WEBVTT - Surveillance: Adm. Stavridis on Worsening Iran Conflict 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jai Lely. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.840 Bloomberg dot Com, and of course on the Bloomberg Where's 0:00:27.880 --> 0:00:29.800 Bill Lee? And one of the last things Vice Chairman 0:00:29.840 --> 0:00:31.720 Clara has said to me, please say hello to Bill 0:00:31.800 --> 0:00:35.320 Lee again with all his good academic work at Columbia's 0:00:35.320 --> 0:00:38.480 public service to the i m F, particularly in Hong Kong. 0:00:38.800 --> 0:00:41.280 Bill Lee with us on the comments of the Vice 0:00:41.360 --> 0:00:44.559 Chairman and the choice set forward. Let me start right 0:00:44.640 --> 0:00:47.319 with the immediate on a Friday, which is there will 0:00:47.320 --> 0:00:49.560 be a Friday soon, doctor Lee, where we get another 0:00:49.640 --> 0:00:54.120 jobs report in America. Alan Ruskin and Deutschebek really emphasizing 0:00:54.440 --> 0:00:58.000 in his note the importance of this next print on 0:00:58.040 --> 0:01:02.240 a weaker labor economy. How we is the American labor economy. 0:01:02.320 --> 0:01:04.280 That's the key question, and that's the one that that 0:01:04.360 --> 0:01:06.200 I think Rich tried to dodge, but hinted to you 0:01:06.280 --> 0:01:08.600 that they were very concerned with because right now the 0:01:08.640 --> 0:01:11.440 weaknesses in the trade of sector and in investment of 0:01:11.680 --> 0:01:13.920 business fixed investment, and those are the things that are 0:01:13.959 --> 0:01:16.399 weakening around the world because of these trade uncertainties. The 0:01:16.440 --> 0:01:19.080 service sector is really struck quite strong, and that's the 0:01:19.120 --> 0:01:21.840 bifacate economy we have. And what Riches was trying to 0:01:21.840 --> 0:01:23.720 say was, you know, even though we're not meeting our 0:01:23.720 --> 0:01:27.880 inflation targets, were still concerned about backstopping the economy. And 0:01:27.880 --> 0:01:29.600 and and they think that he said that was really 0:01:29.600 --> 0:01:32.120 interesting that you got him to say was our models 0:01:32.120 --> 0:01:35.840 are linear, but we the policymakers recognized nonlinarities. That to 0:01:35.880 --> 0:01:37.840 me says they'reybody to do fifty basis points. They just 0:01:37.880 --> 0:01:39.800 need the right clue and the right hint and the 0:01:39.880 --> 0:01:42.600 right nudge. Let's go a little Matthew here. Then we 0:01:42.720 --> 0:01:47.280 talk about anertial forces physics. Envy in your world of 0:01:47.360 --> 0:01:52.680 PhD economis Clarada is definitive on this. Okay, that's the physics. 0:01:53.640 --> 0:01:58.320 Our listeners aren't living physics. They're living in the American reality, 0:01:58.360 --> 0:02:02.080 which is they want some need to do something. Can 0:02:02.120 --> 0:02:05.520 the Fed do anything? Or there are other institutions. You know, 0:02:05.640 --> 0:02:08.560 it's not the cost of capital that matters for business 0:02:08.560 --> 0:02:10.320 to invest. They want to say I want to invest 0:02:10.320 --> 0:02:12.920 because I'm gonna make money, and I don't have growth. 0:02:12.960 --> 0:02:15.000 I'm not gonna make money. So they want to fit 0:02:15.080 --> 0:02:17.680 to backstop the economy and give them confidence that no 0:02:17.720 --> 0:02:21.200 matter what happens, they're gonna put the floor the pedals 0:02:21.240 --> 0:02:23.480 of the metal and and and also make sure the 0:02:23.560 --> 0:02:27.000 US economy and the global economy grows and to overcome 0:02:27.040 --> 0:02:30.000 the trade tensions and the restraint on investment. The FED 0:02:30.120 --> 0:02:33.720 is going to do whatever it takes, including multiple rate cuts. Well, 0:02:33.720 --> 0:02:36.040 they're gonna do multiple rate cuts as well. What what 0:02:36.240 --> 0:02:39.959 is the what is the impact of a first rate 0:02:40.040 --> 0:02:43.520 cut and then that second rate cut, whether together or separate, 0:02:43.680 --> 0:02:46.840 What actually will happen? In order to build a confidence 