Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
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Speaker 1: Dana Peterson joins us chief Economist at the Conference Board
Speaker 1: to the heritage of the Conference Board, Dana, is there
Speaker 1: inflation that will affect corporations in this report or what
Speaker 1: your guestimate is for tomorrow's PPI?
Speaker 2: Well, CEOs are already complaining about inflation. They're saying the
Speaker 2: cost of doing businesses higher, from wage increases to higher
Speaker 2: interest rates, all of it's really weighing on CEOs right now.
Speaker 2: So I think some of this probably will feed through
Speaker 2: to the CPI and the PCEE over time.
Speaker 1: We will it do to fed PALAIC. I mean, it's
Speaker 1: unfair question. Mike's only on page six of a forty
Speaker 1: two page report. But Dana Peterson, do you see enough
Speaker 1: of a movement here to adjust the parlor game of
Speaker 1: March and beyond June.
Speaker 2: Well, we think that the FED probably won't start cutting
Speaker 2: rates until around June, and the key thing will be
Speaker 2: the course of inflation. The good news is that core
Speaker 2: inflation is still slowing, but the Fed also cares about
Speaker 2: the headline, and certainly, when we look in the core,
Speaker 2: if home prices are still rising month on month, that
Speaker 2: doesn't bode.
Speaker 3: Well for year on year.
Speaker 2: But the good news is that we are seeing some
Speaker 2: cooling and wage inflation overall. And when you look at
Speaker 2: home prices, or at least the existing home prices year
Speaker 2: on year, they're slowing and that's showing up certainly in
Speaker 2: the rental components of both the CPI and the PCE.
Speaker 4: Danny, can we get a little bit more detail there
Speaker 4: and just how high or low is the bar do
Speaker 4: you think to reduce interest rates Feder reserve? And is
Speaker 4: it because you think it takes longer to get to
Speaker 4: that bar or ultimately it's a bit higher than this
Speaker 4: market thinks it is.
Speaker 2: Well, I think the bar really is inflation, but it's
Speaker 2: also going to be the labor market. Does a labor
Speaker 2: market continue to cool if you take away government leisure
Speaker 2: and hospitality and healthcare, you see no gains in employment.
Speaker 2: So once those three industries run out of steam, what
Speaker 2: do you have? And also the economy in general, does
Speaker 2: the consumer stop spending and really slow? So I think
Speaker 2: if the economy slows a lot, labor market continues to slow,
Speaker 2: inflation is headed back to the two percent target. The
Speaker 2: federal feel comfortable with cutting interest rates, but it may
Speaker 2: not be in March. It maybe a little bit later
Speaker 2: this year again, around mid year.
Speaker 4: Is that one we'd expect to sit in jobless claims
Speaker 4: as well, because Danna, it's not just about CPI. This
Speaker 4: morning we've got jobless claims at two oh two, two
Speaker 4: hundred and two thousand. It's just absolutely incredible. What would
Speaker 4: you expect to see that start to inflect higher?
Speaker 1: Sure?
Speaker 2: Well, the reason why initial jobs claims are so low
Speaker 2: is that our own data say that CEOs of large
Speaker 2: companies are not looking to let people go. They're hoarding workers,
Speaker 2: holding on to people. But certainly when people are let go,
Speaker 2: it's taking them longer to find a job. So continuing
Speaker 2: claims are ticking up a little, and we do think
Speaker 2: that's going to show up more so in the unemployment rate.
Speaker 1: Are you modeling out a wage growth that sustains above inflation,
Speaker 1: and so America sees a legitimate real wage growth.
Speaker 2: Well, it is possible that wages will remain above two percent. Certainly,
Speaker 2: when we look at the gains over the last few years, yes,
Speaker 2: they were really outsized. We are seeing slowing, but you
Speaker 2: do have some industries that wages are rising, certainly in construction,
Speaker 2: in particular non residential construction, where there's a lot of
Speaker 2: impetus to build infrastructure and factories at home due to
Speaker 2: industrial policies, So you could see wages settle out at
Speaker 2: a rate that's above two percent.
Speaker 1: I looked dan at the inflation data, and I want
Speaker 1: to go back to it. You know this, John, this
Speaker 1: used to be religion. Thirty even forty years ago. PPI
Speaker 1: was just as important as CPI. That all went away.
