US and Iran Trade Blows in the Middle East

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Well Iron fired missiles at a US air base, and Cutter after promising it would respond proportionately and decisively to President Trump's weekend air strikes on three of its nuclear facilities. Cutter said the barrage at Aluded Base, the biggest such US facility in the Middle East, was intercepted, and that there were no casualties.

Carol.

For a look at US national security in the US's role in global security, We're going to bring in Nick Wadams, Bloomberg News National Security Team leader. He joins us from our Washington DCA.

Hey, Nick, good to have you here. I know it's been a busy week and a busy day. We're trying to understand a little bit what feels like military choreography, maybe on the part of the US and on the part of Iran. Right, missile strike on Cutter was telegraphed and had been expected by the US and its allies, according to a person familiar. And it's also you know, you've got President Trump. He was telegraphing it's going to be within two weeks. And so did that give Iran

Right?

I mean, so choreography is a really good word here. There is a sort of delicate dance going on. After the President telegraphed his plans well in advance and then sort of tried to gauge what the potential reaction would be. US carried out those strikes, and then afterwards had a bunch of US officials go on TV and say, hey, listen, this was a limited strike. It was aimed at the

Right.

That's a really good point. I mean, they did say proportionately and decisively, this doesn't seem proportional to attacks on three of its nuclear facilities. I think it doesn't take a nuclear scientist to make that conclearsion. Nick, You know, I was thinking about this over the weekend. Other presidents have had the opportunity to strike Iran's nuclear targets. Did they avoid it because of fears of retaliation?

Yeah?

I mean I think there were a lot of questions there. The reasons why they avoided it. I mean, it was seen as too risky potentially in terms of retaliation by Iran. The other question is a matter of efficacy, and one thing we don't know about these strikes how much they actually obliterated the Iranian nuclear program, as President Trump claimed. So there is a potential unintended consequence which as you drive Iran's nuclear program deeper underground, both figuratively and literally.

So the question is is.

This something Trump can just do and then get out or does this lead to a whole new conflict the likes of which we just can't imagine right now.

Well, Nick, on a global security basis, I mean, what are the implications and kind of optics of the US actually getting involved, right. You know, that's one thing that they're behind the scenes and helping out and supporting, But they're involved.

Right, and you know they're the first order consequences the issue of what the potential Iranian retaliation might be in the future, what this actually does to Iron's nuclear program. But then you have the other element, which is the United States just attacked a sovereign country even though the US intelligence community assessed that there was no imminent threat to the US. So you could call this deterrence or

All right, good to check in with you, Like I said, I know you guys all there in DC are super busy. Nick Wadams, Bloomberg News National Security Team leader, joining us from our Washington d C burea.

Nick, Thank you.

Okay, So look at how US government is thinking about potential retaliation from Iran. For more on how Iran navigates after the US bombings over the weekend, we turned to Arial Cohen, non resident Senior Fellow at the Atlantic Council's Eurasia Center, also a member of the Council of Foreign Relations. He joins us from Washington d C. Doctor Cohen, good

I believe that in a short range missile such as the missiles that they fired against US based and Kutar potentially US based in Iraq.

And Syria, we may see more attacks.

The main news here is that Iran went through sort of kind of performative retaliation.

This was not mother of old.

Retaliations because a they signaled and b they use the systems that were intercepted, and they knew that US and Cutter could intercept their missiles. So what does it tell me? Tell me that they did not throw the caution out of the window. They probably had intervention from China because

If they try to block the Strait of Horrormus, they.

Would need to do it in the Omani waters, that's where the passage is, so they would be in conflict with all of the Golf Corporation Council, which is Arab of course and Sunni. And then you could couch this conflict in the in terms of Arab versus Iranian, Sunni versus.

They did not want to do it.

They're not there yet in terms of are they going to do more retaliations. It really depends on the balance of power in Tehran. We see reports that Ayatola is in hiding and nowhere to be found. That Ayatola has to sign everything, so I do believe that once the elite in Tehran digests the severity of the blows both Israeli and American, there will be massive changes in the regime.

My sources are saying more than sixty percent.

Chances that the Ayatollah will not stay here by the end of this year.

Regime change, wow, okay, better.