0:02:46.919 --> 0:02:49.200 you can't be temped And so I think what what 0:02:49.440 --> 0:02:52.239 riches saying by saying that the policy makers are nonlinear 0:02:52.400 --> 0:02:55.760 means we've got to do something big to confirm the 0:02:55.800 --> 0:02:58.400 sense that we have the economy backstop. So we're going 0:02:58.440 --> 0:03:01.799 to do a major confidence is building gesture. Well, they're 0:03:01.800 --> 0:03:05.000 gonna do a confidence building Jester. That's all great and well, 0:03:05.040 --> 0:03:07.840 but as he opened our discussion, he thinks it's a 0:03:07.840 --> 0:03:10.400 two percent economy. Now others think it may come down. 0:03:12.120 --> 0:03:15.560 It was and has been a two percentage looking forward, 0:03:16.080 --> 0:03:19.200 somebody listen to the interview, I didn't know. We're not 0:03:19.280 --> 0:03:21.000 sure where the economy is going in I think, and 0:03:21.120 --> 0:03:23.280 that's the key to the order. The first question, which 0:03:23.320 --> 0:03:25.480 is if employment starts to kick over, that means that 0:03:25.520 --> 0:03:28.359 the metastasists into the service sector is showing up in 0:03:28.360 --> 0:03:30.640 the labor markets, and that will get them to move. 0:03:30.840 --> 0:03:35.760 Explain the internationalist moment I mean, I mean that special library, 0:03:35.760 --> 0:03:39.040 that little room with the original Federal reserved tables stuck 0:03:39.040 --> 0:03:42.960 in a corner. The books are overwhelming in that library, 0:03:43.000 --> 0:03:48.560 first editions of VVLEN, etcetera. Just extraordinary, um uh library. 0:03:49.040 --> 0:03:51.440 None of the stuff in that library is what we're 0:03:51.480 --> 0:03:54.120 dealing with now right as as rich that we have 0:03:54.240 --> 0:03:57.560 that history, but boy, those tactics, that strategies they recommend 0:03:57.640 --> 0:03:59.320 no longer apply. When I was on the board staff, 0:03:59.360 --> 0:04:01.320 I used to sneak into that library to look around him. 0:04:01.320 --> 0:04:04.200 It is so impressive. But all those theories give us 0:04:04.200 --> 0:04:06.520 the framework, but we now have to change the strategies 0:04:06.560 --> 0:04:08.840 of how to implement that framework in order to get 0:04:08.840 --> 0:04:11.920 the economy going, especially in the globalized economy where the 0:04:11.960 --> 0:04:14.000 e c B is is saying we're gonna do whatever 0:04:14.000 --> 0:04:16.400 it takes. The b o J has got negative rates. 0:04:16.640 --> 0:04:20.680 What do we as the US Federal Reserve do? We'll 0:04:20.720 --> 0:04:23.599 I I have like eight more questions, bill Leye, but 0:04:23.640 --> 0:04:25.799 I've got to go to the moment in Hong Kong. 0:04:26.120 --> 0:04:30.080 You were one of the definitive experts on the actual 0:04:30.279 --> 0:04:33.800 business and economy of Hong Kong with your leadership at 0:04:33.800 --> 0:04:36.400 the I m F and basically setting up their Hong 0:04:36.480 --> 0:04:40.240 Kong Watch years ago. Your thoughts on the protests in 0:04:40.320 --> 0:04:43.400 Hong Kong. This is a Hong Kong that has been 0:04:43.440 --> 0:04:47.160 catalyzed and galvanized to worry about their independence. It wasn't 0:04:47.160 --> 0:04:49.520 there when I was there and has suddenly developed. And 0:04:49.560 --> 0:04:51.880 one thing that you should notice is that people doing 0:04:51.920 --> 0:04:54.320 this are the young people, and they are concerned about 0:04:54.320 --> 0:04:56.640 what their future is going to be a generational so, Phili, 0:04:56.720 --> 0:04:58.880 thank you so much with the Milk and Institute. Their 0:04:58.920 --> 0:05:01.799 chief economis of are more than that out of Columbia 0:05:01.920 --> 0:05:19.760 and the good work of economics. This is an important 0:05:19.800 --> 0:05:23.800 interview on any given Friday, because over the weekend we 0:05:23.920 --> 0:05:26.200 do what we do. It may be on a kitchen, 0:05:26.800 --> 0:05:29.960 maybe on the back deck, maybe in the car watching 0:05:30.120 --> 0:05:35.080 offspring play sports. You speak to Leslie Falconio or your 0:05:35.160 --> 0:05:39.120 reader literature and that of the UBS about what to do. 0:05:39.240 --> 0:05:43.200 It's this asset allocation game and it's important always and 0:05:43.360 --> 0:05:47.479 even more important now Leslie Falconio with UBS Wealth Management 0:05:47.480 --> 0:05:50.640 trying to figure out how to move the money around. Leslie, 0:05:50.760 --> 0:05:56.120 quite a week. Is this week adjusted your core asset belief? 