Speaker 1: But in tomorrow's PPI report, I know it's re Jegra
Speaker 1: McKee's explained it to me three times. I flunked the quiz,
Speaker 1: the McKee quiz three times. Data final business inflation. Is
Speaker 1: it legitimate? Sure?
Speaker 2: It is absolutely. It's everything that businesses are looking at,
Speaker 2: and certainly that includes transportation costs and which are a
Speaker 2: big thing, and also services which are quite material. So
Speaker 2: even though the PPI is different now than it was,
Speaker 2: you know, ten years ago, it's still very relevant.
Speaker 1: This ties John directly into what Linda Dissel said it federated.
Speaker 1: It's about margins. If you've got that inflation impute down
Speaker 1: the income statement. What does do not forget about Apple
Speaker 1: and all that it a real American a company. I mean,
Speaker 1: what's it mean for my church and Dwight They make toothpaste?
Speaker 5: I suppose not a real American accountany it was not.
Speaker 1: A real American company. It's a luxury stock thing. But
Speaker 1: to the rest of America out there making four percent
Speaker 1: revenue growth, I'm sorry, margin erosion could be tangible.
Speaker 5: Daniel, This was brilliant.
Speaker 4: Thanks for your time to break this down with a
Speaker 4: standard pedis and there of the conference board. Erica Ajerian
Speaker 4: of UBS warning quote. Given the fourth quarter rally in
Speaker 4: the BKX and a sharp turning sentiment heading into this year,
Speaker 4: we think jender earning season may present a speed bump
Speaker 4: to the sector's recent momentum. Erica on pleace to say,
Speaker 4: joined us right now, Erica, great to catch up with you.
Speaker 4: Let's go straight to it. What is it about this earnings,
Speaker 4: this group of earnings that you think might be that
Speaker 4: speed bump.
Speaker 6: I think it's really, to use James term, rude awakening
Speaker 6: for earnings. So it's not necessarily about the abs price level,
Speaker 6: and it's not necessarily about the absolute multiple on earnings,
Speaker 6: but it's that earnings aren't going to go up. You know,
Speaker 6: as a reminder to everybody, what happened in the rally
Speaker 6: is we've priced out a negative and that negative was
Speaker 6: the unrealized bond losses on bond portfolios. As treasury yields
Speaker 6: we're shooting higher, and so now we've removed that negative.
Speaker 3: But keep in mind.
Speaker 6: That banks are actually positively rate sensitive. What that means
Speaker 6: to what's that means Jonathan, is that you know, if
Speaker 6: the FED is cut in rates, then you actually will
Speaker 6: have pressure on net interest income, especially in the front
Speaker 6: half half of the cuts.
Speaker 1: Eric, I'm looking at your coverage of the big banks,
Speaker 1: and I want to ask you about bank you don't cover,
Speaker 1: which I know is out of bounds, but I think
Speaker 1: it's really germane right now. Do you perceive the divide
Speaker 1: between twenty or thirty big banks and everybody else out
Speaker 1: there and the concern that the smaller banks of America
Speaker 1: are not in rude good health.
Speaker 7: They may not be as strong as the top twenty banks,
Speaker 7: but I think if the forward curve pans out, they
Speaker 7: will get a lot of relief in two ways.
Speaker 3: One, they'll get relief.
Speaker 6: In deposit costs, and I think what you have seen
Speaker 6: in twenty twenty three is a nice run up in
Speaker 6: deposit costs as the Fed Titan, and so they'll get
Speaker 6: relief on the funding side. The other piece of relief
Speaker 6: that those smaller banks will get is.
Speaker 3: On commercial real estate.
Speaker 6: So commercial real estate is more widely held at those
Speaker 6: smaller banks than they are those larger banks that you mentioned, Tom,
Speaker 6: and as such, you know, if interest rates are coming down,
Speaker 6: that could actually narrow the subset of potential problems as
Speaker 6: we deal with commercial real estate maturities ahead.
Speaker 1: And so to translate this to the rescue will be
Speaker 1: a lower money market yield where billions flows out of
Speaker 1: money market funds back to a more normal banking economy.
