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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Right now,

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Speaker 1: Dana Peterson joins us chief Economist at the Conference Board

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Speaker 1: to the heritage of the Conference Board, Dana, is there

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Speaker 1: inflation that will affect corporations in this report or what

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Speaker 1: your guestimate is for tomorrow's PPI?

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Speaker 2: Well, CEOs are already complaining about inflation. They're saying the

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Speaker 2: cost of doing businesses higher, from wage increases to higher

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Speaker 2: interest rates, all of it's really weighing on CEOs right now.

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Speaker 2: So I think some of this probably will feed through

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Speaker 2: to the CPI and the PCEE over time.

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Speaker 1: We will it do to fed PALAIC. I mean, it's

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Speaker 1: unfair question. Mike's only on page six of a forty

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Speaker 1: two page report. But Dana Peterson, do you see enough

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Speaker 1: of a movement here to adjust the parlor game of

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Speaker 1: March and beyond June.

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Speaker 2: Well, we think that the FED probably won't start cutting

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Speaker 2: rates until around June, and the key thing will be

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Speaker 2: the course of inflation. The good news is that core

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Speaker 2: inflation is still slowing, but the Fed also cares about

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Speaker 2: the headline, and certainly, when we look in the core,

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Speaker 2: if home prices are still rising month on month, that

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Speaker 2: doesn't bode.

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Speaker 3: Well for year on year.

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Speaker 2: But the good news is that we are seeing some

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Speaker 2: cooling and wage inflation overall. And when you look at

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Speaker 2: home prices, or at least the existing home prices year

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Speaker 2: on year, they're slowing and that's showing up certainly in

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Speaker 2: the rental components of both the CPI and the PCE.

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Speaker 4: Danny, can we get a little bit more detail there

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Speaker 4: and just how high or low is the bar do

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Speaker 4: you think to reduce interest rates Feder reserve? And is

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Speaker 4: it because you think it takes longer to get to

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Speaker 4: that bar or ultimately it's a bit higher than this

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Speaker 4: market thinks it is.

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Speaker 2: Well, I think the bar really is inflation, but it's

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Speaker 2: also going to be the labor market. Does a labor

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Speaker 2: market continue to cool if you take away government leisure

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Speaker 2: and hospitality and healthcare, you see no gains in employment.

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Speaker 2: So once those three industries run out of steam, what

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Speaker 2: do you have? And also the economy in general, does

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Speaker 2: the consumer stop spending and really slow? So I think

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Speaker 2: if the economy slows a lot, labor market continues to slow,

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Speaker 2: inflation is headed back to the two percent target. The

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Speaker 2: federal feel comfortable with cutting interest rates, but it may

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Speaker 2: not be in March. It maybe a little bit later

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Speaker 2: this year again, around mid year.

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Speaker 4: Is that one we'd expect to sit in jobless claims

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Speaker 4: as well, because Danna, it's not just about CPI. This

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Speaker 4: morning we've got jobless claims at two oh two, two

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Speaker 4: hundred and two thousand. It's just absolutely incredible. What would

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Speaker 4: you expect to see that start to inflect higher?

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Speaker 1: Sure?

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Speaker 2: Well, the reason why initial jobs claims are so low

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Speaker 2: is that our own data say that CEOs of large

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Speaker 2: companies are not looking to let people go. They're hoarding workers,

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Speaker 2: holding on to people. But certainly when people are let go,

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Speaker 2: it's taking them longer to find a job. So continuing

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Speaker 2: claims are ticking up a little, and we do think

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Speaker 2: that's going to show up more so in the unemployment rate.

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Speaker 1: Are you modeling out a wage growth that sustains above inflation,

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Speaker 1: and so America sees a legitimate real wage growth.

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Speaker 2: Well, it is possible that wages will remain above two percent. Certainly,

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Speaker 2: when we look at the gains over the last few years, yes,

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Speaker 2: they were really outsized. We are seeing slowing, but you

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Speaker 2: do have some industries that wages are rising, certainly in construction,

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Speaker 2: in particular non residential construction, where there's a lot of

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Speaker 2: impetus to build infrastructure and factories at home due to

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Speaker 2: industrial policies, So you could see wages settle out at

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Speaker 2: a rate that's above two percent.