0:05:57.320 --> 0:05:58.880 Let's say, I mean you you really hit the nail 0:05:58.880 --> 0:06:01.039 on that. It's been quite a week, and you know, 0:06:01.360 --> 0:06:05.240 the market although was do wish going into the FED, 0:06:05.520 --> 0:06:08.600 you know, there's no question that the out the outcome 0:06:08.640 --> 0:06:11.039 was even more dovish than that we had anticipated. So 0:06:11.080 --> 0:06:14.040 this was the a dovish snow cut um in the 0:06:14.040 --> 0:06:16.400 scenario that we had had seen. And I think that 0:06:17.040 --> 0:06:18.919 for us that UBS, I mean, we would be the 0:06:18.920 --> 0:06:22.120 first to admit that initially we didn't anticipate the FED too. 0:06:22.240 --> 0:06:24.600 We knew that they wouldn't do anything in June, but 0:06:24.680 --> 0:06:26.680 we also didn't expect them to do anything really for 0:06:26.720 --> 0:06:28.719 the majority of the year, given the fact that our 0:06:28.760 --> 0:06:31.520 second second quarter GDP was much higher. So you know, 0:06:31.600 --> 0:06:33.520 I think that the mark was definitely caught off a 0:06:33.520 --> 0:06:36.640 big guard in terms of the amount of the decline 0:06:36.680 --> 0:06:40.120 the doctrine, even though the median stayed stayed the same. Um, 0:06:40.160 --> 0:06:43.599 you know, what do I do with my money this week? 0:06:44.080 --> 0:06:46.919 Is it's it is its steady as she goes for UBS? 0:06:47.360 --> 0:06:52.680 Or do you actually make a bond equity reallocation given 0:06:52.760 --> 0:06:56.080 price up, yield down in bonds. So we've we've an 0:06:56.120 --> 0:06:58.880 overweight equity to fixed income and we continue to be 0:06:58.960 --> 0:07:01.880 overweight equity to fixed income, you know, because because again 0:07:02.000 --> 0:07:04.600 our our outlook is for you know, slower growth but 0:07:05.000 --> 0:07:07.120 can continued fundamental growth in the US. So we like 0:07:07.160 --> 0:07:10.480 the equity or fixing. We've also, however, had this overlay 0:07:10.600 --> 0:07:12.720 in terms of, if you want to call it, the 0:07:12.760 --> 0:07:16.040 quote unquote equity hedge that you know, the investors have 0:07:16.080 --> 0:07:18.720 in terms of just as as as a sharp protection 0:07:18.760 --> 0:07:21.920 against a you know, a business cycle that has is 0:07:21.960 --> 0:07:25.360 reaching World War two historical expansions that you know, we 0:07:25.440 --> 0:07:27.560 had this heage. So this has actually worked out quite 0:07:27.560 --> 0:07:30.000 well for UBS because we've had this equity long and 0:07:30.080 --> 0:07:33.080 we've had a long treasury hedge. And given what we've 0:07:33.080 --> 0:07:36.440 seen with raids, you look like geniuses. I tell you, 0:07:36.920 --> 0:07:39.240 I mean, I mean he said, I want to get 0:07:39.280 --> 0:07:42.320 Matthew here folks on a Friday. So let me translate 0:07:42.360 --> 0:07:45.040 what the pro just said. I'm in the stock market, 0:07:45.480 --> 0:07:51.280 but I'm buying fixed income paper to hedge my enthusiasm 0:07:51.320 --> 0:07:56.040 about the stock market. You got Leslie price up, yield down. 0:07:56.640 --> 0:08:00.600 How many basis points of performance did you get from 0:08:00.680 --> 0:08:04.200 bonds nailing this call? Did you actually pick up a 0:08:04.280 --> 0:08:07.800 hundred basis points? Again? Close to that? Yeah, I mean 0:08:07.840 --> 0:08:09.760 we did. Actually we've done very well with that. And 0:08:09.760 --> 0:08:12.040 actually what's interesting about this is if you look at, 0:08:12.160 --> 0:08:14.280 you know, how many people sort of you know x 0:08:14.640 --> 0:08:18.280 the correlation between you know, equity and and fixed income 0:08:18.320 --> 0:08:21.960 because post Brexit, as industrates normalized, you had yields going 0:08:22.080 --> 0:08:26.280 up right and equities going down. So at that point 0:08:26.320 --> 0:08:28.520 in time, such such as we thought it was a 0:08:28.520 --> 0:08:31.600 difficult allocation. But as things do, they mean revert and 0:08:31.600 --> 0:08:35.320 over the longer term, the longer treasury is the best 0:08:35.360 --> 0:08:39.920 hedge against equity. Okay, equity, let's talk about the stock marketing. 