Internal internal, not US imposed, not Israeli posed.

But things will shift.

And we know for years that i RGC, the Islamic Revolutionary Guard a corn the.

Fifth of the regime, is not happy with the rule of the clerics. They want to run the show. They want to control all the goodies.

They are aware that the Iranian economy was run into the ground by the clerics and the Iran is very isolated. And as usual, they're different wings. They're more anti Western wing, more radical wing, and more pragmatic wing.

I have a couple questions. First of all, regime change.

Will be for the better or we don't know, like who is in the wings waiting to take over.

Let's let's go down the list.

I mentioned IRGC, and I mentioned that there's a split within IRGC.

This is the military wing of the Islamic regime.

In addition, there's a regular army, which is less idea, less ideological, less politicized. They are a separate body. Some of these officers were officers back in the day, even under the shop. Now of course that generation is gone. Then they're liberals or technocratics in the regime. Then they're the monarchists. The crown Prince of Iran, Reza lives about.

What five miles from where I live in Potomac, Maryland.

Yeah, And then they're the Mujahiden, the Marxist wing that was fighting desperately with this regime.

These are atheists and.

Once violent. Some people call them terrorists. That's another far left which so you see the spectrum and what the islamister are doing. Them are monopolizing power. They're not transitioning that pretty sophisticated modern society into some semblance of a democratic machine that could balance the interest of different groups.

So, doctor Coni dosick, if we do see a regime change, or largely a regime change, is it better is such a poor word, But is it better on the other side, for the people of Iran, for Iron's role in the region, and maybe even you know, globally.

Look, this is a highly opaque situation, very difficult to predict. I would say that if the system opens up, if the system avoids a civil war, which is a possibility also not necessarily a high possibility, but a possibility, if the system brings more participation from the society.

Imagine they have the urban.

Dweller, the city society that is educated, a lot of people whose college education. A lot of people are looking towards the West, not towards China, not towards Russia to model their society, and they're aware that women fifty percent of the population are abused and severely.

Oppressed by that regime.

We saw nine hundred plus nine hundred and eighty two people I believe in twenty twenty four killed. We see torture, we see execution of gays, we see all kinds of brutal, barbaric behavior that a lot of city dwellers, educated Iranians are totally rejecting. There's a lot of sympathy towards the West,

That is fascinating to hear before even the possibility of talking about a different regime in Tehran. I think there are some questions now that Americans in the US military and the President wants the answers to, For example, where is the enriched uranium now? If it left fourdoh? Do we have any idea?

Absolutely, we don't know if it left fourdo. But I can tell you one thing.

That uranium is enriched to sixty percent, which is twenty times more.

Enriched than what they need for the.

Civilian nuclear reactor for electric power generation. That was a step before enriching to eighty ninety percent for the bomb. They have enough uranium, according to open sources, to eight or nine bombs. They could have taken that uranium at sixty percent as they have it currently, package it into regular explosion with regular explosives, containerize it and blow it up in Israel, in the United States, in Europe, you name it.

So it's a clear and present danger.

And I disagree with the intelligent community assessment and with the gentleman who spoke before me, your security desk chief, because no country builds a ballistic missile arsenal with long range missiles that could reach Europe and are reaching Israel, and all you need to do is add one more stage to that missile to make it an ICBM.

And Iran already is building.

That capacity because they're putting satellites in space. So with sixty percent enrichment, that a step just before putting it in a warhead. And they can get the warhead technology from North Korea, Russia, from China, from Pakistan. So they are at a threshold country. And what the United States and President Trump did was absolutely correct for the interest of the United States.

We do not forget that.

Since ninety seventy nine, for forty six years, every Friday, these people are chanting death to America, death to Israel, and they killed over a thousand Americans, the tortured American officers, military officers, the killed American servicemen in the Cobar towers, et cetera.

They are a hostile power and they what.

Trump is trying to do is to put them down a peg and possibly consumed doctor Villain Freeman.

In your view, did the US go far enough with the bombing campaign on Saturday evening into the early hours of Sunday, or does the US need to do more.

I think we went as far as we could.