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Speaker 1: I looked dan at the inflation data, and I want

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Speaker 1: to go back to it. You know this, John, this

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Speaker 1: used to be religion. Thirty even forty years ago. PPI

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Speaker 1: was just as important as CPI. That all went away.

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Speaker 1: But in tomorrow's PPI report, I know it's re Jegra

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Speaker 1: McKee's explained it to me three times. I flunked the quiz,

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Speaker 1: the McKee quiz three times. Data final business inflation. Is

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Speaker 1: it legitimate? Sure?

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Speaker 2: It is absolutely. It's everything that businesses are looking at,

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Speaker 2: and certainly that includes transportation costs and which are a

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Speaker 2: big thing, and also services which are quite material. So

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Speaker 2: even though the PPI is different now than it was,

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Speaker 2: you know, ten years ago, it's still very relevant.

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Speaker 1: This ties John directly into what Linda Dissel said it federated.

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Speaker 1: It's about margins. If you've got that inflation impute down

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Speaker 1: the income statement. What does do not forget about Apple

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Speaker 1: and all that it a real American a company. I mean,

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Speaker 1: what's it mean for my church and Dwight They make toothpaste?

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Speaker 5: I suppose not a real American accountany it was not.

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Speaker 1: A real American company. It's a luxury stock thing. But

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Speaker 1: to the rest of America out there making four percent

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Speaker 1: revenue growth, I'm sorry, margin erosion could be tangible.

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Speaker 5: Daniel, This was brilliant.

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Speaker 4: Thanks for your time to break this down with a

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Speaker 4: standard pedis and there of the conference board. Erica Ajerian

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Speaker 4: of UBS warning quote. Given the fourth quarter rally in

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Speaker 4: the BKX and a sharp turning sentiment heading into this year,

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Speaker 4: we think jender earning season may present a speed bump

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Speaker 4: to the sector's recent momentum. Erica on pleace to say,

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Speaker 4: joined us right now, Erica, great to catch up with you.

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Speaker 4: Let's go straight to it. What is it about this earnings,

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Speaker 4: this group of earnings that you think might be that

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Speaker 4: speed bump.

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Speaker 6: I think it's really, to use James term, rude awakening

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Speaker 6: for earnings. So it's not necessarily about the abs price level,

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Speaker 6: and it's not necessarily about the absolute multiple on earnings,

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Speaker 6: but it's that earnings aren't going to go up. You know,

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Speaker 6: as a reminder to everybody, what happened in the rally

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Speaker 6: is we've priced out a negative and that negative was

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Speaker 6: the unrealized bond losses on bond portfolios. As treasury yields

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Speaker 6: we're shooting higher, and so now we've removed that negative.

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Speaker 3: But keep in mind.

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Speaker 6: That banks are actually positively rate sensitive. What that means

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Speaker 6: to what's that means Jonathan, is that you know, if

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Speaker 6: the FED is cut in rates, then you actually will

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Speaker 6: have pressure on net interest income, especially in the front

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Speaker 6: half half of the cuts.

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Speaker 1: Eric, I'm looking at your coverage of the big banks,

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Speaker 1: and I want to ask you about bank you don't cover,

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Speaker 1: which I know is out of bounds, but I think

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Speaker 1: it's really germane right now. Do you perceive the divide

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Speaker 1: between twenty or thirty big banks and everybody else out

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Speaker 1: there and the concern that the smaller banks of America

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Speaker 1: are not in rude good health.

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Speaker 7: They may not be as strong as the top twenty banks,

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Speaker 7: but I think if the forward curve pans out, they

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Speaker 7: will get a lot of relief in two ways.

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Speaker 3: One, they'll get relief.