0:08:39.960 --> 0:08:43.280 It's like I po frenzy and you know all that 0:08:43.720 --> 0:08:48.120 can a conservative investor by revenue growth? I mean, is 0:08:48.120 --> 0:08:52.000 it so overpriced that you can't buy the fangs or 0:08:52.040 --> 0:08:54.680 the sort of fangs are the kind of like things. 0:08:54.720 --> 0:08:57.319 I mean, are they on a valuation basis so on 0:08:57.480 --> 0:09:01.599 a reach that it's silly for a concert investor. I 0:09:01.640 --> 0:09:04.200 don't necessarily say it's it's it's out of reach, but 0:09:04.400 --> 0:09:07.480 it's definitely I would call it very full. And you know, 0:09:07.600 --> 0:09:10.679 maybe part of really the incremental gains going forward may 0:09:10.800 --> 0:09:14.040 be as limited versus what they were, but it's it's 0:09:14.040 --> 0:09:15.719 just at the point where it's getting definitely getting a 0:09:15.760 --> 0:09:18.760 bit toppy. It's getting a bit toppy as well. So 0:09:18.800 --> 0:09:21.000 then where do you go. I mean, it wasn't getting 0:09:21.000 --> 0:09:25.000 a stock strategy from Richard clarative, but um, clearly the 0:09:25.040 --> 0:09:27.640 street has been defensive. I know you're you're good. U 0:09:27.960 --> 0:09:32.320 competitors at Bank of America had an exceptionally gloomy long 0:09:32.440 --> 0:09:35.160 only by side report this week of what people are 0:09:35.160 --> 0:09:37.880 actually doing with their money. Do you see that? Do 0:09:37.920 --> 0:09:42.720 you see people running from equities into bonds? Um? Well, actually, 0:09:42.800 --> 0:09:44.520 I mean when you think about it, especially over the 0:09:44.559 --> 0:09:46.559 past this week, you know there's there's but there's always 0:09:46.559 --> 0:09:48.280 this fear factor. But you know, we think that, you know, 0:09:48.320 --> 0:09:51.000 fixed income is actually a bit rich to equity, particularly 0:09:51.040 --> 0:09:53.560 with the decline of the yields of the scene. So again, 0:09:53.600 --> 0:09:56.520 I mean, so we still prefer over the long term, 0:09:56.600 --> 0:09:58.880 you know, equity to fixed income. Um, you know, it's 0:09:59.000 --> 0:10:01.000 it's it's one of these stays is where for our 0:10:01.320 --> 0:10:03.760 you know, our equity portfolios, we always have this type 0:10:03.920 --> 0:10:07.560 of strategy where I mean we will always have this 0:10:07.679 --> 0:10:09.839 overweight and we'll always have sort of the fixed income 0:10:09.880 --> 0:10:11.920 against it. But when you look at how you how 0:10:12.040 --> 0:10:14.079 much guilt have fallen, and the fact that the market 0:10:14.160 --> 0:10:17.480 is expecting much lower growth than within what we actually are, 0:10:17.720 --> 0:10:20.839 fundamentally better better to be able equity at this time. 0:10:20.880 --> 0:10:23.040 You know right where I was going. Folks, this is 0:10:23.080 --> 0:10:26.439 so important and you heard it, particularly in the first 0:10:26.520 --> 0:10:30.160 third of the discussion, the conversation with the vice chairman. 0:10:30.880 --> 0:10:34.920 This is the recession call of I'm not hearing that 0:10:35.040 --> 0:10:39.000 from ubs Leslie. I certainly didn't hear it from the 0:10:39.080 --> 0:10:42.439 vice chairman. I mean that's coloring everything on the street. 