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Speaker 1: We begin this hour with stocks pushing hire as Marcus
Speaker 1: keep a cautious eye.
Speaker 3: On the Middle East.
Speaker 1: Cameron Dawson of New Edge Wealth writing, we see potential
Speaker 1: for a continued tactical bounce, but we do not see
Speaker 1: markets is out of the woods for volatility. Cameron joins us. Now, Cameron,
Speaker 1: thank you so much for being with us. I want
Speaker 1: to just start with the idea of what dip is biable?
Speaker 1: Are we looking at something that actually cheap in stocks
Speaker 1: off to just hold your nose and buy.
Speaker 4: Yeah.
Speaker 5: We got to the point where markets traded down to
Speaker 5: nineteen times forward earnings on the S and P five hundred.
Speaker 5: That's not historically cheap. It's cheaper than it was. Of
Speaker 5: course back at the end of October we traded to
Speaker 5: twenty three times forward. But I think the important thing
Speaker 5: to note is that as of Monday of last week,
Speaker 5: we did get a little bit over sold on a
Speaker 5: short term basis, which is why we think the markets
Speaker 5: were able to rally. But we expect volatility to continue
Speaker 5: because there still is so much optimism that this war
Speaker 5: will end quickly and it won't have a big impact
Speaker 5: on growth. And you can see that from so many angles.
Speaker 5: Look at the Brint futures forward curve, where you have
Speaker 5: this expectation that oil prices will return back to normal
Speaker 5: fairly quickly. Look at high yield spreads remaining contain valuations
Speaker 5: still at nineteen and a half times forward, the fact
Speaker 5: that GDP estimates are still two point three percent, and
Speaker 5: ad on top of that, the earnings sestiments have gone
Speaker 5: up for twenty six and twenty seven. So there's still
Speaker 5: a fair amount of optimism, even though we have seen
Speaker 5: some of the positioning shake loose and some of the
Speaker 5: valuations get compressed.
Speaker 4: The two ways to look at this.
Speaker 1: On one hand, you could say Wow, markets are really complacent.
Speaker 1: They're not looking at the potential tail risks. The other
Speaker 1: way to look at this is markets tend to be
Speaker 1: right and more level headed in looking through geopolitics. And
Speaker 1: if they're all saying the same thing, well, who am
Speaker 1: I to fight them?
Speaker 3: So where do you stand on that?
Speaker 5: So one of the reasons why you can look through
Speaker 5: geopolitics is usually analysts get too scared too fast, which
Speaker 5: means that they cut their estimates way too much and
Speaker 5: then end up having to chase their estimates higher. We
Speaker 5: have a very simple rule. Markets like it when estimates
Speaker 5: are going up. They don't like it when estimates are
Speaker 5: going down. But if you never cut your estimates, it
Speaker 5: means that you still have a very high bar.
Speaker 4: To surprise to the upside.
Speaker 5: And that's a big difference versus what we got last
Speaker 5: year in twenty twenty five, going back to times like
Speaker 5: twenty twenty two or even COVID, where analysts were so
Speaker 5: quick to cut their estimates that it created a low
Speaker 5: bar to surprise to the upside.
Speaker 4: Now the bar is still very high.
Speaker 3: So everyone is living with that scar.
Speaker 6: I wonder if it's even though across different sectors, if
Speaker 6: it's the same with a consumer that might be facing
Speaker 6: higher oil and energy prices. If it's the same for utilities,
Speaker 6: if it's the same, Is it a broad brush right now?
Speaker 4: Yeah?
Speaker 5: I think the most fascinating thing is that what's been
Speaker 5: driving earnings estimates higher over the course of the last
Speaker 5: month has been not things related to the oil or
Speaker 5: energy shock. It has been the fact that it's been semiconductors.
Speaker 5: But the market's not giving credit to semiconductors for the
Speaker 5: big earnings revisions higher because you've seen their valuations get
Speaker 5: compressed by thirty percent, So effectively, the one area that
Speaker 5: we can count on for earnings growth is the one
Speaker 5: area where the market's not giving a credit.