We used cutting edge technology, the heavy bunk bunker buster bombs, and we need to do a damage assessment. Once we have a damage assessment and it will be classified, I won't know it then Trump, he said, Chief of Joint Chiefs. The Head of Joint Chiefs will reassess it with the National Security Council, with the intelligence community, reassess it and decide.

But I think President Trump is trying to de escalate now.

And I think what this attack is telling me that the Iranians are playing ball. They want to walk away from this situation because they realize they're kind of crazy.

But they're not, you know, they're not stupid.

They're trying to They're realizing that more bombing campaign, both from Israel and from the United States may signal the end of that regime.

AH many more questions I'd love to ask you. Can I just ask you thirty seconds? Does China, being somewhat a lot allied with Ron, complicate things.

Very quickly if you could?

Like twenty five.

Has a four hundred billion dollar investment agreement.

I think it's twenty five.

Years stretch, and they are buying a lot of Iranian.

Oil, and they're doing a lot of other.

Things the Chinese do infrastructure, roads, airports, etc. The Chinese do not want that agreement to be destroyed. And I would recommend to anybody who is engaged in Iran tell the Chinese, don't worry, your investment is safe. Same thing as we should have done with the Russians in Iraq.

I advocated that back in.

Two thousand and three, and the Bush administration did not listen and we turned Russia against US.

Now the Russians are being very cautious.

The Russians had that defense agreement with Iran, but it did not include mutual defense, mutual military activity. And the Chinese, again it's very opaque. We do not know what they're supplying. Possibly some miss cell technology too. Iran came from China, we don't know.

That for sure.

But the Chinese are very very cautious because they don't have the power projection capability in the Gulf like the United States.

Very interesting, Thank you so much, so appreciate your time today. Eryl Cohen, non resident Senior Fellow at the Atlanta Council's Eurasia Center and a member of the Council of Foreign Relations, joining us from Washington, DC.

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Well against the backdrop of the war in the Middle East, that the US is now involved in an ongoing tariff trade war, we're just a few weeks from that July deadline, rising oil prices, Carol, potential disruptions, and chipping through the crucial strait of horror moves. The macro economic background is certainly complex. There's a lot for investors to wade through.

Yeah, absolutely, although risk go on in today's straight Torston's Lack is chief economist partner of at Apollo Global Management, joining us from New York. Tourston, you did send, first of all, welcome, welcome, good to have you here. You sent a note out this morning that included data for ship crossings in the Strait of Hormus. It's Bloomberg data. It does show decline in traffic both.

West to east, east to west.

Is this your main macroeconomic concern when it comes to what we are watching in the Middle East? And the potential for even further escalations escalation, and.

I guess not just escalation, but a longer duration of conflict.

I think the bigger picture really here is that we already have an economy that is experiencing techflation. We have terms higher means, higher inflation, lower GDP growth. We also have restrictions on immigration, many deportations. Meaning if you lower the labor falls at the moment, the administration has the stated goal of lowering labor falls but about a million people.

And of course if you do that.

You would also begin to have more upward pressure on inflation, specifically wa inflation, and of course also downward pressure on employment and therefore economic activity.

And if we add to that the risks here to oil prices.

Yes, I do understand that oil prices are now going down and.

Some special reasons for that.

But the fear of course here is that if the oil price increase that we've seen since the beginning of June, if that is continuously hanging at the current levels or even goes higher, of course that will also be staflation, meaning putting up our pressure on inflation and downward pressure on GDP.

So, in summary, adding everything together, where we stand.

At the moment, We just have that the economy is hit by a number of shocks that have the same characteristics, namely high inflation and lower.

GDP Trsten, You've been beating this drum for a while, and I was surprised because I read the notes that you send. Perhaps I was surprised to hear j. Powell essentially say last week that everything is okay, there are no issues starting to form anywhere. That was the takeaway I got. Maybe we'll hear something different tomorrow and Wednesday when we hear from the Fed chair on Capitol Hill. Do you think that the Fed chair is incorrect with his assessment of the economy?

Tim this is really really important because what's also very interesting is that last week Chris Waller began to talk about rapcut in July, and today we had Mickey Bowman first talk about rapcot also now in July, and now we also have goals by talking about that, Well, the dust may have been cleared in the air and maybe

On the one hand, when inflation is going up, the fetch would be hiking. On the other hand, where he grows is slowing down, the fetcher be cutting. So where do they put that weight? And the last few fitzpeakers have clearly said, including.