0:10:42.960 --> 0:10:46.839 Is a certain set of our listeners believe in a recession, 0:10:46.880 --> 0:10:49.320 don't they? They absolutely do it. I think it's a 0:10:49.360 --> 0:10:51.320 really great point because what you when what do you 0:10:51.400 --> 0:10:54.720 look at in terms of what's pricing in for the 0:10:54.840 --> 0:10:57.079 FED fund futures or the FED funds you know, the 0:10:57.080 --> 0:10:59.559 next for the rest of this year. What they're making 0:10:59.640 --> 0:11:03.640 in is much more than what we're anticipating. So it's 0:11:03.679 --> 0:11:07.000 much more than you know, ann ounce of protection, you know, 0:11:07.160 --> 0:11:09.800 is a pound of cure um. But they're actually pressing 0:11:09.800 --> 0:11:12.720 in something that we really really believe that the market 0:11:12.760 --> 0:11:14.760 thinks is a little bit too recessionary in our view. 0:11:15.160 --> 0:11:17.080 So it's not that as though we don't believe that 0:11:17.120 --> 0:11:18.760 the Fed will ease, we just think the market is 0:11:18.800 --> 0:11:21.480 pressing in too much of an ease. What does that 0:11:21.520 --> 0:11:23.000 do to revenue goes through? And I don't want you 0:11:23.040 --> 0:11:26.040 to be a securities analyst here, but I think this 0:11:26.160 --> 0:11:28.480 is really important folks. You can take Oracle in the 0:11:28.480 --> 0:11:31.560 news this week or any other company. There's a revenue 0:11:31.600 --> 0:11:34.440 belief in growth and if you have a dooming gloom view, 0:11:34.840 --> 0:11:38.040 you bring your top line down. Is everybody brought their 0:11:38.080 --> 0:11:41.440 top lines down and that folds right into asset allocation, 0:11:41.520 --> 0:11:44.679 doesn't it? Lastly, it does, It absolutely does. And I 0:11:44.720 --> 0:11:48.080 think that you know, again, you know, the the having 0:11:48.120 --> 0:11:50.360 interest rate is lower, and obviously having the FED move 0:11:50.440 --> 0:11:53.880 methodically without a potential in our view recession in the 0:11:53.960 --> 0:11:57.360 near term is very favorable for equity. Well, it's very 0:11:57.360 --> 0:11:59.920 favorable for equity. But I mean, come on, let me, 0:12:00.080 --> 0:12:01.800 I got to get the Bloomberg out here, leslie to 0:12:01.880 --> 0:12:04.800 do this is too fancy math on Friday. Uh here 0:12:05.080 --> 0:12:07.840 sp X year to date up, We're only up eighteen 0:12:07.920 --> 0:12:11.360 percent year to day? Did that? Like? Are you out 0:12:11.360 --> 0:12:15.240 there telling people were going up thirty six percent this year? No? 0:12:15.240 --> 0:12:18.760 Not love, I love busting shops like that list. Can 0:12:18.800 --> 0:12:22.920 we extrapolate out to your end? I know, if you know, 0:12:23.000 --> 0:12:25.000 if you annualize that, that looks very trapping, But no, 0:12:25.120 --> 0:12:27.000 we're not. We're not. We're not saying that at all, 0:12:27.000 --> 0:12:29.000 maybe not the three to four percent going. What do 0:12:29.040 --> 0:12:30.920 you do? I mean if I me in this, I 0:12:30.920 --> 0:12:33.440 mean U b s. I listened to you. I listened 0:12:33.480 --> 0:12:39.439 to uh Jeffrey, you dotta dotta everything's great. What about 0:12:39.480 --> 0:12:41.559 going to cash right now and just sitting out the 0:12:41.640 --> 0:12:45.600 year that we don't recommend that? Do we? No? I said, listen, 0:12:45.640 --> 0:12:48.400 you know it's it's we don't. And we we did 0:12:48.440 --> 0:12:50.599 have a cash position in terms of Barbell for a 0:12:50.679 --> 0:12:52.800 fixed income meany that we had cash, and we had 0:12:52.840 --> 0:12:54.880 long end treasuries. And the reason why we had that 0:12:55.000 --> 0:12:56.960 was as you're well aware that you know, for a 0:12:57.000 --> 0:12:59.280 long period of time we've had this three month ten 0:12:59.320 --> 0:13:01.760 year in version, so going into a cash tye product 0:13:01.840 --> 0:13:04.600 was actually yielding much more than it had previously. So 0:13:04.640 --> 0:13:07.720 there wasn't actually a horrible allocation that that you know, 0:13:07.760 --> 0:13:10.320 people in the industry for years know that something that 0:13:10.360 --> 0:13:12.320 you don't want to do for a long period of time. 0:13:12.600 --> 0:13:14.400 But given the fact that we had this barbell, it 0:13:14.400 --> 0:13:16.320 actually worked at well