Speaker 6: I have, say something like semiconductors, those chip making stocks,
Speaker 6: A lot of it has felt very momentumy, and that
Speaker 6: seemed to be in the driving seat for a lot
Speaker 6: of the market shakeout that we've seen. To what degree
Speaker 6: has market positioning reset and more fundamentals will dictate the
Speaker 6: price action.
Speaker 5: Yeah, So if we look at consolidated positioning, which Deutsche
Speaker 5: Bank has a great measure of that, the positioning has
Speaker 5: reset to about the twentieth percent, so not nearly as
Speaker 5: washed out as we got to at the lows during
Speaker 5: Liberation Day, but suggests that if news were to get better,
Speaker 5: more people could get dragged into this market. We have
Speaker 5: seen some positioning resets when it comes to megacap growth
Speaker 5: as well, which just suggests that again, better news could
Speaker 5: draw more people in.
Speaker 1: We're talking to Cameron Dawson right now, and of course
Speaker 1: this is a very volatile moment, and we're getting some
Speaker 1: headlines from Iran from the Foreign Ministry saying that Iran
Speaker 1: demands the end to the war. Iran continues to go
Speaker 1: on to say that no rational person would agree to
Speaker 1: a ceasefire, talking about a ceasefire meaning creating just simply.
Speaker 3: A short pause to regroup.
Speaker 1: A lot of questions about noise versus signal, and Cameron,
Speaker 1: I'm curious from your perspective, how you take some of
Speaker 1: the incurrent coming rhetoric, both from the US, from Iran,
Speaker 1: from allies, from unreported sources and get a sense of
Speaker 1: whether we're moving closer to some sort of resolution, whether
Speaker 1: we're moving closer to some sort of escalation that could
Speaker 1: lead to wheel damage and facilities in the region.
Speaker 5: Yeah, it looks it's incredibly difficult, and I think that
Speaker 5: last point is probably the most important one, which is
Speaker 5: that what kind of damage are we seeing that does
Speaker 5: not allow oil prices to return to their pre war levels. Effectively,
Speaker 5: we've been arguing it's not where oil prices go, it's
Speaker 5: where they stay, and if they stay at elevated levels
Speaker 5: because of this damage, it just suggests that we don't
Speaker 5: get an easing of pressures on the US consumer. And
Speaker 5: if we look, it's really gasoline prices that matter most,
Speaker 5: but also considering things like diesel, and the US consumer
Speaker 5: does not have a lot of room to.
Speaker 4: Absorb an oil supply shock.
Speaker 5: If you look at the last three months the average
Speaker 5: jobs added with sixty eight thousand. Contrast that to twenty
Speaker 5: twenty two, we were adding four hundred thousand jobs on average,
Speaker 5: a lot more room with a lot more wage growth
Speaker 5: to absorb the increase in oil prices.
Speaker 1: That's the reason why this week is going to be
Speaker 1: so important for so many people. The fact that we
Speaker 1: get core PCEE data, that key magic that the FED
Speaker 1: looks at and then CPI on Friday, gives a sense
Speaker 1: about how much some of these gasoline prices, these diesel
Speaker 1: prices are already plowing into a consumer.
Speaker 4: We're spending. How will that affect your view?
Speaker 3: I mean, could this be a turning point for.
Speaker 1: You in some ways to just understand what damage is
Speaker 1: actually being done to the US economy.
Speaker 5: I think it will be incredibly important. The US economy,
Speaker 5: after all, is two thirds of overall or US consumers
Speaker 5: two thirds of overall economic growth, and.
Speaker 4: You have to appreciate that.
Speaker 5: Over the last year, we've seen a big difference between
Speaker 5: the growth and personal income, which has been flat to down,
Speaker 5: versus personal spending, which has been very robust. And the
Speaker 5: gap between those two has been driven by a willing
Speaker 5: down of the savings rate, which is made possible by
Speaker 5: a very strong wealth effect, which is made possible by
Speaker 5: a very strong equity market. So if we continue to
Speaker 5: be in this environment where equity markets come under pressure,
Speaker 5: you start to lose one of those things that has
Speaker 5: allowed consumers to continue to spend so robustly even in
Speaker 5: the face of falling real income growth.
