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Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market movin news.
I'm the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. Mike Greeg and Paul Sweeney were live here in the Bloomberg Interactive Broker Studio or also streaming live on YouTube. I believe that's the Internet, So you head over to YouTube dot com Search, Bloomberg Radio, and that's where you will find this. Mike, I took a look at the four one K man. I crushed it this year.
You were good at this. You were in stocks, I take it. Yeah, you were all in.
Throw it all in the index place.
You didn't move out to cash and doing.
After thirty five years, I don't even think about it. That's kind of my investment horizon, though that's kind of changing as we go along here. But let's talk to somebody who really thinks about it a little bit more deeply than I do. Gena Martin Adams, chief equity strategist for Bloomberg Intelligence, joins us live here in our Bloomberg Interactive Broker studio. So Ginette, first of all, explain to me what happened from like October nineteenth to year end
twenty twenty three. Wow, that we had some big moves in stocks and bonds.
Yeah, I mean I think a few things happened. First is we were incredibly oversold. Sentiment was very negative. By the end of October. Our market pulse index was sitting at panic territory, and it's been pretty good at signaling some near term wiggles in the equity market panic to manic, panic to manic. It was really the story of twenty twenty three. We hit another panic button by the end of October. At that same time, in the month of October, we started to see the bond market turnover, and I
think that was a really big catalyst for stocks. With the surgeon yields that we experienced in the third quarter being really painful for equities, The reversal that emerged in the bond market by late October early November was pretty profound as a driver of risk tolerance in the equity market, and it was off to the races for all markets.
As we finally got comfortable with the idea that the end is here for hawkish monetary policy, we're likely to move to a much more dubbish stance throughout the course of twenty twenty four, and that's what markets started a price in the fourth quarter.
You know, Gina. It was another one of those years where it was the huge megacap growth stocks, you know, the Magnificent seven or whatever you want to call them, really driving the bus. And I feel like it's been frustrating for sort of old school value investors to watch this happen year after year, there always seems like there's you know, a dawn coming for value and value is going to start performing. Is this the year for that?
Do you think?
You know, I think that value actually really started to get its legs all the way back in twenty twenty two. And it's a bit of a misnomber that value as a terrible performer last year. It really was about market cap more than anything. When you market capajust the value factor, it was a pretty flat year. It wasn't a great year, but it wasn't a horrible year as you would assume when you don't market capajus the value factor. So I
think that's something to consider. Also, really from the October low small caps have been on a rip as well, So you like to see small caps performing a little while value not necessarily because large caps have been performing also, but certainly, lower volatility stocks have underperformed high vall stocks, high leverage stocks have outperformed low leverage stocks, so we are seeing risk tolerance re emerge. Will it be a year for value is a really tough call right now.
I mean, I think when you look at the composition of you know, the value indices versus the growth indices, the growth industries still have the favor of earnings trends, and with policy sort of the policy impediment going away, it's really tough to make a call for value to be the big outperformer. With the one exception of maybe financials. Inside the value index, you do have a pretty strong
representation from the financials segment. And if the yield curve steeps continues to become more upward sloping, that could benefit financials materially. I don't know how much investors are going to embrace that trade, because everyone's still quite scared of what's on the books of the banks. But nonetheless there is an opportunity there, and if you can get some stabilization in the commodities complex, that could enable the value trade as well.
Git, I want to talk about earnings. I'm looking just at the S and P five hundred and on the Bloomberg terminal, looks like there's twelve percent kindish type of earnings growth forecast for twenty twenty four. How do you feel about that number? Should I considered some earnings risks still out there in market?
You know, I think what's happening with earnings is really interesting because if you were purely relying on macro factors to forecast earnings, you would have gotten the last year wrong, completely wrong. It really isn't a macro driven earnings trends. And I think that this sort of dichotomy between what we talk about all the time, which is the sluggish macro economy, and what's happening in the earnings environment creates a ton of confusion. But what's really driving earnings growth
right now is margin improvement. It has very little to do with top line growth. It has very little to do with some of the broad economic indicators that we're following with the one exception of inflation, and inflation has been incredibly consequential to determining the earnings outlook over the course of the last two years. Inflation's acceleration in twenty twenty two contributed to massive downdraft in earnings expectations and
earnings growth. Inflation's deceleration in twenty twenty three became a big tailwind. As long as inflation continues to decelerate, as long as PPI in particular decelerates faster than CPI, you can count on margin improvement to continue to drive some degree of s and p five hundred improvement irrespective of what's going on in the broader macro and broader volume sales environment.