Today Will Goalsby and Bowman, that the focus should be on growth slowing down. So that's why we are probably moving more towards more rate cuts coming faster than what the marker was pricing just even a few days ago.

I just want to add in one caveat from Austin Gooseby towards him where he said, of course, Federal Reserve Bank of Chicago President Austin Goolsby. He says the Central Bank could resume interest rates cuts if the inflation hit from tariff's remains subdued. Don't we have to kind of wait a few months to see because ultimately we're going to find out hopefully very soon in terms of what the tariffs really are and how they play out. But at any rate it is going to be higher than

Absolutely, And that's why what's really interesting in Harold about this issue and this debate is, of course this difference between what Jappal said Wednesday and now we've had three speakers since then that go out and basically say something a little bit different. They are all of course conditioning on saying if inflation is not a problem, then we'll be cutting.

But here the key question becomes what does a problem mean?

If I on my Blueberg screen side ECFC go and I start looking at the consentuous forecast to inflation, you will see that the expectation is inflation will go up from two point six in this quarter to three point.

Three by the end of the year.

That's a fairly significant expected increase in invlation. And is the fit just going to ignore that rise and say, hey, we're just going to cut interest rates and ignore inflation is going up. That's why it still remains to be seen with the next FROMC meeting what they actually are as a committee thinking, because it's very clear that these individual members that are moving in a direction of more cuts.

Yeah, it's amazing how fast and furious it's coming. Having said that, so then the idea of stag vers, I mean, I know we've talked about it, We've talked about it a lot here at Bloomberg.

Is that still a high possibility?

I still think that it's a high possible at least this is what the consensus is expecting. If I do look at that Bloomberg screen that shows you the consensus expectation again ECFC go, then it will tell you that there is the expectation inflation is going up.

And this was also m GDP growing down.

This was also what the Fed did last week and the CP in the forecast that the Fed published, they raised inflation. This year to three percent by the end of the year, and they lower grows.

One point four percent.

That means quite uncomfortable for investors scenario, because should I put weight on inflation going up on growth slowing down? In terms of what the FED will do, And now the Fed seems to be leaning, at least with the lateste from symbombers towards saying, hey, we're just going to ignore the rise in inflation is probably just temporary, and then we're.

Going to cut rates.

But that is where the debate needs to be again more clear in terms of what is it that they're saying today reads it to what Jip how actually said last Wednesday.

You know, I'm curious because look, you're an economist, you're you're you're not going to tell us what stocks to buy or you know what equities or what assets to own. But you do work for an asset manager, and the idea is that you advise people there about what to do. What should investors be doing in a situation like this, because by the sound of it, it seems like maybe you think the equity market has it wrong right now.

I do think the public equity market has it wrong.

So here's the answer to your question, what you'ld investors do, they should do three things. The key outcome of everything we're talking about here is that interest rates will be higher for longer, meaning we're not going down to zero interest rates or to dramatically low interest rates. Yes, the market is pricing somewhere between one and two cuts this year, but that's not much.

That means that the level of interest rates this year will still be high and next year.

The Fed also just published their forecast saying that interust rates will be high.

And what should you do when interest rates are higher for longer? You should be up in.

Quality opt ecology and credit and private credit. That means first lean seeing as secure a top of the campus structure to get the best protection you can get against the risk of a sharper slowdown. But it must be high quality assets, high quality credit to make sure that you're protected against the downside risks that comes with this risk of growth slowing down. At the same time, the

To the broader entry point for private credit and for markets.

And the last thing that's interesting is of course thematic investing things that as five ways, so you can get from the trade wall, so that will be infrastructure, data center, inergy, sensation, climate thinks, the long duration assets that have nothing to do with in near term outlook.

All right, fifteen seconds on a tenure? Is five percent not even a consideration in your world?

Or could it happen?

I absolutely think that long term interstrates are going up. So solter interstrates are going up because of inflation. Long ter interstrates are going up because of partly inflation, but also because of the fiscal challenges. So there's upward pressure on the whole yield curve for these different reasons.

