ten am. In essence, you will have the
Speaker 3: United States stop all shipping into Iranian ports, and for
Speaker 3: the Iranians, they will need to test US fortitude. They
Speaker 3: will likely try to do several things. They may try
Speaker 3: to run several tankers through the Iranian side of the
Speaker 3: Straight of Horror moves into Iranian waters to see what
Speaker 3: will we do if the tankers are instruct tanker captors
Speaker 3: are instructed to continue no matter what the US says,
Speaker 3: The Iranians will just see what happens. At the same time,
Speaker 3: the Iranians will look to see what ships go in
Speaker 3: outside under the US control and then perhaps threaten to
Speaker 3: target those ships or the ports where these ships attempt
Speaker 3: to dock. And last, of course, if the Iranian position
Speaker 3: is that their economy will suffer because of an inability
Speaker 3: to produce an export oil, they could in an extremes
Speaker 3: position attack golf oil producers.
Speaker 4: Normal is the blockade the appetizer potentially for full US
Speaker 4: naval escorts to the Strait.
Speaker 3: It is, but it may not. But it just may
Speaker 3: be a broader step for US policy to test run
Speaker 3: short of hostilities. We saw the two destroyers go through
Speaker 3: over the weekend, and that was interesting for several reasons. First,
Speaker 3: they faced no mines. Secondly, they faced no Iranian missiles, speedboats,
Speaker 3: or any other Iranian hostile activity which could have happened. Next,
Speaker 3: you had the US demonstrate freedom of navigation, which is
Speaker 3: a long standing US practice in the straight upoor moves
Speaker 3: and the Persian Gulf. So you've got a precedent beginning
Speaker 3: where the US is beginning to test a process that
Speaker 3: could lead to convoy operations. But it could be the
Speaker 3: convoy operations are not necessary. The straits naturally opens on
Speaker 3: its own at some point. But again we're in early
Speaker 3: days and hostilities could well break out again.
Speaker 4: Well in these early days, will golf partners help the
Speaker 4: United States in this blockade?
Speaker 3: I don't see that as being necessary, and the best
Speaker 3: way they could help out would be to produce oil
Speaker 3: and energy through other roots that don't rely upon these
Speaker 3: straight or for moves, and I think you're seeing Saudi
Speaker 3: Arabia and the Emirates do this. Also, you're seeing rhetoric
Speaker 3: by the Gulf of leadership such as doctor sultanal job
Speaker 3: Or and others where they state that no Iranian control
Speaker 3: of the straighter for moves can be tolerated. And I
Speaker 3: think you're going to continue to see that quite clearly,
Speaker 3: what left.
Speaker 1: Is there to negotiate if Iron doesn't want to give
Speaker 1: up control of the straight off moves and they're not
Speaker 1: willing to give up the nuclear ambitions.
Speaker 3: Constraints upon their missile program to ensure that they don't
Speaker 3: develop an intercontinental ballistic missile, and continued enhancements on their
Speaker 3: medium range ballistic missile that make it impossible or difficult
Speaker 3: for regional countries to stop them. But also the activities
Speaker 3: of the Goods Force. I mean recall that the Goods
Speaker 3: Force was proliferating missiles to the Houthis which did shut
Speaker 3: down the Red Sea for a period of time missiles
Speaker 3: and drugs. And there's no question that the Goods Force
Speaker 3: will continue to provide technology to the Houthis and other
Speaker 3: proxies in the region that will enable them to do
Speaker 3: similar things in the future. So for the United States,
Speaker 3: nuclear issues, missiles, and regional adventurism have always been the
Speaker 3: three issues of importance, and those issues have been shared
Speaker 3: by Europe and Golf partners, but how they're handled has
Speaker 3: been the difference in terms of an approach.
Speaker 1: How concerned are you that in response to the full
Speaker 1: blockade by the United States iron will get some of
Speaker 1: the Houthy militants involved in the Red Sea, and we
Speaker 1: could see more a broader blockage of all transport in
Speaker 1: the region.