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Speaker 6: In deposit costs, and I think what you have seen

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Speaker 6: in twenty twenty three is a nice run up in

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Speaker 6: deposit costs as the Fed Titan, and so they'll get

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Speaker 6: relief on the funding side. The other piece of relief

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Speaker 6: that those smaller banks will get is.

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Speaker 3: On commercial real estate.

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Speaker 6: So commercial real estate is more widely held at those

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Speaker 6: smaller banks than they are those larger banks that you mentioned, Tom,

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Speaker 6: and as such, you know, if interest rates are coming down,

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Speaker 6: that could actually narrow the subset of potential problems as

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Speaker 6: we deal with commercial real estate maturities ahead.

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Speaker 1: And so to translate this to the rescue will be

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Speaker 1: a lower money market yield where billions flows out of

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Speaker 1: money market funds back to a more normal banking economy.

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Speaker 1: Is that right correct?

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Speaker 3: So I love that you hit on that.

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Speaker 6: Not only will you get relief and deposit costs, but

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Speaker 6: you also get that deposit flow back, so you're no

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Speaker 6: longer having to as an alternative, you know, either you know,

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Speaker 6: borrow wholesale at you know, pretty much fed funds, or

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Speaker 6: really ratchet up what you're offering your deposit customers.

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Speaker 4: Rika, what is your tel pic right now? Got into

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Speaker 4: NX season. I know you think it might be a

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Speaker 4: difficult moment, a difficult rocky patch, But ultimately what is

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Speaker 4: the top pick?

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Speaker 6: So in a difficult moment, in a rocky patch, who

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Speaker 6: does the market turn to?

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Speaker 3: JP? Morgan?

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Speaker 6: So, as I think about the expectations that are now

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Speaker 6: into the market, and as I think about the enthusiasm about,

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Speaker 6: you know, having these cuts without a recession, the bank

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Speaker 6: that can deliver on earnings, the bank where we're most

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Speaker 6: confident those earnings expectations can be delivered is JP Morgan.

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Speaker 1: JP Morgan's out. What's it up? It's like Nvidia, It's

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Speaker 1: like the video.

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Speaker 5: Questions relatively speaking, competitive reason.

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Speaker 1: You're telling me that after massive double digit return here

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Speaker 1: complete out performance, that vector just keeps on going. Erica

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Speaker 1: for mister Diamond.

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Speaker 3: I think so.

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Speaker 6: So a couple of other data points, so from the

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Speaker 6: October bottom and the b k X, JP Morgan has

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Speaker 6: actually underperformed by eight percentage points. And remember what I

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Speaker 6: said at the top of this segment. I said, it's

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Speaker 6: not really about the you know, absolute price, It's not

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Speaker 6: about the pe, it's about the E. I think that

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Speaker 6: the you know, involvement in the space today is in

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Speaker 6: hedge funds and.

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Speaker 3: In macro funds.

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Speaker 6: You know, how long onlies will actually step in and

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Speaker 6: move their weight in banks is they feel more confident

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Speaker 6: that the E is not just bottom but there is

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Speaker 6: good news, upside potential to the E. And again, just

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Speaker 6: going back to JP Morgan, I think they're just in

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Speaker 6: best position to deliver that, you know, and so their

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Speaker 6: performance can absolutely continue from here.

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Speaker 1: Do we see mergers this year? I've been waiting twenty

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Speaker 1: five years for the roll up here, not to get

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Speaker 1: to where Canada is. But you know, we got what's

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Speaker 1: the number, four thousand banks? Five thousand banks? How do

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Speaker 1: we cut that in half? This is the year that happens.

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Speaker 6: I don't think so, because it's an election year. So

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Speaker 6: there is there's a little bit of a mentality here,

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Speaker 6: the seller's mentality that oh wow, I got the bomb

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Speaker 6: losses back in my capital as raids have come down,

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Speaker 6: and now they're thinking about what the forward curve is

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Speaker 6: implying and saying, Okay, my book value recovery is going

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Speaker 6: to be x x higher at the end of the year,

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Speaker 6: and so I want a multiple off of that. Meanwhile,

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Speaker 6: the buyers are like, absolutely not. And the other part

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Speaker 6: of that, and since I mentioned the election, is that

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Speaker 6: you know, there has been a lot of consternation about

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Speaker 6: the length of time between announcement and close.