Speaker 6: One of the conversations around COVID of why the consumer
Speaker 6: was strong and why markets rebounded was the huge amounts
Speaker 6: of fiscal stimulus put into the market. This time around,
Speaker 6: it's also a government that has less room. We're already
Speaker 6: running large deficits. President Trump just asking for a huge
Speaker 6: allocation to defense in his most recent budget. How does
Speaker 6: that alter things with the one big beautiful bill already
Speaker 6: out there? Maybe in the inability to keep pumping stimulus.
Speaker 4: It gives you a lot fewer degrees of freedom.
Speaker 5: You're going in with a deficit to GDP at six
Speaker 5: and a half percent, with yields already higher, and inflation
Speaker 5: already higher at three point one percent on core PC,
Speaker 5: which is expected to come in later this week, which
Speaker 5: just suggests that even if you want to do stimulus,
Speaker 5: there may be less market appetite to be able to
Speaker 5: absorb some of that stimulus, which just means that we
Speaker 5: might just have to take our medicine when it comes
Speaker 5: to this supply shock.
Speaker 2: Stay with us. Mulblenberg Savannah's coming up off to.
Speaker 1: This oil flo fluctuating with traders on edge over President
Speaker 1: Trump's ultimatum for a run and reports of ongoing ceasefire talks.
Speaker 1: Dan Pickering of Pickering Energy partners, writing talk is cheap
Speaker 1: and getting cheapers. Threats, deadlines, and promises of deals get
Speaker 1: pushed to the right.
Speaker 4: Dan joins us.
Speaker 1: Now, Tan, Dan, thank you so much for being with us.
Speaker 1: I want to start not necessarily on the noise, but
Speaker 1: on what's going on on the ground, what you're seeing
Speaker 1: in terms of the damage, the delays to get things restarted,
Speaker 1: even if there was some sort of ceasefire or truce
Speaker 1: in the near future.
Speaker 7: Ai Lisa, good morning.
Speaker 8: The issue here is the ongoing violence, but it's also
Speaker 8: the restart time when you look at the shut ins
Speaker 8: of fields further back up the Gulf, in the Middle East,
Speaker 8: Saudi Kuwait, Iraq, etc.
Speaker 7: I think the issue is even.
Speaker 8: If there was a ceasefire, even if there's a cessation
Speaker 8: of hostilities, you know, the question is how long does
Speaker 8: it take to get going, And that's going to be
Speaker 8: measured I think in months, not weeks, and so you
Speaker 8: know this has a long tail to it that the
Speaker 8: market's starting to absorbed. But I don't think fully appreciates
Speaker 8: because of all the news on the front part of
Speaker 8: the curve.
Speaker 2: Dan.
Speaker 1: We talked to different officials in the administration, in the
Speaker 1: Trump administration who said we're taking cues from the forward
Speaker 1: curve and the fact that forward curve come down comes
Speaker 1: down in prices are expected to drop significantly by the
Speaker 1: end of the year. How much do you glean from
Speaker 1: the forward curve the idea that oil's futures traders are
Speaker 1: expecting oil prices at least based on the pricing to
Speaker 1: come down significantly.
Speaker 8: Yeah, I think it matters a lot when this finishes,
Speaker 8: how it finishes. The reality is open the straight prices
Speaker 8: are going to come down. Triple digit numbers are too
Speaker 8: high on a sustainable basis if the straight is open,
Speaker 8: And the question is really where do you settle forward
Speaker 8: curve right now? Twenty seven to twenty eight is showing
Speaker 8: prices in the high to mid sixties to me, probably
Speaker 8: feels a little conservative as we feel the impact of
Speaker 8: drawing down these inventories. But the reality is triple digit
Speaker 8: prices are a function of conflict. If the conflict abs,
Speaker 8: if the strait opens, prices come down. That's what's going
Speaker 8: to flow through the economy. So we really have to
Speaker 8: watch twenty seven, twenty eight, twenty nine.
Speaker 6: Well, just now, as pricing stands down to your point
Speaker 6: in the high sixties, what would be more appropriate, what
Speaker 6: would look what should it look like to price in
Speaker 6: risks accurately to the strait of hormuse right now?