Speaker 3: It's possible, however, the United States has will likely treat
Speaker 3: the Houthis very harshly militarily, and I think you're probably
Speaker 3: seeing a lot of diplomatic efforts by the Saudis to
Speaker 3: constrain Khuti action. The Huthis have on the ground issues
Speaker 3: dealing with Yemeny internal matters that have also focused their attention,
Speaker 3: and traditionally the Huthis have focused on Israel issues regarding Palestine,
Speaker 3: and their role has been limited thus far. So it's
Speaker 3: a possibility, but thus far a limited one, but it
Speaker 3: remains a possibility.
Speaker 2: No, just a final question, because it's on people's minds.
Speaker 2: How do you think the US would respond if a
Speaker 2: Chinese flag vessel attempted to go through this treniforms now.
Speaker 3: Intense diplomatic engagement with the Chinese to ask them why
Speaker 3: they are attempting to turn a regional conflict into an
Speaker 3: international conflict, and if someone in Beijing had actually lost
Speaker 3: their minds.
Speaker 2: Stay with US. Mul Bloomberg surveillance coming up after this.
Speaker 2: Just to break this down very quickly, start training comes
Speaker 2: in much firmer than anticipated. Another record. Danny went through
Speaker 2: the numbers. Just think about this. The record in the
Speaker 2: previous quarter was four point three to one billion. The
Speaker 2: record now is five point three to three billion. So
Speaker 2: that's the good news for Goldman. The miss is on
Speaker 2: thick and we can talk about that extensively throughout this morning.
Speaker 2: Whether it's also some strength and Danny talked about it too.
Speaker 2: That eighty nine percent and let's call it search in
Speaker 2: dealmaking advisory fees speaks to a theme that a lot
Speaker 2: of people were jumping on board for coming into this
Speaker 2: year and why this part of the market was a
Speaker 2: consensus overweight. Chris Marina could bring capital Well joined us
Speaker 2: now for more Chris, welcome to the program. How difficult
Speaker 2: is it to anchor the outlook in a moment like this, Well.
Speaker 5: John, I think that you may have trading losses in
Speaker 5: fig and that might be part of the problem. So
Speaker 5: I think as you move forward, this may not be
Speaker 5: as big of an issue. I think the pipeline being
Speaker 5: very strong on the banking side is very important, So
Speaker 5: I do think that is a win in the quarter.
Speaker 5: I still think that season the second quarter is also
Speaker 5: very strong, So I think the market can look past
Speaker 5: this disappointment initially.
Speaker 1: Do you have a sense of what David Solomon could
Speaker 1: be talking about when you said that he had seen
Speaker 1: some concerns he's worried about geopolitics. What are you looking
Speaker 1: for and how he speaks about that to get some
Speaker 1: guide on when it could hamper some of this capital
Speaker 1: markets activity, Well.
Speaker 5: I think it's things that are not announced that are
Speaker 5: in the works, and I think that there tends to
Speaker 5: be an attitude to go on hold when you have
Speaker 5: this geopolitical uncertainty, and that's the part that you can't
Speaker 5: account for. So I think as May and June come
Speaker 5: into greater focus, I think there is a high uncertainty,
Speaker 5: and I think he is trying to give a signal
Speaker 5: that that indeed may be the case.
Speaker 1: High uncertainty is part of what he might be pointing to.
Speaker 1: And you take a look at the ten percent build
Speaker 1: in provisions for credit loan losses, which is something that
Speaker 1: we heard Danny talking about. Now it's three hundred and
Speaker 1: fifteen million dollars. Is that number significant to you or
Speaker 1: does that signify still a pretty benign credit backdrop.
Speaker 5: Well, I think the credit has its own uncertainties, particularly
Speaker 5: in the private credit world. I think you have to
Speaker 5: build reserves now just to be safe. So I think
Speaker 5: the attitude about having higher provision is smart to some extent.