Yo Gena. Paul was talking earlier about how many rate cuts are actually priced y to the short term interest rate market. No one seems to really believe we'll get six rate cuts as the current pricing suggests. What does that mean for the equity market? If there is, you start to get some disappointment from the Fed speakers to not expect that much easy.
Yeah, this goes back to something we were talking about a little bit earlier, and that is is the yield curve going to continue to upwardly steep in? Because that's where you see the risk emanate or sort of work it work its way into the equity market. Is if the yield curve doesn't behave as anticipated, then you start to see much more equity market sort of weakness potentially emerge. So the question becomes how much of that rate cut is priced into the short end versus the long end?
What's the term premium we're looking at today, which is a whole other set of questions that we need to answer. I would say it is a risk going into this year, but it's nothing like the risk of oh my gosh, the FED has to tighten five times, which we faced at the beginning of twenty twenty two. And I think
that's a really significant point to be made. Is the risk of the FED not quite doing as much as we hoped is very different than the risk of the FED really pushing the brakes on the economy, which is a very different environment. So I think in nuance it means that we could have a lot of wiggles. It could be a choppier market than many are anticipating. It certainly is not a market that looks exactly like the
fourth quarter of twenty twenty three, which was almost idyllic. Yeah, we're not going to have the perfect environment to merge. It's probably a much choppier environment through the next four quarters or so, as we contend with a FED that is going to be on again, off again and really much more data dependant, perhaps than the market is anticipating.
Get a little technical here, breath in the market. It was terrible, arguably for the first nine months of twenty twenty three, the Magnificent seven. It seemed to get better there during that year. In rally, we had to you know the russell, you know out or form we had the even if you look at the S and P equal weighted, that outer perform the SPX. So it looks like the breath kind of got better in that fourth quarter. Is it where we want to see it today?
It's a lot better. It might actually be a little overbought at this point in time, and so I hate to be the bearer of bad news or anything. But when you get to a point where more than seventy five percent of sticks they're trading above their fifty day moving average, where RSIs are surging above eighty, which is where we were by the end of December, it usually is a point that triggers some degree of consolidation in the equity market. We're already seeing that at the start
of this year. So we got a bit overbought on breath. I don't want to put too much cold water on it, because of course, we want more participation to ultimately fuel the market's gains, and seeing more participation across the world as well as into lower caps is a very good thing for the equity market's longer term trend durability. But in the short run it probably does indicate that we're a little too overbought, and we're due for some consolidation.
You know, Gene, It's a time of year where a lot of the old seasonality tropes get trotted out dependably and reliably, you know, as goes January, as goes rest of the year. Some people just look at the first week and believe that that's a sign of where we're going for the year. Are you a buyer of any of that?
Ah, not hugely. I mean, of course, if you have a great January, you've got one month under your belt, and so it means that one month out of twelve is positive, and so the math works in your favor a little bit. So if we do have a pretty positive January, generally that indicates that your year as more
likely to be positive. Yeah. I think we have to be a little bit more conscientious about short term changes and shifts in the broader macro as well as in the earnings landscape, and those tend to dominate a lot more in my thought process. I do think that after the incredible search we had in the fourth quarter, we're due for consolidation. But broadly, all of the trends are still very supportive of stocks and really have been since late twenty twenty two. It won't be a perfect climb higher,
but it is worth noting that participation is great. We want to see this some improvement and momentum is a positive thing, and none of these things are things that we want to fade over the long run.
What's the status of University of Florida football?
Oh?
God, do we have to go there?