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Speaker 3: US Bank Corp.

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Speaker 6: Will tell you about that consternation. And so I think

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Speaker 6: that you know, smart buyers may wait until we get

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Speaker 6: more clarity on leadership before they think about waiting into

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Speaker 6: m and A.

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Speaker 5: Went a weigh in on the politics.

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Speaker 4: If you can, you alluded to it that it's twenty

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Speaker 4: twenty four, it's election season. A client's asking about the

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Speaker 4: regulatory backdrop going into next year off the back of

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Speaker 4: who may or may not win the election this year.

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Speaker 4: Is it still too early or is that something that

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Speaker 4: considering already.

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Speaker 6: So it's something that they're saying it's too early to

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Speaker 6: price in given the many variables.

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Speaker 3: That could happen between now and November. You know that being.

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Speaker 6: Said, they're thinking about, you know, the banks in a

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Speaker 6: positive light. If we did have a republican administration of course,

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Speaker 6: a lot of investors are asking me.

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Speaker 3: About the regulatory.

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Speaker 6: Environment, and the thought process here is similar to twenty

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Speaker 6: sixteen in that a change in administration from Democratic to

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Speaker 6: Republican could potentially lead to regulatory easing, particularly now.

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Speaker 3: That we do have a proposal.

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Speaker 6: Out there that everybody is hoping could be at least delayed,

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Speaker 6: if not softened significantly. And so if you have an

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Speaker 6: administration change and you don't have those capital rules finalized yet,

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Speaker 6: there's a lot of hope of not just a significant delay,

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Speaker 6: you know, but also potential for reissuing.

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Speaker 3: You know that that proposal it with much much, much less.

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Speaker 6: Bite, and so that gives excuse me, that gives a

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Speaker 6: market hope that all this capital that the banks are

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Speaker 6: building up will be returned back to shareholders.

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Speaker 8: You know.

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Speaker 6: Additionally, the banks are trading at a forty eight percent

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Speaker 6: relative pe to the broad market.

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Speaker 3: Which I think is part of the current broad appeal.

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Speaker 6: And as a reminder that the quote Trump monk between

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Speaker 6: four four sixty and four seventeen seventy five percent, I

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Speaker 6: think that's part of the thought process. You know, that

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Speaker 6: the bulls are thinking about as they think about, you know,

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Speaker 6: rate cards.

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Speaker 3: And then a potential administration change.

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Speaker 4: That's the big one to watch. The brilliant Erica Nigerian

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Speaker 4: of Ubs Erica.

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Speaker 5: Thank you.

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Speaker 1: Michael Collins brief snow senior portfolio manager DEBT at PGIM.

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Speaker 1: He watched every minute of Prudentials coverage of the Rose

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Speaker 1: Bowl in the Michigan victory there a few days ago.

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Speaker 1: Michael Collins, I'm going to look at the Rose Bowl

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Speaker 1: here at the bond market. How will yield react off

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Speaker 1: the CPI today? If we reaffirm disinflation, We're across the

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Speaker 1: yield curve where we see the biggest adjustment.

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Speaker 8: Yeah, Tom, Jonathan, good morning. I'm a big football fan,

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Speaker 8: but I'm probably more excited about today's CPI print than

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Speaker 8: I am the NFL playoff games this weekend. So, to

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Speaker 8: be honest with you, tells you what a bond geek

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Speaker 8: I am. But I actually think that this inflation is

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Speaker 8: becoming more entrenched, Jonathan and Tom. Notwithstanding you know the

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Speaker 8: big jump in freight charges we've seen as a result

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Speaker 8: of geopolitical risk, but you are seeing more evidence that

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Speaker 8: things like housing are starting to unravel a little bit.