Speaker 5: I think the market would be disappointed if you had
Speaker 5: not built reserves at this juncture.
Speaker 1: At this point, though, is that a significant build, right?
Speaker 1: I mean, I guess I'm trying to get some perspective
Speaker 1: on this. Does that indicate that they're really concerned about
Speaker 1: stress because right now you're not seeing it and any
Speaker 1: of the preliminary comments. But this is a fear aside
Speaker 1: from private credit, it's the broader sense of rerating and
Speaker 1: specific wholesale industries in the credit area, particularly tied to
Speaker 1: software disruption, trade, et cetera. I mean, how much would
Speaker 1: you expect loan losses to have to increase to truly
Speaker 1: offset some of that potential risk?
Speaker 5: So I think it's a moderate build your first question, Lisa,
Speaker 5: and I think going forward, I think you have to
Speaker 5: have a significant change in credit losses to really warrant
Speaker 5: much greater concern. I think right now it's a preliminary
Speaker 5: move to be conservative to Playcate. I think investor concerns
Speaker 5: that perhaps the companies are doing enough. So I've expected
Speaker 5: to see some provision increases quarter, so I'm not that
Speaker 5: surprised by it, Chris.
Speaker 2: This year we were meant to see a boom in
Speaker 2: economic activity, particularly the kind of boom that some of
Speaker 2: these names would take advantage of. We still might see
Speaker 2: two or three of the biggest IPOs we have ever
Speaker 2: seen in the history of capital markets, Chris. Which banks
Speaker 2: were in a position to take advantage of that?
Speaker 5: Well, clearly the national leaders from the JP, Morgan and
Speaker 5: b of A and Goldman should have that. I think
Speaker 5: those big IPOs are still out there. I agree with you, John,
Speaker 5: It's a long year, so I would not give up
Speaker 5: hope at all. I think this uncertainty can pass, just
Speaker 5: like it did last year. So I still think there's
Speaker 5: a very good road ahead.
Speaker 2: Are you willing to look through some of the gloom
Speaker 2: that might take place on some of these calls, Chris,
Speaker 2: No executive wants to be dismissive of risk that might
Speaker 2: be brewing. Not a single executive on Wall Street wants
Speaker 2: to be the person that does that. On these earnings calls,
Speaker 2: do you think they might really understate the potential for
Speaker 2: gains in the year ahead. And I'm not just thinking
Speaker 2: of Solomon, so I'm thinking of maybe Diamond tomorrow.
Speaker 3: Oh sure.
Speaker 5: I think they're going to be very careful and cautious,
Speaker 5: No different than they were in April twenty twenty five.
Speaker 5: You know, we had Liberation Day and then markets were
Speaker 5: very uneasy for several days, as you remember, and most
Speaker 5: calls were very sort of quasied, negative and cautious. In
Speaker 5: April twenty five. It turned out to be a much
Speaker 5: better year as the second quarter played out, So I
Speaker 5: think this could be a repeat, just totally different circumstances.
Speaker 4: Chris, is it basically a quarter where numbers could be
Speaker 4: pretty solid, but the rhetoric is concerning given what's going
Speaker 4: on in the world, so that shares ultimately just are depressed.
Speaker 5: Well, I think investors always hit the sidelines when you
Speaker 5: have uncertainty, and I think we have that moment. They
Speaker 5: acted better last Thursday Friday than I would have fought.
Speaker 5: Quite honestly, I do think the rhetoric could keep the
Speaker 5: incremental buyer helding back in the short run.
Speaker 1: So the stock right now in trading in pre market
Speaker 1: on this thick miss, and I'd love to get your
Speaker 1: sense of why you saw such a big miss. When
Speaker 1: it comes to fix sales and trading, A real concern
Speaker 1: here is that interest rates are going to be higher
Speaker 1: and then potentially incredibly volatile, making it really difficult for
Speaker 1: big banks. How much of a headwind is that, I mean,
Speaker 1: are we skipping over that too quickly?