Speaker 1: Is that right correct?
Speaker 3: So I love that you hit on that.
Speaker 6: Not only will you get relief and deposit costs, but
Speaker 6: you also get that deposit flow back, so you're no
Speaker 6: longer having to as an alternative, you know, either you know,
Speaker 6: borrow wholesale at you know, pretty much fed funds, or
Speaker 6: really ratchet up what you're offering your deposit customers.
Speaker 4: Rika, what is your tel pic right now? Got into
Speaker 4: NX season. I know you think it might be a
Speaker 4: difficult moment, a difficult rocky patch, But ultimately what is
Speaker 4: the top pick?
Speaker 6: So in a difficult moment, in a rocky patch, who
Speaker 6: does the market turn to?
Speaker 3: JP? Morgan?
Speaker 6: So, as I think about the expectations that are now
Speaker 6: into the market, and as I think about the enthusiasm about,
Speaker 6: you know, having these cuts without a recession, the bank
Speaker 6: that can deliver on earnings, the bank where we're most
Speaker 6: confident those earnings expectations can be delivered is JP Morgan.
Speaker 1: JP Morgan's out. What's it up? It's like Nvidia, It's
Speaker 1: like the video.
Speaker 5: Questions relatively speaking, competitive reason.
Speaker 1: You're telling me that after massive double digit return here
Speaker 1: complete out performance, that vector just keeps on going. Erica
Speaker 1: for mister Diamond.
Speaker 3: I think so.
Speaker 6: So a couple of other data points, so from the
Speaker 6: October bottom and the b k X, JP Morgan has
Speaker 6: actually underperformed by eight percentage points. And remember what I
Speaker 6: said at the top of this segment. I said, it's
Speaker 6: not really about the you know, absolute price, It's not
Speaker 6: about the pe, it's about the E. I think that
Speaker 6: the you know, involvement in the space today is in
Speaker 6: hedge funds and.
Speaker 3: In macro funds.
Speaker 6: You know, how long onlies will actually step in and
Speaker 6: move their weight in banks is they feel more confident
Speaker 6: that the E is not just bottom but there is
Speaker 6: good news, upside potential to the E. And again, just
Speaker 6: going back to JP Morgan, I think they're just in
Speaker 6: best position to deliver that, you know, and so their
Speaker 6: performance can absolutely continue from here.
Speaker 1: Do we see mergers this year? I've been waiting twenty
Speaker 1: five years for the roll up here, not to get
Speaker 1: to where Canada is. But you know, we got what's
Speaker 1: the number, four thousand banks? Five thousand banks? How do
Speaker 1: we cut that in half? This is the year that happens.
Speaker 6: I don't think so, because it's an election year. So
Speaker 6: there is there's a little bit of a mentality here,
Speaker 6: the seller's mentality that oh wow, I got the bomb
Speaker 6: losses back in my capital as raids have come down,
Speaker 6: and now they're thinking about what the forward curve is
Speaker 6: implying and saying, Okay, my book value recovery is going
Speaker 6: to be x x higher at the end of the year,
Speaker 6: and so I want a multiple off of that. Meanwhile,
Speaker 6: the buyers are like, absolutely not. And the other part
Speaker 6: of that, and since I mentioned the election, is that
Speaker 6: you know, there has been a lot of consternation about
Speaker 6: the length of time between announcement and close.
Speaker 3: US Bank Corp.
Speaker 6: Will tell you about that consternation. And so I think
Speaker 6: that you know, smart buyers may wait until we get
Speaker 6: more clarity on leadership before they think about waiting into
Speaker 6: m and A.
Speaker 5: Went a weigh in on the politics.
Speaker 4: If you can, you alluded to it that it's twenty
Speaker 4: twenty four, it's election season. A client's asking about the
Speaker 4: regulatory backdrop going into next year off the back of
Speaker 4: who may or may not win the election this year.
Speaker 4: Is it still too early or is that something that
Speaker 4: considering already.
Speaker 6: So it's something that they're saying it's too early to
Speaker 6: price in given the many variables.
Speaker 3: That could happen between now and November. You know that being.