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Speaker 8: I think you're seeing more evidence that the big surge

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Speaker 8: in multi family construction that is still to come online

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Speaker 8: is going to cause rents to come down. So if

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Speaker 8: you have housing at zero, you have goods already at

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Speaker 8: zero or negative territory. Even if services and wages get

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Speaker 8: stuck in the foes. That puts average inflation in the

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Speaker 8: mid twos, right, So I think you're on that trajectory,

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Speaker 8: and I think the FED is ultimately going to have

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Speaker 8: to play cut.

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Speaker 1: So do you monelog? I haven't answered this question in

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Speaker 1: the ages, but you know I agree with you, and

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Speaker 1: more importantly ed your Denny agrees with you on the

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Speaker 1: surprises we may see in how disinflation? What does it

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Speaker 1: do to the two's ten vanilla yield curve? I mean,

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Speaker 1: right now, we've been inverted since time began, and you know,

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Speaker 1: what do we do? How does that react off of

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Speaker 1: today's report?

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Speaker 8: Yeah, I mean the playbook, as you know, Tom, is

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Speaker 8: that the curve, you know, bull steepens the front end

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Speaker 8: rallies more than the rest of the curve. That's I

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Speaker 8: think what's in the cards over the intermediate term, meaning

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Speaker 8: over the next year or two. In the next few months, though,

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Speaker 8: if you're looking to trade this, I mean, it's really

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Speaker 8: tough to be long kind of that, you know, two

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Speaker 8: and three and four year part of the curve, because

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Speaker 8: as you know, there are a lot of rate cuts

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Speaker 8: that are priced in in the near term, starting you know,

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Speaker 8: as early as in two months from now, that may

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Speaker 8: not come to fruition. I mean, the FED is good

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Speaker 8: at waiting and watching and lagging, right. They lagged on

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Speaker 8: the way up, and they are probably going to wait

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Speaker 8: too long and keep rates too high for too long

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Speaker 8: before they cut, and then they're going to have to

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Speaker 8: cut more aggressively. So I think that's really the timing

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Speaker 8: of what's going to happen. But ultimately, in two years

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Speaker 8: from now, I think the curve will resume a more normal,

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Speaker 8: upward sloping shape.

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Speaker 4: Michael, This is a little bit of a subtle shift

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Speaker 4: from you. I have been following you for a long

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Speaker 4: long time. You know that you haven't been super bearish ennything,

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Speaker 4: but you've been constructed on certain parts of credit. I've

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Speaker 4: noticed you've lightened up recently on credit exposure. Michael, Can

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Speaker 4: you tell us just exactly why and what's changed over

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Speaker 4: the last few months. Is it price, is it fundamentals?

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Speaker 5: What is it?

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Speaker 8: You know, it's more price than fundamentals, right, if you

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Speaker 8: look at the fundamentals, I mean, economy is actually doing great.

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Speaker 8: It continues to surprise in terms of its resilience. I mean,

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Speaker 8: it seems like the whole soft landing is happening, right.

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Speaker 8: I mean, if you do have a recession, and we

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Speaker 8: have a twenty five percent recession probability, which is elevated

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Speaker 8: relative to historical averages, but it's not going to be

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Speaker 8: hard landing.

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Speaker 6: Right.

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Speaker 8: The probability of this big, you know, existential credit crisis

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Speaker 8: where the fault spike and you know, consumer consumers the

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Speaker 8: fault and businesses go.

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Speaker 3: Out, is really really low.

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Speaker 8: You just don't have the leverage in the private sector

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Speaker 8: to cause that impetus, right, So I think that bodes

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Speaker 8: well for fundamentals. I mean, but but credit fundamentals are

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Speaker 8: deteriorating on the margin, they're definitely not not improving. But

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Speaker 8: it's really the price, Jonathan. I mean, if you look

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Speaker 8: at what's happened with credit spreads, they snapped in dramatically

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Speaker 8: through the end of last year, along with rates rallying,

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Speaker 8: along with volatility coming down, along with you know, stocks

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Speaker 8: going up, and they're kind of getting to the low

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Speaker 8: end of their historical ranges in an environment where there's

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Speaker 8: still a ton of economic and geopolitical unsergety. So I

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Speaker 8: think it's more, you know, be patient here, take some

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Speaker 8: chips off the table, wait for better opportunities to reload on.