Even five percent, yes, sir, no, real quick? Yeah you think you said yes? I think I saw them say yes.

It's touristed.

Yes, thank you, Turstan slack Over at Apollo Global Management.

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All right, TikTok everybody.

Yeah, we got about just under seventeen minutes. Are going to we wrap up the trade on this Monday. It's been an interesting one, maybe not as expected. We've seen the markets kind of all over the place, and right now we are hovering near our highs of the day.

So we're up almost eight.

Tens of a percent on the S and P five hundred, up seven tens of a percent in the Dow Jones Industrial Average. More than three hundred point moved to the upside for the Dow NASTEQ one hundred up almost two hundred points. Tim good for a gain of about nine tens of a percent, But keep in mind we were lower when the initial strikes by iron on cutter, and then I think the perception was that it wasn't as maybe big as it could have been, or as devastating, I.

Guess, yeah. And so we saw markets bounce off in a big way. Oil has been down.

You know, I think what I found pretty shocking just being and this is the day when you want to be a fly on a wall in a newsroom, because we're following the headlines. The markets are moving with the headlines. At twelve thirty three pm Wall Street time, we saw stocks fall because the Wall Street jonnel reported that Ron moved launchers for a possible attack on US forces. And then less than an hour later we get this headline

Yeah, exactly.

If I'm going back to crude futures, which we're up more than six percent at they're high. Today they're down almost seven percent as we speak. I go back to our conversation with Dick Wanham's about the choreography, like I just.

There's you know, we'll see, we'll see where this all lands.

I want to see what Megan Horneman has to say about this. She's chief investment officer at Burden's Capital Advisor. She joins us from Hunt Valley, Maryland. Meghan, I want to let everybody know that in the notes that you sent out today, you make the point that you are market specialists, not political experts. So we're not going to ask you about the politics of this. We're going to ask you about the market reaction. It's been muted on.

The equity side.

We saw oil go up, now oil go down. Why a muted reaction to a military operation and esc adding conflicts such as this.

So I think coming in this morning and we can talk about equities first. When we came in this morning, it was it was it was a muted reaction. Equity futures were actually up before the market open, and then it was relatively you know, positive, but not by much. And I think that markets were just awaiting what was going to happen next. And I think the surprise you know that that Qatar had was being you know, Iran

Are you surprised? I mean, I think, you know, we came in and it felt.

A little quiet, and then of course the headlines you know, started around midday in terms of what's going on and cutter, but it just felt like an uneasy quiet. Certainly this morning we were surprised by the market reaction or what does it tell you, maybe more longer term or maybe nothing.

Now.

I was a bit surprised this morning that it was so quiet. Even the VIX index really didn't move much. I mean, it was more than less than half of what we saw in the during the liberation spike, what we saw in volatility. So I was a bit surprised that the equity markets relatively muted. I'm a bit more surprised that oil futures have sold off so much. I

I think we're still up though about I want to say, about four percent since that initial Israel attack on Iran. So I think we're still up. But you're right today, you know we're down a lot. We've seen actually a pretty big swing. So what do you do for clients right now?

Well, first of all, we have to not be complacent. We have to realize that, yes, we haven't seen any major retaliatory impacts from Iran. It does look like we've weakened them in some respect. But don't be complacent either. We still do have a conflict in the Middle East and that can have impacts on the market. And what we've seen with history, if you look at any of the different military actions the US has taken, they tend to see some weakness, but positive equity markets in the

Changes your view though, what makes you either run for the hills or says, Okay, we better strap in for the long haul here.

I think if the if we start to see this intensify and broaden out beyond just Iran and Israel. If other countries get involved, that obviously wouldn't.

Make anathy like the US did over the weekend.

Well, the US again has been trying to get Iran to the negotiating table for many many months, and this has failed and failed and failed. And it's not just you know, this has been many administrations. So again the US did get get involved in this. The US has also said this isn't a declaration of war. The other countries, where we get China, Russia, some of these other big powerhouses involved, that's going to be a concern for me.

Meghan, thanks so much. Megan Horneman.

She's chief Investment Officer of at Vernon's Capital Advisors, joining us from Maryland on this Monday.

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