Speaker 8: Yeah, if we don't open the straits, that the back
Speaker 8: end of the curve is going to move towards the
Speaker 8: front right, so we'll take oil into the eighties and
Speaker 8: potentially the nineties. I think the more appropriate conversation is
Speaker 8: how complicated is the Middle East after this conflict ends?
Speaker 7: If Iran is in.
Speaker 8: Charge of the Strait, there has to be some sort
Speaker 8: of a risk or disruption premium, and that's probably going
Speaker 8: to be measured in five to ten bucks of barrels.
Speaker 8: So I think mid seventies to high seventies is probably
Speaker 8: the realistic number if if we end this with Iran
Speaker 8: in charge of the Strait?
Speaker 3: Is there a demand just diduction at that level?
Speaker 1: Dan?
Speaker 6: Or is that a price that the world can continue
Speaker 6: functioning with.
Speaker 8: I think it's a painful price, but one that the
Speaker 8: world functions. So demand destruction is going to be measured
Speaker 8: in the one hundred and twenty one hundred and thirty
Speaker 8: hundred and fifty. You've heard some really big numbers associated
Speaker 8: with that. If the straits open, we don't need to
Speaker 8: destroy demand. Can demand continue to grow at seventy five
Speaker 8: or eighty dollars?
Speaker 7: WTI?
Speaker 8: The answers, yes, wood would markets, the President, etc.
Speaker 5: Like?
Speaker 8: Prices lower certainly, but seventy five to eighties manageable.
Speaker 1: I was rucked by something that fatib Role of the
Speaker 1: International Energy Agency said to the FT over the weekend.
Speaker 1: He was talking about hoarding. He said, I urge all
Speaker 1: countries not to impose bans or restrictions on exports. He
Speaker 1: went on to say, it is the worst time when
Speaker 1: you look at the global oil markets, their trade partners,
Speaker 1: their allies, and their neighbors will suffer as a result.
Speaker 1: He was clearly talking about a certain nation, did not
Speaker 1: mention any nation's names. How many nations, not only China
Speaker 1: but others as well do you see stockpiling, hoarding, putting
Speaker 1: export bands in place?
Speaker 7: Yeah?
Speaker 8: The real issue is whether or not these countries are
Speaker 8: going to release their strategic reserves to offset the shortages.
Speaker 8: The real question when you're fighting for barrels amongst your
Speaker 8: neighbors is you know what what price does it take
Speaker 8: to get that barrel.
Speaker 7: To your shores?
Speaker 8: And in a situation of shortage, what do people do
Speaker 8: They do?
Speaker 7: Hoard?
Speaker 8: They don't want to, they don't want to use what
Speaker 8: they've got.
Speaker 7: They want to.
Speaker 8: Acquire more so that they can can stay in the game,
Speaker 8: if you will, so, right now, we haven't seen releases
Speaker 8: from Chinese. China's stockpiles in Japan, the US, other OECD
Speaker 8: countries are starting to release stocks, but it's moving fairly slowly.
Speaker 8: It's a long process. It will take several months for
Speaker 8: that to push ahead.
Speaker 1: To put this together with what Danny was asking you about,
Speaker 1: which I think is something that is the key point.
Speaker 1: We can take a look at the forward curve. When
Speaker 1: do you start pricing in the risk premium that this
Speaker 1: is not a one off, this is something that can
Speaker 1: continue in terms of the geopolitical tensions around shipping and
Speaker 1: particularly shipping energy of products. I mean, at what point
Speaker 1: do you see the forward curve in oil futures underpricing
Speaker 1: that reality that is very much being demonstrated.
Speaker 7: The day's coming.
Speaker 8: If we continue to have this cat and mouse game
Speaker 8: of deadlines that are extended and pushed forward and the
Speaker 8: conflict continues, I think the market stops listening as much
Speaker 8: to what politicians on both sides of the conflict are
Speaker 8: saying and just continue to look at the barrels. If
Speaker 8: the barrels don't come through the straits, the realization that
Speaker 8: the market is going to continue to tighten, I think
Speaker 8: seeps in and folks stop believing pieces coming start believing
Speaker 8: that war will continue. And if that's the case, then oil's.