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Speaker 1: C So that is, does that mean clip the coupon

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Speaker 1: as a general statement after a fairly robust twenty twenty.

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Speaker 8: Three, yeah, I think you clipped coup and fixed income,

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Speaker 8: you know, and I think you're still earning attractive yields.

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Speaker 8: I think interest rates across all sectors of fixed income

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Speaker 8: are going to be lower in a couple of years

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Speaker 8: from now than they are today. So I think you

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Speaker 8: clipped a coupon for now. Look for opportunities. If rates

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Speaker 8: back up, you buy them. If credit spreads widen, you

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Speaker 8: buy them. I think that's the world we're in. You

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Speaker 8: have this fed backstop which you haven't had in a

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Speaker 8: long time, with a men's.

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Speaker 1: Respect for pgeum and all the awards you've won for

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Speaker 1: total return. How do you and the team there frame

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Speaker 1: the tobacco of the last three years? Do you frame

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Speaker 1: that someday we'll get back to where the Bloomberg Total

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Speaker 1: Return Index was in bond, that we will see true

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Speaker 1: appreciation or is that a time long gone?

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Speaker 8: Now it's a we're back right to where we were

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Speaker 8: twenty years ago. Tom. You know, we look at you know,

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Speaker 8: beginning yields, and you know the big index everybody in

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Speaker 8: fixed income uses is your Bloomberg Aggregate bond index, which

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Speaker 8: is yielding you know, four point six person and we

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Speaker 8: are trying to beat that, right by by one to

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Speaker 8: two percent. So if you just kind of do that

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Speaker 8: simple math, you're you're looking at you know, mid you know,

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Speaker 8: mid plus single digit type of expected returns in high

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Speaker 8: quality diversified fixed income, you know, over the next five

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Speaker 8: or ten years, right, that's the beginning yield on high

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Speaker 8: quality fixed income is a really good predictor of ultimate returns.

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Speaker 8: So the last ten years is it really has been

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Speaker 8: the lost decade in fixed income. It's been more than

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Speaker 8: more than two or three it's been you know, returns

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Speaker 8: in the in the really low single digits. But that's

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Speaker 8: behind us, right. The forward looking view on fixed income

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Speaker 8: is is much more constructive.

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Speaker 4: Michael Collins, you are one of the absolute best over

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Speaker 4: at PAGEM. I love catching up with you, Mike Collins

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Speaker 4: there of PAGEM. Thanks for being with a sir. The

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Speaker 4: big container shipping giants, the merchant ship Stone are not

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Speaker 4: using the Red st as they were a month of Sawagank.

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Speaker 1: Let's have a delicate conversation on this right now, and

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Speaker 1: it's a conversation of geography and technology. Norman Rule, Senior

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Speaker 1: non Resident Advisor for Transnational Threats Project at CSIS and

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Speaker 1: working for America as a former senior US intelligence official.

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Speaker 1: Norman I got eight ways to go. But when I

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Speaker 1: look through the literature and the zeitgeist, it's not like

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Speaker 1: from Butch Cassidy, who are these guys? It's more where

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Speaker 1: are these guys? Where are the drones coming from? Where

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Speaker 1: are the Huti established geographically? As they attack ships in

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Speaker 1: the Red Sea?

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Speaker 9: Good morning HOOTHI Forces and control is generally in the

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Speaker 9: western portion of Yemen, which focuses on the Red Sea

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Speaker 9: and the Gulf of Aden. There are not only missiles, drones,

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Speaker 9: explosive boats, and mine capabilities. They must be monitored, but

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Speaker 9: the Some of these capabilities are mobile. Missile launchers are mobile.

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Speaker 9: Drone sites can be trucks or or barren fields, so

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Speaker 9: this requires intensive and dynamic intelligence collection. If one is

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Speaker 9: to look at targeting these facilities for military action.