because we had the yields coming 0:13:16.320 --> 0:13:18.400 down the long end. We were actually also learning that 0:13:18.480 --> 0:13:21.200 incremental carry because that you know, the cash and one 0:13:21.280 --> 0:13:23.839 year bill, given the yelker was so flat, actually was 0:13:23.840 --> 0:13:27.600 fairly attractive. Yeah, this, folks, I I hope folks, this 0:13:27.679 --> 0:13:32.640 has been helpful on a Friday, because every pro including 0:13:32.760 --> 0:13:36.000 I can speak for the vice chairman, everybody's head, his 0:13:36.080 --> 0:13:39.080 spending over what we think we we've observed this week 0:13:39.400 --> 0:13:42.320 really beginning with the Mario Draggy speech, but then you 0:13:42.440 --> 0:13:44.560 actually got to fold it over to like, okay, what 0:13:44.600 --> 0:13:47.200 do I do with my small pot? And the answer 0:13:47.240 --> 0:13:49.960 is what we heard there from Ms Felconio is just 0:13:50.120 --> 0:13:53.880 one example of one view in that case that ubs 0:13:53.960 --> 0:13:58.240 view of I would call relative optimism. Lessie Folconio, senior 0:13:58.280 --> 0:14:02.400 fixed income strategists, had a hectical fixed income allocation at 0:14:02.480 --> 0:14:19.160 UPS that was just brilliant, without question. This is the 0:14:19.200 --> 0:14:22.640 interview of the day. He is Daniel Jurgen, always joining 0:14:22.680 --> 0:14:25.240 us in Davos, but at other select times through the 0:14:25.320 --> 0:14:28.080 year when it truly matters, we are on and that 0:14:28.200 --> 0:14:32.080 Dr Jurgen could join us today, the author of Commanding Heights, 0:14:32.560 --> 0:14:36.680 the author of the Quest, and before that, the definitive 0:14:37.000 --> 0:14:39.560 moment for so many of us in the oil crisis 0:14:40.080 --> 0:14:43.440 is magisterial. The Prize, Dan, you're gonna I want to 0:14:43.480 --> 0:14:47.560 talk about your underrated book, The Quest. Everybody focuses. You 0:14:47.560 --> 0:14:50.360 have to on campus, folks, if you're cool, you have 0:14:50.440 --> 0:14:53.000 to walk around with a copy of the Prize, just 0:14:53.040 --> 0:14:55.960 so you're you know, like you're cool. The Quest. I 0:14:56.000 --> 0:14:58.520 remember reading it and going, this is just as good 0:14:58.640 --> 0:15:02.000 or better than the Prize, and through it, you know, 0:15:02.040 --> 0:15:04.320 in the middle of the Quest, you'll go right to 0:15:04.360 --> 0:15:08.440 where we are right now, which is the shifting sands 0:15:08.720 --> 0:15:12.320 in the Persian Gulf. In terms of securing the supply, 0:15:12.840 --> 0:15:16.360 let's begin with first principles, Dan Jurgen, do we need 0:15:16.360 --> 0:15:19.520 a Rand's oil Uh, we don't need a Rand's oil 0:15:19.600 --> 0:15:22.080 or Rand's oil has been part of the world market. 0:15:22.520 --> 0:15:26.160 But what is surprising is how well the market has 0:15:26.200 --> 0:15:31.200 adjusted to the cessation both of Iranian oil and Venezuelan oil. 0:15:31.480 --> 0:15:34.680 You have always been a measured voice at the clearest 0:15:34.800 --> 0:15:41.600 memory of the hysteria of barrel. You were like, wait thing, 0:15:41.800 --> 0:15:45.360 you know the economics will play out. You were always common. 0:15:45.440 --> 0:15:48.480 Can you be calm now with what you've witnessed over 0:15:48.520 --> 0:15:50.960 the last two weeks in the Hormos and in the 0:15:51.000 --> 0:15:54.120 Persian Gulf? Well, first time. Part of the reason for 0:15:54.160 --> 0:15:56.800 reaction is I really do believe price actually matters. People 0:15:56.840 --> 0:15:59.680 forget that price matters, and it affects how people make 0:15:59.720 --> 0:16:02.480 to see Asians and what happens in the markets. UM. 0:16:02.520 --> 0:16:04.800 I think that we are seeing a pattern of kind 0:16:04.840 --> 0:16:09.320 of call it sporadic escalation. A number of different things happen. 