I mean, you know, secretly, I was really excited to see Michigan beat Alabama. Right, this is the depths of my despairs and now looking at other teams because my team is no longer in the run. It's been a rough couple of years.
I don't know.
I would like to say yes, but it's not looking.
We're optimistic about the market than the Gators.
It sounds yeah.
With Gina Martin Adams, chief equity strategist for Bloomberg Intelligence and a proud graduate of the University of Florida.
You're listening to the Team Ken's Are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcast.
We got some delivery data just recently for some of the electric vehicle companies, some kind of Tesla Rivian all that type of stuff. Let's get the latest here from Steve Man. He's a global auto market research leader for Bloomberg Intelligence. He's zooming in from our Princeton campus down there in Princeton, New Jersey. Steve, let's start with Tesla here. The numbers kind of in line with expectation, but I know the news headline is Tesla falls behind BYD and
quarterly EV sales. You spent many years in Hong Kong leading our Bloomberg Intelligence effort there, so you had first hand look at the growth and development of the Chinese electric vehicle market. Tell us what's happening with Well, first of all, like who is by D and how do they compete against Tesla?
Well, yeah, that's right, Paul. By D fourth quarter EV sales came in about eight percent, about above Tesla's on a global level. So it's pretty significant first time ever that the Boi D bet Tesla. Well, by D is Warren Buffett back electric vehicle manufacturer. You know, they've they're very vertically integrated. They've launched a slew of cheaper, less
expensive models in the China market. So that's you know, probably driven a lot of the sales in the fourth quarter on the back of you know, weaker macro macroeconomic conditions. So they've done well. BYD has done well, and.
Yet Steve, we don't see any by D vehicles in the US. Correct me if I'm wrong about that, at least passenger vehicles. I wonder why that is. Is it tariffs or trade war issues? Is it just a business decision on their part.
Oh, it's a combination of all that. I think. More importantly, uh, BYD just doesn't have, you know, the distribution network like the Big Three and some of the European companies have here in the US, so it's really hard for them to establish themselves to really build the brand in the US. So on top of all the stuff you just talked about, they you know, their their focus is really not in
the US, though they are getting into Europe. They're planning to build a plant in Hungary in twenty twenty six. It's a low cost producing manufacturing country, so they want to kind of break into the European market first then think about the US. So you know this this, you know we were talking about the the EV sales crown. I think it's going to be flip flopping between Tesla and and buy D in the next year, maybe into twenty twenty five, until you know, BID has a plant
in Europe. You know, that's the you know, that's when they you know, move out of their local comfort zone, local market in China and expand overseas. And you know, that's probably when they're gonna if if you know, I do Bid continue to do well, that's probably when they're going to solidify the lead for global EV sales.
You know. Interesting, I'm looking at an interesting article on the Bloomberg terminal today from Bloomberg newsctric car models eligible for seventy five hundred dollars tax credit cut to thirteen from almost two dozen. The new list excludes vehicles that use certain Chinese made parts that can't be good for EV sales in the United States.
No, it's it's interesting because the Inflation Reduction Act was supposed to generate or supposed to increase EV sales in the US. But it's kind of counterintuitive. But I think that's only temporary because what the IRA really is trying to do is get us to build a supply chain, battery supply chain locally here in the US, so that battery prices come down. EV's becomes more affordable for the
US consumer. So if you look out, if you look at all the investments that's been made so far on battery plants, a lot of those will actually come online in twenty twenty five, twenty twenty six. That's gonna make US battery production lot more competitive and probably able to produce batteries below what the Chinese are producing at. So
we think that's right. We think ev sales will probably take a break in the next couple of years until more models come in plays with play with cheaper batteries, and hopefully, hopefully the mindset of the US consumer changes a bit and they get they become more warmed up to EV's, and hopefully demand will improve twenty twenty five and beyond.
You know, Steve, I rode over the weekend in Rivian for the first time. My buddy finally got delivery over Rivian. I don't know what you would I think it was like five years ago. I got to say, it's an impressive car. I mean, I'm know Matt Miller as far as reviewing automobiles. But I was impressed. But then I read today Steve that Rivian stock is really taking a beating today because their deliveries in the fourth quarter missed estimates. Now, I know it's a very spensive vehicle. I wonder if
that's part of the problem or is it execution? Is it still supply chain issues? What's going on with Rivian that they're missing estimates?