Speaker 7: Got to go higher. The back part of the curve
Speaker 7: moves up.
Speaker 2: Stay with us, multplinbeg Savannah's coming up.
Speaker 3: Off to this.
Speaker 1: Joining us now is Colonel Wayne Sanders, senior defense analyst
Speaker 1: at Bloomberg Intelligence. Colonel, thank you so much for being
Speaker 1: with us. We had headlines earlier this morning from the
Speaker 1: Iranian side with the Foreign Ministry saying that no rational
Speaker 1: person would.
Speaker 4: Agree to a ceasefire.
Speaker 1: A ceasefire means creating a short pause to regroup. How
Speaker 1: seriously should we be taking discussions of some sort of
Speaker 1: ceasefire by eight pm tomorrow Eastern time?
Speaker 7: I think that from.
Speaker 9: A political perspective, everybody needs to be able to come
Speaker 9: forward and do that. From a military objective's perspective, I
Speaker 9: agree with the assessment that not a whole log is
Speaker 9: actually gained by that.
Speaker 7: You're pretty much saying.
Speaker 9: The US takes their foot off the gas in terms
Speaker 9: of all the strikes that they have done.
Speaker 7: And over the weekend, as.
Speaker 9: You saw, Iran was actually able to show some of
Speaker 9: the vulnerability to close air support assets with the APACHE
Speaker 9: with the F fifteen as well as excuse me, as
Speaker 9: well as some.
Speaker 7: Of the other close air acts, the A tents.
Speaker 9: So that actually shows right now that anybody who's coming
Speaker 9: to a military side of the house is no, I
Speaker 9: need to actually double down and achieve more of those
Speaker 9: military objectives. The problem is that the rest of the
Speaker 9: world is looking for anything that's going.
Speaker 7: To allow some level of a release valve.
Speaker 9: And you saw that a couple of times, even during
Speaker 9: the Iran Israel Twelve Day war, when they came for
Speaker 9: a ceasefire, they needed to be able to take that
Speaker 9: time so that behind the scenes they could reach what
Speaker 9: they wanted to reach.
Speaker 6: Colonel there was a report from Israel which it said
Speaker 6: that Iran still had more than a thousand missiles that
Speaker 6: could threaten it. What do we understand about the capabilities
Speaker 6: of Iran to enact that type of pain with this
Speaker 6: continued missiles, cheap drones that they've had at their disposal.
Speaker 9: Yeah, their drone stockpile is still significant, right The Shihet
Speaker 9: one three six is one of the most long range
Speaker 9: and effective ones that you've seen actually take a lot
Speaker 9: of the Gulf States right now, a lot of them
Speaker 9: have been targeted with the drones. Their missile capability has
Speaker 9: been severely weakened. But depending on where you're looking at
Speaker 9: the numbers, yeah, you can see up to almost one thousand.
Speaker 9: There has Blah claims thousands of short range missiles as well,
Speaker 9: So when you start looking at the proxies, so there's
Speaker 9: always going to be a continued threat for that.
Speaker 7: A lot of the launchers have.
Speaker 9: Been damaged, so their ability to actually bolly those things
Speaker 9: that scale becomes an issue. But right now you've seen
Speaker 9: a lot of Iran be able to do stuff with
Speaker 9: just one or two targets at a time. They don't
Speaker 9: have to launch a lot, they just have to be
Speaker 9: able to strike their targets.
Speaker 1: Well.
Speaker 6: When it comes to the proxyes Klonel, this is something
Speaker 6: that Israeli forces and American forces had said that in
Speaker 6: past conflicts they significantly weaken them.
Speaker 3: Is that the case this time around?
Speaker 6: Is has bolas, they have these tens of thousands of
Speaker 6: rockets to use.
Speaker 3: Are they weakened at this point?