0:16:09.360 --> 0:16:12.240 It's not just in the Gulf, it's UH, it's drones, 0:16:12.480 --> 0:16:17.320 miss hale attacks in Saudi Arabia, it's UH rockets in 0:16:17.680 --> 0:16:21.600 Iraq and to where American companies are operating. So I 0:16:21.640 --> 0:16:27.720 think this is a rising tension and UH. And really 0:16:28.240 --> 0:16:32.120 the Iranians, I think are saying they're really feeling squeezed 0:16:32.200 --> 0:16:35.640 right now, and they have many different mechanisms through which 0:16:35.680 --> 0:16:37.640 to respond, and I think we're seeing some of them 0:16:37.760 --> 0:16:40.880 speak to Americans, our listeners coast to coast and frankly 0:16:40.920 --> 0:16:43.360 speak to the gentleman just down the street in our 0:16:43.400 --> 0:16:49.680 Washington studios at Pennsylvania Avenue. When people suggest Iran as 0:16:49.720 --> 0:16:53.520 a threat, how do you respond? I think that Iran 0:16:53.960 --> 0:17:00.000 is continue to develop its missile programs. The Revolutionary Guards 0:17:00.320 --> 0:17:04.240 has a program and talks about all the Arab capitals 0:17:04.240 --> 0:17:06.879 that it's capturing. So I think there's a struggle for 0:17:06.920 --> 0:17:09.960 influence and power and hegemony going on in the Middle East, 0:17:10.320 --> 0:17:15.160 and Iran is is very much engaged in that. At 0:17:15.160 --> 0:17:17.000 the heart of it right now probably comes down to 0:17:17.000 --> 0:17:21.000 an Iranian Saudi struggle UH for pre eminence. But on 0:17:21.119 --> 0:17:24.040 top of that, of course, is the UH ending of 0:17:24.080 --> 0:17:26.679 the or the backing away from the nuclear agreement. And 0:17:26.760 --> 0:17:30.960 Iran is just exporting a paltry number of barrels right now, 0:17:31.200 --> 0:17:32.919 and I think there's a part of their response, and 0:17:32.920 --> 0:17:35.360 they're probably also looking down the road and saying, well, 0:17:35.359 --> 0:17:36.520 we've got about a year and a half to go 0:17:37.320 --> 0:17:39.840 until maybe there's a new president in the United States. Well, 0:17:40.760 --> 0:17:42.639 let's let's go. That's right where I wanted to go 0:17:42.800 --> 0:17:46.960 with the heritage of Daniel Jurgen the Prize, those moments 0:17:46.960 --> 0:17:50.359 in the prizals vignettes of new people showing up in 0:17:50.400 --> 0:17:53.840 the Middle East. One of our things of Persia the 0:17:54.000 --> 0:17:57.080 Shah that some of us older lived and then moving 0:17:57.080 --> 0:18:00.280 on from the Shah is the separation of religion and 0:18:00.359 --> 0:18:05.480 culture in Iran from a fairly complex and successful economy 0:18:05.560 --> 0:18:09.720 that was in Iran. How do you partition the people 0:18:09.760 --> 0:18:13.720 of Iran, the economy of Iran from the religious extreme 0:18:14.119 --> 0:18:18.280 and the religious leaders of Iran. I think the understanding 0:18:18.440 --> 0:18:21.359 is that you have a young generation that really uh 0:18:21.680 --> 0:18:23.840 wants to be part of a different world, doesn't want 0:18:23.880 --> 0:18:25.399 to be part of this world that was created in 0:18:25.480 --> 0:18:30.199 nine nine with the imposition of the theocratic regime. But 0:18:30.440 --> 0:18:33.679 the instruments of power are all in the hands of 0:18:33.760 --> 0:18:38.359 the theocracy and they continue to wield them. And the economy, 0:18:38.359 --> 0:18:41.479 of course is in pretty bad shape right now because 0:18:41.520 --> 0:18:45.159 of the sanctions, and even without the sanctions, mismanagement of 0:18:45.200 --> 0:18:49.440 the economy, corruption and everything like that. So Iran's economy 0:18:49.560 --> 0:18:53.399 is is suffering. One final question if I could, Dr Jurgur, 0:18:53.480 --> 0:18:56.600 and that would be to hearken back to your exquisite 0:18:56.640 --> 0:18:59.800 effort commanding Heights. I kid you every year at Davos 0:18:59.840 --> 0:19:01.680 at we need to see a second edition of that 0:19:02.119 --> 0:19:05.800 as possible. How do the commanding Heights look right now 0:19:05.840 --> 0:19:10.480 from six Pennsylvania Avenue. Well, I think that from that 0:19:11.280 --> 0:19:14.720 it's uh, there's a question about how much of the 0:19:14.800 --> 0:19:19.000 commanding heights does the person who's the top commander command. 