Yeah, I think it's down ten percent today, and it's it's more of an operational issue. I think. You know, a few weeks ago, you know, there was an announcement that AT and T was going to buy the Rivian trucks, and you know, I think everybody got excited to stop search quite a bit. I think that's because people thought, you know, the break even is actually sooner than later. Right now, Rivian actually uses on every card that they
that they built. Uh So, now that you know they're you know, the they kind of they really didn't really miss They kind of kind of hit consensus expectation. But I think consensus the street was expecting a lot higher number a beat. So the you know, the thinking is maybe the breaking even point is not gonna be twenty twenty four, twenty twenty five, probably in twenty twenty six. So the concern is, you know, how are they gonna make it through between now and then?
Yeah, these are one hundred thousand dollars cars too, right, there's no room to cut prices.
AA true.
I mean Matt Matt Miller was able to arrange a week long test for me of the F one fifty Lightning, which was an awesome vehicle. And I'm not an EV person, I'm not certainly not a truck person. I'm a Wall Street person.
Biller's just farming out vehicles.
Yeah, but the sticker on this thing was ninety four grand. Yeah.
Jo.
Wow, that's just a serious thing. So all right, Steve More, Tesla News, their their deliveries. We're pretty much in line with estimates. Is that Is that a good performance for Tesla here?
Well, they did revise their guidance and adviser guidance.
Yes.
I think Elon Musk at the beginning of twenty twenty three was talking about two million, two million unit number. You know, they had a bunch of price cuts, the drum at the man drum up demand and you know they ended up at one point eight. Uh, it's probably gonna be a slower growth, like I said earlier, in
the next couple of years. We think, you know, Tesla maybe can able to do two point one, you know, especially with uh, you know the price cuts that the series of price cuts that they made in twenty twenty three, and maybe cyber truck coming online hopefully you know, Uh, they can get that going quickly, get that you know, new battery plant going quickly and hit that two point one. But there is a risk in terms of earnings. Uh, it's it's a it's a it's a tall order for Tesla. It's a balancing act.
You know.
They want to continue to pump the Model three and Model wiout get sales up because that's a cash cow for them. But at the same time they're going to manage ramping up cyber truck and and the next model that they want to introduce, which is a compact you know, it's dubbed the Model to the compact vehicle. So you know, there's a lot of there's a lot of things they got to mention twenty twenty four, and you know, I think there is there is a risk to to kensensus earnings.
All right, Steve Mann, thanks so much. For joining us. Steve Man. He's a global auto market research leader for Bloomberg Intelligence based now in Princeton, New Jersey, after you know managing Bloomberg Intelligence in Hong Kong for many years.
You're listening to the tape cancer Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Michael Reagan, Paul Sweeney. We're live here in our Bloomerg inter Active Brokers studio. We're streaming live on YouTube. It's ahead over there if you like YouTube dot com and search Bloomberg or Radio.
Mike.
If you were a fund manager and you weren't all in on the fourth quarter, there's no way you could perform last year.
You have a hard time writing that letter to investors at the end last year.
Exactly right. Let's check in with somebody who does do this stuff for loving. Phil Taes. He's the CEO Tay's Asset Management, and Phil, thanks for joining us here in our studio.
Here.
I remember, I believe the last time we chatted with you, you had over ninety percent of your assets in cash. Hopefully you weren't that positioned in the fourth quarter.
And thankfully we were not. So we haven't run a pretty tight trend following algorithm across our different assets.
Trend following algorithm.
Yes, yeah, that's some multi salabc stuff for you there. But we came back into the markets early in the fourth quarter and we're there for the rest of the year. I mean, you remember that downturn we had last year. It looked like it was going to turn into something.
It didn't.
And yeah, thankfully everyone had most people that they were invested at least had a great fourth quarter.
Yeah, Phil, I was cracking up reading your notes to us earlier today. You say the key insight for the year is to adopt a George Costanza perspective exactly.