Speaker 5: Well, I think people had thought that the FED would
Speaker 5: be easing once or twice as we got in the
Speaker 5: second quarter, that obviously is off the table, So that
Speaker 5: is part of the headwind. I think to some extent,
Speaker 5: the uncertainty about whether the war is going to go
Speaker 5: away or still be lingering from the next four to
Speaker 5: six weeks also as a concern. I think to some
Speaker 5: extent there is a lot of optimism built into this
Speaker 5: quarter from.
Speaker 3: A trading perspective.
Speaker 5: So now that you have a slight miss that pushes
Speaker 5: everybody now to be negative, I think that's a short
Speaker 5: run thing. I think we still have a lot of
Speaker 5: positivity happening in the business. You know, on their ordinary
Speaker 5: bank side, the deposits are growing really well, and that's
Speaker 5: ultimately going to have many players buying securities as this
Speaker 5: next two quarters play out.
Speaker 1: You know, volatility is a funny thing. On one hand,
Speaker 1: volatility can be really good for the banks, and they'll say, well,
Speaker 1: we benefited from the volatility, see this in equity trading.
Speaker 1: On the other hand, it can be bad when it
Speaker 1: is just an unpredictable macro environment. Are we entering bad
Speaker 1: volatility or good volatility? Then what do you expect the
Speaker 1: commentary to be from the big banks.
Speaker 5: Well, most of the volatility, I think is positive. I
Speaker 5: think the companies understand how to make a dollar when
Speaker 5: you have these top suturnity markets. They've been here before.
Speaker 5: We've seen many examples of volatility the past several years,
Speaker 5: So I think it's just a different circumstance, but the
Speaker 5: same volatility to some extent. I think volatility is your friend,
Speaker 5: but you may have had a loss of the Goldman quarter,
Speaker 5: and I think as we see the other players come
Speaker 5: out the next couple of days and may look and
Speaker 5: feel a lot different.
Speaker 2: Stay with us Multilinpeck Savana's coming up off to this
Speaker 2: to begin this sound with stocks adding to losses as
Speaker 2: Golment Sacks fails to lift markets. Jason Drajo ubs Global
Speaker 2: Wealth Management right sing the start off quarter rounding season
Speaker 2: should support our forecast for eleven percent EPs growth in
Speaker 2: the S and P five hundred this year, with a
Speaker 2: price target of seventy five hundred. In December, Jason joins
Speaker 2: us Now for more Jason good Mornic won in how
Speaker 2: shakey is that outlook for earnings now?
Speaker 6: Well, the guidance going into q on earning season has
Speaker 6: been good. We've actually seen you know, kind of in
Speaker 6: terms of revisions outwards or downwards, it's actually been realpily
Speaker 6: optimistic versus other quarters. We've seen some good results from
Speaker 6: tech companies, some semiconductory companies, So the setup going in
Speaker 6: is good. Similar we talked about, you know, the high
Speaker 6: bar perhaps for the market performance, the bars highbrid in
Speaker 6: terms of actually achieving that eleven percent. Nothing so far
Speaker 6: we've seen going into the season will suggest that's a
Speaker 6: real sort of jeopardy. Again, we're making the caveat in
Speaker 6: terms of the whole Middle East situation, but you know,
Speaker 6: attracting that the earning story still looks very much on track.
Speaker 2: This is anchored pretty much everyone on Wall Street, so
Speaker 2: farther small and I say pretty much loosely forgive me,
Speaker 2: but the likes of Morgan Stanley, JP, Morgan, HSBC, black
Speaker 2: Rock all saying something similar. It's an opportunity to buy
Speaker 2: this from Morgan Stanley. We'll find ways to solve a
Speaker 2: problem that is intolerable for the global economy, much like
Speaker 2: they did in twenty twenty two. Is this so bad
Speaker 2: it's got to get better? And then you should look
Speaker 2: through it. Is it that simple, because it feels much
Speaker 2: more complicated.