0:19:19.480 --> 0:19:21.640 And in terms of on he had and I ran 0:19:21.680 --> 0:19:24.520 a tech going on and he brought I believe the 0:19:24.520 --> 0:19:27.520 New York Times reports he canceled the mission while the 0:19:27.520 --> 0:19:30.240 planes were in the air. Yeah, I stand corrected if 0:19:30.240 --> 0:19:32.840 I'm wrong. Well, I think I'm thinking about in terms 0:19:32.880 --> 0:19:35.080 of the economy what you've been talking about the relationship 0:19:35.119 --> 0:19:39.080 with the FED. But I think that that he doesn't. 0:19:39.280 --> 0:19:43.119 I mean, there there's obviously disagreement administration about what to do, 0:19:43.359 --> 0:19:45.760 and this is an uncertain territory where you don't know 0:19:45.800 --> 0:19:47.840 where it's gonna end up and what are your goals 0:19:47.840 --> 0:19:50.280 At the end of the day, Daniel, You're gonna thank 0:19:50.320 --> 0:19:52.040 you so much. Do we have a new book coming up? 0:19:52.160 --> 0:19:56.280 Can we? Well? I did send in a manuscript yesterday, oh, yesterday, 0:19:56.640 --> 0:20:00.240 literally about three o'clock in the afternoon. A hint. You know, well, 0:20:00.280 --> 0:20:02.840 it's kind of some of these six themes we've just 0:20:02.880 --> 0:20:05.159 been talking. We'll leave it there, Daniel greg In with 0:20:05.160 --> 0:20:08.240 a top secret manuscript. It's out there somewhere, folks, and 0:20:08.280 --> 0:20:12.960 we await that publication here six months. Maybe when you're out, Daniel, 0:20:12.960 --> 0:20:14.879 you're gonna look for the movie Commanding Heights fourth of 0:20:14.960 --> 0:20:19.320 July and Imax. We are thrilled they have that as well. 0:20:33.480 --> 0:20:36.600 This has been, even by recent standards, a busy week 0:20:36.680 --> 0:20:41.080 four market participants. We've had, of course FED comments coming 0:20:41.080 --> 0:20:44.200 out earlier this week. Geopolitical issues always in play, including 0:20:44.240 --> 0:20:46.280 over the last twelve to twenty four hours, and then 0:20:46.320 --> 0:20:49.880 of course, uh the trade issues with Mexico and China 0:20:49.920 --> 0:20:51.639 with the G twenty coming up. Do you get a 0:20:51.640 --> 0:20:55.760 sense how one professional is factoring all these into uh 0:20:55.800 --> 0:20:58.760 the investment outlook. We welcome our next guest, Diane Jaffee. 0:20:59.040 --> 0:21:02.359 Diane is a group Managing director of the Relative Value 0:21:02.359 --> 0:21:06.119 Group at TCW. Diane, thanks so much for joining us. 0:21:06.240 --> 0:21:09.040 Let's just start with the FED. What did you make 0:21:09.240 --> 0:21:14.280 of the FEDS comments this week? I think they acknowledge 0:21:14.320 --> 0:21:18.960 the fact that market participants are worried about global growth, 0:21:19.119 --> 0:21:22.280 US growth specifically, and now we have to add Iran 0:21:22.600 --> 0:21:26.720 potentially i Ran strikes to the list of their worries exactly. 0:21:26.760 --> 0:21:28.760 And so the the issue is do you feel I 0:21:28.800 --> 0:21:30.560 guess the question is do you feel like the FED 0:21:30.640 --> 0:21:32.600 is on top of this in terms of Okay, we're 0:21:32.600 --> 0:21:34.159 gonna keep the rates kind of where we are, but 0:21:34.200 --> 0:21:39.960 we are clearly opening the door to address rates going forward. Absolutely, 0:21:40.000 --> 0:21:42.239 that is one of their goals is to you know, 0:21:42.280 --> 0:21:46.480 instill confidence in the US markets, and so that's a 0:21:46.560 --> 0:21:49.560 very important point right now. So on the geo political front, 0:21:49.600 --> 0:21:51.919 it just obviously it just seems to be a front 0:21:51.960 --> 0:21:54.520 burner issue all the time. And of course over the 0:21:54.560 --> 0:21:57.199 last twelve to twenty four hours with Iran, how do 0:21:57.320 --> 0:22:01.680 you factor the volatility that these seems to be escalating 0:22:01.720 --> 0:22:05.239 geopolitical issues play on the markets. It does give us 0:22:05.560 --> 0:22:09.119 more opportunity. We're bottom up fundamental investors, so we're in 0:22:09.160 --> 0:22:12.040