Speaker 6: Said, they're thinking about, you know, the banks in a
Speaker 6: positive light. If we did have a republican administration of course,
Speaker 6: a lot of investors are asking me.
Speaker 3: About the regulatory.
Speaker 6: Environment, and the thought process here is similar to twenty
Speaker 6: sixteen in that a change in administration from Democratic to
Speaker 6: Republican could potentially lead to regulatory easing, particularly now.
Speaker 3: That we do have a proposal.
Speaker 6: Out there that everybody is hoping could be at least delayed,
Speaker 6: if not softened significantly. And so if you have an
Speaker 6: administration change and you don't have those capital rules finalized yet,
Speaker 6: there's a lot of hope of not just a significant delay,
Speaker 6: you know, but also potential for reissuing.
Speaker 3: You know that that proposal it with much much, much less.
Speaker 6: Bite, and so that gives excuse me, that gives a
Speaker 6: market hope that all this capital that the banks are
Speaker 6: building up will be returned back to shareholders.
Speaker 8: You know.
Speaker 6: Additionally, the banks are trading at a forty eight percent
Speaker 6: relative pe to the broad market.
Speaker 3: Which I think is part of the current broad appeal.
Speaker 6: And as a reminder that the quote Trump monk between
Speaker 6: four four sixty and four seventeen seventy five percent, I
Speaker 6: think that's part of the thought process. You know, that
Speaker 6: the bulls are thinking about as they think about, you know,
Speaker 6: rate cards.
Speaker 3: And then a potential administration change.
Speaker 4: That's the big one to watch. The brilliant Erica Nigerian
Speaker 4: of Ubs Erica.
Speaker 5: Thank you.
Speaker 1: Michael Collins brief snow senior portfolio manager DEBT at PGIM.
Speaker 1: He watched every minute of Prudentials coverage of the Rose
Speaker 1: Bowl in the Michigan victory there a few days ago.
Speaker 1: Michael Collins, I'm going to look at the Rose Bowl
Speaker 1: here at the bond market. How will yield react off
Speaker 1: the CPI today? If we reaffirm disinflation, We're across the
Speaker 1: yield curve where we see the biggest adjustment.
Speaker 8: Yeah, Tom, Jonathan, good morning. I'm a big football fan,
Speaker 8: but I'm probably more excited about today's CPI print than
Speaker 8: I am the NFL playoff games this weekend. So, to
Speaker 8: be honest with you, tells you what a bond geek
Speaker 8: I am. But I actually think that this inflation is
Speaker 8: becoming more entrenched, Jonathan and Tom. Notwithstanding you know the
Speaker 8: big jump in freight charges we've seen as a result
Speaker 8: of geopolitical risk, but you are seeing more evidence that
Speaker 8: things like housing are starting to unravel a little bit.
Speaker 8: I think you're seeing more evidence that the big surge
Speaker 8: in multi family construction that is still to come online
Speaker 8: is going to cause rents to come down. So if
Speaker 8: you have housing at zero, you have goods already at
Speaker 8: zero or negative territory. Even if services and wages get
Speaker 8: stuck in the foes. That puts average inflation in the
Speaker 8: mid twos, right, So I think you're on that trajectory,
Speaker 8: and I think the FED is ultimately going to have
Speaker 8: to play cut.
Speaker 1: So do you monelog? I haven't answered this question in
Speaker 1: the ages, but you know I agree with you, and
Speaker 1: more importantly ed your Denny agrees with you on the
Speaker 1: surprises we may see in how disinflation? What does it
Speaker 1: do to the two's ten vanilla yield curve? I mean,
Speaker 1: right now, we've been inverted since time began, and you know,
Speaker 1: what do we do? How does that react off of
Speaker 1: today's report?