Speaker 6: Well in terms of like kind of solving the problems,
Speaker 6: you know, I think some lesson we learned from the
Speaker 6: pandemic error is that the supply chains, you know, create problems,
Speaker 6: but they also create opportunities, say companies, the ability the economy,
Speaker 6: especially the US economy, to kind of solve the problems.
Speaker 6: Have the price systems sort of equiliberate again, you know,
Speaker 6: I think it does it very well. And so the
Speaker 6: lesson from my takeaway from that experience is out, don't
Speaker 6: underestimate to the economy's resiliency. Now, the economic conditions today
Speaker 6: are in the strong. The finetic you know, the healthy
Speaker 6: consumers is not kind of strong, but fiscal support it's
Speaker 6: not there. So a lot of reasons to obviously be
Speaker 6: more concerned at the same time, you know, I don't
Speaker 6: want to sort of doubt the ability of the US
Speaker 6: economy to be somewhat resilient, you know, to this whole situation,
Speaker 6: resilient enough that you know our forecast. Do you think
Speaker 6: we still feel pretty comfortable about ultimately by the end
Speaker 6: of the year equities being up you know, about ten percent.
Speaker 1: One of the reasons that people seem somewhat optimistic when
Speaker 1: I speak to a number of investors, they say, ultimately,
Speaker 1: all of these supply shocks will create the greater need
Speaker 1: to invest in artificial intelligence, the greater need to get bigger,
Speaker 1: to engage in deals to create a critical mass and
Speaker 1: economies of scale. How much do you see the uncertainty
Speaker 1: and the ongoing supply shocks as only accelerating some of
Speaker 1: the capecks that we've seen that have really driven some
Speaker 1: of the gains that we see not only in equities,
Speaker 1: but more broadly in the overall economy.
Speaker 6: Well, the cappecs for AI, that's we're seeing strong numbers there.
Speaker 6: If you abstract from that, if you look at residential
Speaker 6: non residential other investment, it's actually well to three weeks.
Speaker 6: So we're not seeing companies saying we need to invest
Speaker 6: more necessarily and AI specifically, so from a near term
Speaker 6: growth perspective, that's sort of not driving it in terms
Speaker 6: of ultimately of creating supply chain resiliency. I mean, this
Speaker 6: is now a story almost kind of going back a
Speaker 6: decade with you first with tariffs, with the pandemics. I
Speaker 6: think you're going to see companies move in that direction.
Speaker 6: But it's hard to invest when there's a lot of
Speaker 6: uncertainly at this point in time. So I wouldn't view
Speaker 6: that as a key driver for the next say quarter
Speaker 6: or two to really lift us growth.
Speaker 1: One of the difficulties is people look to a potential upside,
Speaker 1: significantupside of a hundred other people completely agree with you,
Speaker 1: is that there isn't an obvious hedge. We used to
Speaker 1: talk about bonds, we used to talk about gold. Nothing's
Speaker 1: really performed consistently. I mean, how do you think about
Speaker 1: a possible hedge to optimism that seems to be pervasive
Speaker 1: right now?
Speaker 6: Well, it ultimately depends, like what are you trying to
Speaker 6: hedge against. You know, if it's ultimate oil prices going
Speaker 6: to higher commodity prices, that's an inflation shock. It's really
Speaker 6: difficult to hedge that. So you can look at things
Speaker 6: like oil or having exposure to commodities that worked earlier
Speaker 6: this year, like in March we go back to twenty
Speaker 6: two that would have worked in that time period. You
Speaker 6: can also need sort of de risk and have sort
Speaker 6: of less exposure overall. You can have less risk exposure
Speaker 6: in interest rates markets. You know, we're saying stay in
Speaker 6: the front of the curve. We've like, you know, no
Speaker 6: more than about the five year point. You don't want
Speaker 6: that interest exposure, so you can make changes of the margin.