So.
I guess they're probably listeners that don't know who George is.
But on Seinfeld, he made such ubiquitously bad decisions. He decided the best way to lead his life was to do the opposite of what his judgment told him, right, And I think if you look back over the last really four years now, you just see that markets were inexplicable, Like in twenty twenty and twenty twenty one pre vaccine right, markets were soaring after a downturn of course in twenty twenty and really almost no one could have predicted that.
Then again, in twenty twenty two, we thought markets were going to do okay, despite the fact that we thought the inflation was gonna be transitory, yields wouldn't go higher. Markets got hit very hard. And how many people were predicting a really great market in twenty twenty three.
Not many.
And in fact, if you look at Forbes' collection of Wall Street strategists, that was one of the first time they were ever in times they were ever negative, thinking they would have a five percent loss in twenty twenty three. Of course, that obviously didn't happen. So let's just do the opposite of what our best judgment tells us for twenty twenty four.
What are your thoughts here as we start the new year?
Okay, So our approach is different than many. In other words, we don't want to be firmly directional for the year. We don't think that's wise for reasons I just talked about it's almost impossible to predict the markets. So what we embrace is an approach we call a behavioral portfolio. It's in all seasons approach that does two things. It attempts to allow you to be in core asset classes like stocks and bonds, but do it in a way
that addresses contingencies. You know, in my notes I wrote, I said gene Fama is a smart guy, but what investors want is not the very best performance. They want to be in the markets, but not get blown to pieces. So for equities, take half your equities, put it into hedge equities, so that if markets turned down, you're going
to have some potentially bolstering offsetting appreciation. And some things for fixed income be adaptive, like have an unconstrained fund that can be in different parts of the market, T bills, high yould bonds, investment grade.
You know, when you look at some of the indexes of trend following as a strategy, you know, I look at the CTI ETFs as one example of menaged futures GTF, the dB Cross Asset ct index. They had really great twenty twenty twos when the when the stock market was down and the bond market was down from these indexes. Not such a good twenty twenty three when you would think, you know, the equity markets seemed to just go in one direction last year.
Is it?
Is there sort of a bias to being short and trend following that you do You do better when you're when you're on the short side when the market's going down.
Well, so I think you have to be careful what you look at. So if you're looking at CTAs, often they're investing in trend following in futures contracts that are not necessarily stock market yeah, right, and so you want to focus on something that's more of a pure hedge equity play. But right, so often hedged equity strategies will
trail during a rise market. And I think that that's why this combined approach of being hedge equities for half of your equities just conventional stuff or the other half of your equities on average, if you would have done that, you still would have probably been up, you know, nicely double digits, maybe a little over twenty percent, not all the way with the market, but you would have been there for the markets.
So how much cash do you have now or are you essentially fully missed.
Zero cash, so.
We went when we went along.
Okay, now I say that with one caveat and some of our unconstrained bond strategies, we do have some T build exposure presently, but across all of our equity strategies and everything else, we're fully out.
So in fixed income, I mean fixing gum actually had positive returns in twenty twenty three after disester rush twenty twenty two. Right, what do you think here? Do if am I in fixing them? Do I go take credit risk? How do you guys look at that?
Yeah?
So, I think the mistake that many people are still making is they're looking at how great T bills were in twenty twenty two and the first part of twenty twenty three and saying that's our bet, or we're gonna go to CDEs or fixing nuities or something like that. The altourn a five percent rate. That's the wrong trade.
And the reason it's the wrong trade is if you look at the history of investment grade bonds and high yield bonds during a time when the FED is easing, there have been historically great returns up ranging up as high as fifty percent sometimes, So this idea that five percent is the best thing anymore has to vanish. So we look at a couple of scenarios. You look at soft landing, hard landing, no landing. As long as inflation is not resurgent, right, as long as that key measure
stays low, I think bonds do pretty decently. And then that one contingency, which I do think you have to address, the possibility of inflation comes higher that could put bonds underwater against you need to be. That's why I say agile and unconstrained with your bond approach.