Speaker 8: Yeah, I mean the playbook, as you know, Tom, is
Speaker 8: that the curve, you know, bull steepens the front end
Speaker 8: rallies more than the rest of the curve. That's I
Speaker 8: think what's in the cards over the intermediate term, meaning
Speaker 8: over the next year or two. In the next few months, though,
Speaker 8: if you're looking to trade this, I mean, it's really
Speaker 8: tough to be long kind of that, you know, two
Speaker 8: and three and four year part of the curve, because
Speaker 8: as you know, there are a lot of rate cuts
Speaker 8: that are priced in in the near term, starting you know,
Speaker 8: as early as in two months from now, that may
Speaker 8: not come to fruition. I mean, the FED is good
Speaker 8: at waiting and watching and lagging, right. They lagged on
Speaker 8: the way up, and they are probably going to wait
Speaker 8: too long and keep rates too high for too long
Speaker 8: before they cut, and then they're going to have to
Speaker 8: cut more aggressively. So I think that's really the timing
Speaker 8: of what's going to happen. But ultimately, in two years
Speaker 8: from now, I think the curve will resume a more normal,
Speaker 8: upward sloping shape.
Speaker 4: Michael, This is a little bit of a subtle shift
Speaker 4: from you. I have been following you for a long
Speaker 4: long time. You know that you haven't been super bearish ennything,
Speaker 4: but you've been constructed on certain parts of credit. I've
Speaker 4: noticed you've lightened up recently on credit exposure. Michael, Can
Speaker 4: you tell us just exactly why and what's changed over
Speaker 4: the last few months. Is it price, is it fundamentals?
Speaker 5: What is it?
Speaker 8: You know, it's more price than fundamentals, right, if you
Speaker 8: look at the fundamentals, I mean, economy is actually doing great.
Speaker 8: It continues to surprise in terms of its resilience. I mean,
Speaker 8: it seems like the whole soft landing is happening, right.
Speaker 8: I mean, if you do have a recession, and we
Speaker 8: have a twenty five percent recession probability, which is elevated
Speaker 8: relative to historical averages, but it's not going to be
Speaker 8: hard landing.
Speaker 6: Right.
Speaker 8: The probability of this big, you know, existential credit crisis
Speaker 8: where the fault spike and you know, consumer consumers the
Speaker 8: fault and businesses go.
Speaker 3: Out, is really really low.
Speaker 8: You just don't have the leverage in the private sector
Speaker 8: to cause that impetus, right, So I think that bodes
Speaker 8: well for fundamentals. I mean, but but credit fundamentals are
Speaker 8: deteriorating on the margin, they're definitely not not improving. But
Speaker 8: it's really the price, Jonathan. I mean, if you look
Speaker 8: at what's happened with credit spreads, they snapped in dramatically
Speaker 8: through the end of last year, along with rates rallying,
Speaker 8: along with volatility coming down, along with you know, stocks
Speaker 8: going up, and they're kind of getting to the low
Speaker 8: end of their historical ranges in an environment where there's
Speaker 8: still a ton of economic and geopolitical unsergety. So I
Speaker 8: think it's more, you know, be patient here, take some
Speaker 8: chips off the table, wait for better opportunities to reload on.
Speaker 1: C So that is, does that mean clip the coupon
Speaker 1: as a general statement after a fairly robust twenty twenty.
Speaker 8: Three, yeah, I think you clipped coup and fixed income,
Speaker 8: you know, and I think you're still earning attractive yields.
Speaker 8: I think interest rates across all sectors of fixed income
Speaker 8: are going to be lower in a couple of years
Speaker 8: from now than they are today. So I think you
Speaker 8: clipped a coupon for now. Look for opportunities. If rates
Speaker 8: back up, you buy them. If credit spreads widen, you
Speaker 8: buy them. I think that's the world we're in. You
Speaker 8: have this fed backstop which you haven't had in a
Speaker 8: long time, with a men's.
Speaker 1: Respect for pgeum and all the awards you've won for
Speaker 1: total return. How do you and the team there frame
Speaker 1: the tobacco of the last three years? Do you frame
Speaker 1: that someday we'll get back to where the Bloomberg Total
Speaker 1: Return Index was in bond, that we will see true
Speaker 1: appreciation or is that a time long gone?
Speaker 8: Now it's a we're back right to where we were
Speaker 8: twenty years ago. Tom. You know, we look at you know,
Speaker 8: beginning yields, and you know the big index everybody in
Speaker 8: fixed income uses is your Bloomberg Aggregate bond index, which
Speaker 8: is yielding you know, four point six person and we
Speaker 8: are trying to beat that, right by by one to
Speaker 8: two percent. So if you just kind of do that
Speaker 8: simple math, you're you're looking at you know, mid you know,
Speaker 8: mid plus single digit type of expected returns in high
Speaker 8: quality diversified fixed income, you know, over the next five
Speaker 8: or ten years, right, that's the beginning yield on high
Speaker 8: quality fixed income is a really good predictor of ultimate returns.