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Speaker 1: Do we do this alone, or do we collect intelligence,

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Speaker 1: particularly with who these great adversaries Saudi Arabia.

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Speaker 9: The nature of US intelligence collection for military operations in

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Speaker 9: this scenario would likely be done by US and British

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Speaker 9: and allied forces who would be involved in any potential

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Speaker 9: kinetic action. The Saudis would not be playing a role

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Speaker 9: in kinetic action, so their involvement would be limited.

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Speaker 1: If any and.

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Speaker 4: Norman, this is causing a massive disruption. I'm just wondering

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Speaker 4: how cheap it is to cause this disruption. How sophisticated

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Speaker 4: is the military arsenal of say, the Houthi rebels, How sophisticated,

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Speaker 4: How cheap is it?

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Speaker 9: The military capabilities of the Huthis are relatively sophisticated in

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Speaker 9: terms of missiles, but this is an older technology. Iran

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Speaker 9: has provided it. Iran has provided the training in Yemen

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Speaker 9: and in Iran itself, and in essence, I think when

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Speaker 9: the military tends to look at these targets, there is

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Speaker 9: the issue of a missile that costs so many thousands

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Speaker 9: of dollars, or drones so many tens of dollars versus

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Speaker 9: a two million dollar anti ballistic missile. But the idea

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Speaker 9: of well, what damage. Could that drone or hoothy missile

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Speaker 9: cause really becomes part of that economic equation.

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Speaker 4: The Norman, US forces and allies the presence in the

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Speaker 4: Red Sea is meant to act as a deterrent.

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Speaker 5: It's not.

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Speaker 4: They're now intercepting missiles. What happens if they fail to

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Speaker 4: intercept one of those missiles? Have we given thought, Norman?

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Speaker 4: I'm sure you have as to what would happen next

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Speaker 4: as a consequence.

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Speaker 9: So I think it is fair to say that the

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Speaker 9: US and partner presence to include the United Kingdom has

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Speaker 9: shaped hoothy behavior and likely deterred some scale of their

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Speaker 9: of their action. This said, if a hoothy missile were

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Speaker 9: to strike, say the ridge of a container ship, and

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Speaker 9: it were to sit in flames in the Gulf, or

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Speaker 9: to strike the bridge of a tanker, or worse yet,

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Speaker 9: to cause significant damage on an oil tanker, that would

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Speaker 9: be dramatic significant, a significant oil leak in the Red

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Speaker 9: Sea which shut down all shipping.

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Speaker 1: I mean, I really, native, questioned Norman. But I've got

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Speaker 1: to go there. So a drone goes up in the

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Speaker 1: air and does a pro like you go, oh, well,

439
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Speaker 1: knock it down? I mean, is it like skeet shooting

440
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Speaker 1: on a Sunday, or you know the clay pigeons up

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Speaker 1: there and you just nail that puppy. Or is it

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Speaker 1: sort of blind luckish that we're knocking down these drones?

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Speaker 1: Which is it?

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Speaker 10: Well, I'm not a pro and I've not been involved

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Speaker 10: in those angles, but it is not blind luck This

446
00:23:45,320 --> 00:23:49,280
Speaker 10: involves precision weaponry and a tremendous amount of training, and

447
00:23:49,480 --> 00:23:52,080
Speaker 10: are nas sent and sent on personnel go through a

448
00:23:52,119 --> 00:23:56,000
Speaker 10: tremendous amount of training for the sort of event throughout

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Speaker 10: the year.

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Speaker 1: So when we bring this forward, and let's take it

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Speaker 1: back to the Secretary of State doing shuttle diplomacy, who

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Speaker 1: does he want to talk to to have a change

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Speaker 1: agent for the hutis? Does does the Secretary need to

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00:24:10,800 --> 00:24:14,639
Speaker 1: go to Tehran and begin a dialogue with people that

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Speaker 1: we don't want to have a dialogue with.