So when you go heavy into cash, it's more a reflection of what you expect the soccer bond markets to do. It's not that yield you're getting any cash in a money market fund or wherever, or T bills that is influencing the decision exactly.
We're we're just going defensive. We're not making a prediction. We're just reacting and what's happened to the markets, so we're just going defensive it.
So when I looked at the fixing come returns for twenty twenty three, I was really surprised to see that the real money was made in high yield, you know, kind of a thirteen fourteen percent total return, and that's in the midst of everybody every day talking about a recession where I would think you wouldn't want to take credit risk. Why did HI yield do so well as year?
Well, I think it's just a function of a couple of things. One of the main things is that you know, earlier in the earlier in twenty twenty three, highild bonds were yielding close to nine percent, right, So if that's your starting place before you have any appreciation, that potentially looks very good. And then the fact that we had this strong fourth quarter and high old bonds rally a lot and fourth quarter. So what you were talking about earlier is a is a big part of what happened.
And fell In true Costanza fashion, it looks like you've invented your own holiday here, the National Investment Risks Day. What's that all about?
Yeah, So someone of my staff created this on my birthday, January the nineteenth, and it's actually registered with the National Archives all day. You can find it.
The fest of us for investors, And we used to.
Have an acronym policy, but now we've called it NERD Day and ird. But here's the thing is, like we we continually watch these investments that are super horrible ideas become very popular and then maybe have trillions of dollars of net worth. And what's so fascinating is that often the biggest financial institutions in the world like get on board. And so what we're trying to do each year is look at things that are like that, things that are absolutely crazy.
What are the most.
Insane ideas that happen In twenty twenty three, we have an esteem staff like the behavioral economist Dan Crosby, Brian Portnoy, and I think even you know Bloomberg columnist is coming on to oversee the webinar.
So we're looking forward to that.
So with the gym in twenty twenty four, what are you going to stay? What are you staying away from? Here? Is there's something here? I don't know if it's geopolitical risk that's causing me to shy away from something. What do you stay away from? Do you think at this early stage.
Well, at the moment it's cash, okay, at the moment, you just stay away from T bills because I think that's the losing trade. Now I say that understanding that that things can adapt very quickly. I mean, we're seeing clearly we have really a strong sentiment and sentiment indicators kind off the charts coming into the end of the year. So just that alone would say that we could have
a downturn here. I don't know how big it could be, but I just think you know, if you've already missed twenty twenty three, if you were in cash and you didn't experience what we had in the fourth quarter, but also the rest of the year, that doesn't bode well for what may happen in twenty twenty four. If you stay in cash.
Right now, yeah, well fell in quickly. We only have about a minute left. But a lot of people pooh pooh crypto and bitcoin these days, But with anit CF coming up, I gotta think crypto could be attractive to a trend filer. Am I Am? I wrong?
Well, No, crypto is attractive to one of those three top categories for the dembest ideas. So here's the trifecta. You need to have something that has no asset value, something that has no income and no potential for income, and has just appreciated eighteen million percent in the last twenty years. Right, So if you have all three of those, that's like potential dumbest.
Investment of twenty twenty three.
Phil Tates, thanks so much for joining us, Philtase, he's the CEO founder Tay's Asset Management. Some really excellent performance numbers. Appreciate getting a few minutes of his time. The S and P five hundred off about six tens of one percent, the Doubt absolutely unched on the day, nothing happened in there, the Nastak off about one point four percent, the Russell kind of hanging in there in terms of relative performance,
down only a quarter of one percent. So a lot of those technicians like to see again the broadening out of the market, see some of the small cappers do well, or certainly seeing that.
Today you're listening to the Tape Canser Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Michael Reagan and Paul Sweeney were live here in a Bloomberg Interactive, Gropper Studio or streaming live on YouTube, so you can check us out there. Unfortunately, there's no shortage of geopolitical hotspots around the world, and we're fortunate to have someone who can really help us stay on top of it all. That's Mick mulroy. He's the co founder
of the Lobo Institute. That's just the beginning. He's a former Deputy Assistant Secretary of Defense for the Middle East at the US Department of Defense, former paramilitary operations officer, and then for many many years a US Marine Infantry officer. We thank him for all of his service here. Sincerely, Mick, I don't know where to start. There's so many hotspots around the world. Let's just start in the Middle East. I guess the latest headline is Iran is kind of
poking around there. What's your latest assessment on what's happening there in the greater Middle East these days?