Speaker 8: So the last ten years is it really has been
Speaker 8: the lost decade in fixed income. It's been more than
Speaker 8: more than two or three it's been you know, returns
Speaker 8: in the in the really low single digits. But that's
Speaker 8: behind us, right. The forward looking view on fixed income
Speaker 8: is is much more constructive.
Speaker 4: Michael Collins, you are one of the absolute best over
Speaker 4: at PAGEM. I love catching up with you, Mike Collins
Speaker 4: there of PAGEM. Thanks for being with a sir. The
Speaker 4: big container shipping giants, the merchant ship Stone are not
Speaker 4: using the Red st as they were a month of Sawagank.
Speaker 1: Let's have a delicate conversation on this right now, and
Speaker 1: it's a conversation of geography and technology. Norman Rule, Senior
Speaker 1: non Resident Advisor for Transnational Threats Project at CSIS and
Speaker 1: working for America as a former senior US intelligence official.
Speaker 1: Norman I got eight ways to go. But when I
Speaker 1: look through the literature and the zeitgeist, it's not like
Speaker 1: from Butch Cassidy, who are these guys? It's more where
Speaker 1: are these guys? Where are the drones coming from? Where
Speaker 1: are the Huti established geographically? As they attack ships in
Speaker 1: the Red Sea?
Speaker 9: Good morning HOOTHI Forces and control is generally in the
Speaker 9: western portion of Yemen, which focuses on the Red Sea
Speaker 9: and the Gulf of Aden. There are not only missiles, drones,
Speaker 9: explosive boats, and mine capabilities. They must be monitored, but
Speaker 9: the Some of these capabilities are mobile. Missile launchers are mobile.
Speaker 9: Drone sites can be trucks or or barren fields, so
Speaker 9: this requires intensive and dynamic intelligence collection. If one is
Speaker 9: to look at targeting these facilities for military action.
Speaker 1: Do we do this alone, or do we collect intelligence,
Speaker 1: particularly with who these great adversaries Saudi Arabia.
Speaker 9: The nature of US intelligence collection for military operations in
Speaker 9: this scenario would likely be done by US and British
Speaker 9: and allied forces who would be involved in any potential
Speaker 9: kinetic action. The Saudis would not be playing a role
Speaker 9: in kinetic action, so their involvement would be limited.
Speaker 1: If any and.
Speaker 4: Norman, this is causing a massive disruption. I'm just wondering
Speaker 4: how cheap it is to cause this disruption. How sophisticated
Speaker 4: is the military arsenal of say, the Houthi rebels, How sophisticated,
Speaker 4: How cheap is it?
Speaker 9: The military capabilities of the Huthis are relatively sophisticated in
Speaker 9: terms of missiles, but this is an older technology. Iran
Speaker 9: has provided it. Iran has provided the training in Yemen
Speaker 9: and in Iran itself, and in essence, I think when
Speaker 9: the military tends to look at these targets, there is
Speaker 9: the issue of a missile that costs so many thousands
Speaker 9: of dollars, or drones so many tens of dollars versus
Speaker 9: a two million dollar anti ballistic missile. But the idea
Speaker 9: of well, what damage. Could that drone or hoothy missile
Speaker 9: cause really becomes part of that economic equation.
Speaker 4: The Norman, US forces and allies the presence in the
Speaker 4: Red Sea is meant to act as a deterrent.
Speaker 5: It's not.
Speaker 4: They're now intercepting missiles. What happens if they fail to
Speaker 4: intercept one of those missiles? Have we given thought, Norman?
Speaker 4: I'm sure you have as to what would happen next
Speaker 4: as a consequence.