Speaker 9: I think the number of folks that they have to
Speaker 9: actually do this, yes, absolutely. The number of hostiles that
Speaker 9: are involved, yes, The number of infrastructure compared to where
Speaker 9: they used to be, yes, I think people didn't quite
Speaker 9: understand exactly how large the proxy force threat around the
Speaker 9: world was. That's actually been getting mitigated over the past
Speaker 9: ten years or so, and you're actually seeing a lot
Speaker 9: of that come from the proxies.
Speaker 6: Now.
Speaker 9: I actually expected a lot more proxy involvement earlier on.
Speaker 9: You've seen some of it on the non kinetic side.
Speaker 9: You've seen proxies tryafor cyber attacks and others as well.
Speaker 9: But you know, as this continues to go on, it
Speaker 9: ends up being another lever that i RAN can pull
Speaker 9: and still provide some level of plausible deniability.
Speaker 1: Colonel Sanders, it's been a lot of the weekend trying
Speaker 1: to figure out ways that this could end that would
Speaker 1: be palatable to both the GCC, the Gulf countries as
Speaker 1: well as the United States and Israel. Do you see
Speaker 1: any path to creating some sort of new normal that
Speaker 1: would be palatable to the partners in the region and
Speaker 1: that would lead to some sort of permanent end to
Speaker 1: the fighting.
Speaker 9: I think when i RAN talks about compensation, when they
Speaker 9: talk about war compensation, I think there obviously has to
Speaker 9: be some level acknowledgement that says, hey, look, we did
Speaker 9: the following things to you and I ran. And so
Speaker 9: from that perspective, we're going to give you a certain
Speaker 9: stipulation for this, whether it's monetary or another means. There
Speaker 9: has to be a way for Iran to save face
Speaker 9: in this and say, okay, all right, we were able
Speaker 9: to you know, inflict a certain amount of damage not
Speaker 9: only the Golf States as well as to the US.
Speaker 9: So we need to be continued to look at as
Speaker 9: a legitimate player. The US needs to be able to
Speaker 9: come back and say that we have, as President Trump
Speaker 9: keeps saying, you know, bomb them to the stone age,
Speaker 9: we have effectively neutralized a majority of their missile threat
Speaker 9: and as well as their nuclear program, even if it's
Speaker 9: not handed over that we do not believe that they're
Speaker 9: going to have the ability to produce and manufacture and
Speaker 9: enriched uranium to the level that it could be used
Speaker 9: for a nuclear weapon for the Golf States. I think
Speaker 9: there right now you're seeing a lot of increased production
Speaker 9: or procurement excuse me, on air defense systems as well.
Speaker 9: So everybody, I think at that point in time is
Speaker 9: looking to make sure that they are as secure as
Speaker 9: possible moving forward against those drum threats.
Speaker 1: How much are inventories of missiles, anti ballistic missile inventories
Speaker 1: as well as others of the US is moving to
Speaker 1: the region. How much is that getting depleted? How much
Speaker 1: is that going to ultimately be the decider deciding factor
Speaker 1: of this war?
Speaker 3: Who runs out first?
Speaker 9: I think I think it's a matter of we have
Speaker 9: we have several different types right I think the Gulf
Speaker 9: States right now are looking at different options for some
Speaker 9: cheaper solutions. You have these systems called apkwus, these advanced
Speaker 9: precision kill weapons that are a lot cheaper and scalable
Speaker 9: and able to bring those to bear a lot faster
Speaker 9: with BAE and with El three Harris and their Vampire systems.
Speaker 9: The problem is that if you're continuing to use some
Speaker 9: of our PAC three interceptors and our fat interceptors, which
Speaker 9: we have a shorter supply of.
Speaker 7: It is something that's of concern.
Speaker 9: Even when you look at the naval, the naval superiority
Speaker 9: that we have a lot of our s M three
Speaker 9: and SM six that we launched from our naval vessels,
Speaker 9: those also come into play here.
Speaker 7: There is a.
Speaker 9: Huge ramp up going on right now in the US,
Speaker 9: specifically to quadruple production.
Speaker 7: You see a lot of.
Speaker 9: That with RTX and Lockey to be able to build these,
Speaker 9: but it does come into costs because it's not something
Speaker 9: that you can just turn that spigot on overnight and
Speaker 9: actually bring back those numbers.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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