Speaker 6: But ultimate inflation shock is really really hard to hedge.
Speaker 6: I mean, other than sort of de risking.
Speaker 4: Significantly, are there any parts of the market that are
Speaker 4: prepared for serious escalation?
Speaker 6: I mean, I think it depends if you think of
Speaker 6: serious escalation. I think the front of the curve pricing
Speaker 6: in like now to go a couple weeks ago, actually
Speaker 6: hikes seemed optimistic to me in terms of the optimistic
Speaker 6: in the sense of the markets that are pricing the
Speaker 6: Fed to hike, because ultimately, if you really get significant escalation,
Speaker 6: I think the markets transition from we treat this as an
Speaker 6: inflation shock and therefore the Fed has to hike to
Speaker 6: we treat as a shock.
Speaker 2: You know, what's an escalation? From my standpoint, the status
Speaker 2: quo is bad enough. Really need an escalation from here?
Speaker 2: Physical markets really tight shortages are beginning to merge across Asia.
Speaker 2: Europe is bracing for them to confront the same thing
Speaker 2: in the next month or so. I'm not sure do
Speaker 2: we need an escalation? What kind of escalation? Do we
Speaker 2: need just the status quote to persist? Where things are
Speaker 2: right now? For that to persist, we come week on wee,
Speaker 2: come week on week, You're going to see more damage
Speaker 2: to the global economy every single week. That's logical.
Speaker 1: Yes, that's correct, Although Max keett Over at HSBC is
Speaker 1: saying that actually it's the pace of bad news getting
Speaker 1: worse and so if it's not getting worse as quickly
Speaker 1: as it was before, that's enough to keep people optimistic
Speaker 1: in the markets. I mean, you're just giving you a
Speaker 1: sense of what the register is right now on Wall Street.
Speaker 2: Le's bad is good enough? Good enough? The line from
Speaker 2: mass Count of HSBC your conclusion too well.
Speaker 6: In terms of escalation, really the key is do we
Speaker 6: get you know, oil flowing through the strait of Homove.
Speaker 6: So status quo means whether military escalation or not. If
Speaker 6: you don't get that improvement, that's a problem because I think, well,
Speaker 6: the markets are assuming, and what we're assuming is ultimately,
Speaker 6: as we go forward the next month or two, you
Speaker 6: get improvements. If that doesn't happen, yes, prices go higher.
Speaker 6: Economic growth has to be sort of marked down. The
Speaker 6: markets are not pricing for that.
Speaker 4: But then they're not pricing and what's going to happen
Speaker 4: less than two hours today? There is an escalation. There's
Speaker 4: a blockade of the blockade, so even a little bit
Speaker 4: of oil that was getting out will be stopped.
Speaker 6: Well, if you're talking about an oil tanker two versus
Speaker 6: the thirty that we normally go through, I'm not sure
Speaker 6: that marginally makes a change. Like this is a question,
Speaker 6: you know, have to believe will the administration do a blockade?
Speaker 6: There's also reports over the weekend that they're going to
Speaker 6: prepare to try and do sort of like sweeping of minds,
Speaker 6: you know, could there be also, goodness, you know, a
Speaker 6: week or so from now that all right, we'll do this,
Speaker 6: But we're trying to actually improve the flow of oil.
Speaker 6: I mean, so that's not something the market is talking about.
Speaker 6: But what is the ultimate plan for the administration. Ultimately,
Speaker 6: I don't think you want to have oil not flowing through.
Speaker 6: What the calls for is we want to flow through,
Speaker 6: and so you talk about a block K. But ultimate,
Speaker 6: if you're working to prepare to increase military securities so
Speaker 6: oil can flow through, that to me is a positive
Speaker 6: for the markets, which is not being discussed this morning.
Speaker 6: For what I can see.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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