Speaker 9: So I think it is fair to say that the
Speaker 9: US and partner presence to include the United Kingdom has
Speaker 9: shaped hoothy behavior and likely deterred some scale of their
Speaker 9: of their action. This said, if a hoothy missile were
Speaker 9: to strike, say the ridge of a container ship, and
Speaker 9: it were to sit in flames in the Gulf, or
Speaker 9: to strike the bridge of a tanker, or worse yet,
Speaker 9: to cause significant damage on an oil tanker, that would
Speaker 9: be dramatic significant, a significant oil leak in the Red
Speaker 9: Sea which shut down all shipping.
Speaker 1: I mean, I really, native, questioned Norman. But I've got
Speaker 1: to go there. So a drone goes up in the
Speaker 1: air and does a pro like you go, oh, well,
Speaker 1: knock it down? I mean, is it like skeet shooting
Speaker 1: on a Sunday, or you know the clay pigeons up
Speaker 1: there and you just nail that puppy. Or is it
Speaker 1: sort of blind luckish that we're knocking down these drones?
Speaker 1: Which is it?
Speaker 10: Well, I'm not a pro and I've not been involved
Speaker 10: in those angles, but it is not blind luck This
Speaker 10: involves precision weaponry and a tremendous amount of training, and
Speaker 10: are nas sent and sent on personnel go through a
Speaker 10: tremendous amount of training for the sort of event throughout
Speaker 10: the year.
Speaker 1: So when we bring this forward, and let's take it
Speaker 1: back to the Secretary of State doing shuttle diplomacy, who
Speaker 1: does he want to talk to to have a change
Speaker 1: agent for the hutis? Does does the Secretary need to
Speaker 1: go to Tehran and begin a dialogue with people that
Speaker 1: we don't want to have a dialogue with.
Speaker 9: Such a dialogue, which would be unadvised and judicious, would
Speaker 9: have no impact on Iran's behavior, Iron's proxies throughout the
Speaker 9: region or following a consistent pattern of aggression against the
Speaker 9: United States and Israel. The United States does send messages
Speaker 9: indirectly to Iran through a variety of partners. People who
Speaker 9: have diplomatic relations with Tehran, but it has no effect
Speaker 9: and it's not anticipated to have any impact.
Speaker 4: Norman. Ultimately, what we're getting out here is what is
Speaker 4: the risk the potential that this war could spread? As
Speaker 4: we know in the last week, and you and I
Speaker 4: talked about it, top Hamas official killed in Lebanon that
Speaker 4: potentially was a source of escalation, it hasn't been so far.
Speaker 4: How do you think that is contained at the moment?
Speaker 4: How contained is the risk of a a conflict?
Speaker 9: Will there continue to be no strategic drivers for Iran
Speaker 9: or its proxies to engage in a conventional conflict or
Speaker 9: risk a wide range formal conflict because that threatens many
Speaker 9: of their domestic political and economic initiatives. At the same time,
Speaker 9: there are multiple reasons for Iran and its proxies to
Speaker 9: maintain the current level of violence and even escalate that
Speaker 9: level of violence as they've crossed red lines and some
Speaker 9: of the violence is normal.
Speaker 1: Norman. One final question, and you know, we are thrilled
Speaker 1: to your commitment to surveillance. You've really come on since
Speaker 1: day one year and given this perspective, this seems to
Speaker 1: be deteriorating away from the media coverage, the immediacy of
Speaker 1: images and Gazi and all. Is that correct in Washington
Speaker 1: among institutions including your CIA. Is this a deteriorating situation?
Speaker 9: I would say it's an evolving situation, and it's evolving
Speaker 9: somewhat predictably. In the absence of deterrent action against you
Speaker 9: and it's proxies, they're continuing to maintain some sort of
Speaker 9: an approach to upset the regional security. Here's your worry.
Speaker 9: If we undertake a two state solution diplomatic effort, do
Speaker 9: we expect Yourn and its proxies to stand by while
Speaker 9: Palestinian relations with Israel are normalized. That's unlikely. So I
Speaker 9: don't see that there's been sufficient diplomatic effort by the
Speaker 9: international community to say, how do we constrain Iran and
Speaker 9: its proxies from upsetting peace in the region.
Speaker 4: So true, Norman, Thank you, Sir firimput this morning. Norman
Speaker 4: Rolle that of CSI, a former senior US intelligence official.
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