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Speaker 9: Such a dialogue, which would be unadvised and judicious, would

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Speaker 9: have no impact on Iran's behavior, Iron's proxies throughout the

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00:24:26,440 --> 00:24:29,680
Speaker 9: region or following a consistent pattern of aggression against the

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Speaker 9: United States and Israel. The United States does send messages

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00:24:33,840 --> 00:24:36,879
Speaker 9: indirectly to Iran through a variety of partners. People who

461
00:24:36,920 --> 00:24:40,040
Speaker 9: have diplomatic relations with Tehran, but it has no effect

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00:24:40,119 --> 00:24:42,400
Speaker 9: and it's not anticipated to have any impact.

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Speaker 4: Norman. Ultimately, what we're getting out here is what is

464
00:24:44,640 --> 00:24:46,919
Speaker 4: the risk the potential that this war could spread? As

465
00:24:46,960 --> 00:24:48,639
Speaker 4: we know in the last week, and you and I

466
00:24:48,680 --> 00:24:52,560
Speaker 4: talked about it, top Hamas official killed in Lebanon that

467
00:24:52,720 --> 00:24:56,040
Speaker 4: potentially was a source of escalation, it hasn't been so far.

468
00:24:56,119 --> 00:24:58,160
Speaker 4: How do you think that is contained at the moment?

469
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Speaker 4: How contained is the risk of a a conflict?

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Speaker 9: Will there continue to be no strategic drivers for Iran

471
00:25:04,720 --> 00:25:07,879
Speaker 9: or its proxies to engage in a conventional conflict or

472
00:25:08,000 --> 00:25:11,520
Speaker 9: risk a wide range formal conflict because that threatens many

473
00:25:11,560 --> 00:25:15,640
Speaker 9: of their domestic political and economic initiatives. At the same time,

474
00:25:15,920 --> 00:25:19,080
Speaker 9: there are multiple reasons for Iran and its proxies to

475
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Speaker 9: maintain the current level of violence and even escalate that

476
00:25:22,200 --> 00:25:25,159
Speaker 9: level of violence as they've crossed red lines and some

477
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Speaker 9: of the violence is normal.

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Speaker 1: Norman. One final question, and you know, we are thrilled

479
00:25:30,080 --> 00:25:32,800
Speaker 1: to your commitment to surveillance. You've really come on since

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00:25:32,840 --> 00:25:36,320
Speaker 1: day one year and given this perspective, this seems to

481
00:25:36,400 --> 00:25:41,119
Speaker 1: be deteriorating away from the media coverage, the immediacy of

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00:25:41,200 --> 00:25:45,040
Speaker 1: images and Gazi and all. Is that correct in Washington

483
00:25:45,119 --> 00:25:51,040
Speaker 1: among institutions including your CIA. Is this a deteriorating situation?

484
00:25:52,359 --> 00:25:55,280
Speaker 9: I would say it's an evolving situation, and it's evolving

485
00:25:55,520 --> 00:25:59,760
Speaker 9: somewhat predictably. In the absence of deterrent action against you

486
00:26:00,320 --> 00:26:04,080
Speaker 9: and it's proxies, they're continuing to maintain some sort of

487
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Speaker 9: an approach to upset the regional security. Here's your worry.

488
00:26:07,640 --> 00:26:11,479
Speaker 9: If we undertake a two state solution diplomatic effort, do

489
00:26:11,520 --> 00:26:14,160
Speaker 9: we expect Yourn and its proxies to stand by while

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00:26:14,240 --> 00:26:18,119
Speaker 9: Palestinian relations with Israel are normalized. That's unlikely. So I

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Speaker 9: don't see that there's been sufficient diplomatic effort by the

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00:26:21,160 --> 00:26:24,520
Speaker 9: international community to say, how do we constrain Iran and

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Speaker 9: its proxies from upsetting peace in the region.

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Speaker 4: So true, Norman, Thank you, Sir firimput this morning. Norman

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Speaker 4: Rolle that of CSI, a former senior US intelligence official.

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