So great to be with you guys in happy New Year. I think obviously Iran's been poking around all this the entire time. They are the common denominator behind him, ask as the Huthis and the militias that keep attacking our
positions in Syria and Iraq. But now they are entering the Red Sea with one of their naval vessels, which looks like they want to be somewhat confronting the United States without confronting and certainly looking like they are, And that's of course not going to be helpful when it comes to the US interest in containing this conflict in Gaza to Gaza and not spreading to a regional war.
Well, Beck, I was going to ask you, what is the chance of that happening? I mean, could this really escalate into the type of thing where the US and Iran are fighting more directly? Is that a threat these days?
So I do think it's a threat. It's something we don't want. I don't think Iran wants, and it's not obviously in any country in the region's interest. I think the biggest threat from that comes from Hesba, Lebanese Hezbela, who is incurrently in violation of UN resolutions where they are up at the border between Lebanon and Israel. Israel's made several statements their senior officials, including their Ministure of Defense, that they might need to actually take action to push
them off that border. If that happens, this would be expanding substantially, and it's one of the reasons why the US set so many naval assets through the region just in case it was a significant second front and in this conflict, that we would be there potentially to assist our Israel if they needed. I don't think that means that Iron's going to become directly involved in the conflict.
I think they're happy to fight to the last proxy force, but generally don't want to put their troops into the mix. But that's something that's to be determined whether if this expands that could happen, or whether Israel takes more strikes specifically against Iran if they feel threatened.
Nick, I guess what's the latest do you think we're seeing hearing from the Israelis about kind of where they want to take this here. I know they've brought some troops home, but is there any change do you think to their strategy here?
So the US, of course has been pushing for this new phase, going from what they're calling high intensity combat to low intensity conflict. I would point out that doesn't mean it's not a conflict. There's still going to be combat operations. But I think this withdrawal of five brigades
is substantial. It was partially because a lot of these are reservist and they need to essentially go back to their full time occupation, but it does indicate to many that this might be that transition, so we might go from this large scale combat operations conventional forces to a more targeted, precise, intel driven special operations type of mission.
There.
That said, it's been clear that Israeli senior officers have said that this could last to the entirety of two thousand and twenty four, so that we're far from it being over. But I think the US would like to see this switch into this next phase, which hopefully would also have far fewer civilian casualties and the potential to increase the humanitarian aid going into the Gaza, which is storally needed.
You know, Mick, if we shift gears a little bit to the situation in Ukraine, it seems to me that the political will in the US to continue to fund the Ukrainian resistances starting to run low, and potentially this might be the year where we actually stop funding that were What does Ukraine and really the world look like if that's the case, I mean, is it just pretty much an instant Russian takeover of Ukraine, or how do you see that plane out?
So I don't think it'd be an instant Russian takeover Ukraine because of the Ukrainians. They will fight to the end. They've proven that, and I think we should take note of that because if you remember when this started, a lot of very senior military analysts, including intelligence services, we're predicting their fall within weeks, and look where we are now. You know, when it comes to the United States credibility, I think it would be shocked to be frank, this
is a partner who is in an existential fight. If we were to pull out now, our credibility when it comes to that, I think would go down substantially. And it's not just it is I think the morally right thing to do for a partner that's been invaded by an adversary of ours, but it's also in our own age. I mean, last month alone, according to multiple reports, the Russians lost thirty thousand soldiers. Well, I mean, think about that,
thirty thousand soldiers. They have degraded the Russian military capacity below fifty percent of what it was before this started. That means every dime we've spent has added to our own national security benefit. It would make no sense to me, and I don't do politics, but it makes no sense to me why we would continue that support. It's in our own interest. Every dollar we spent on that assists us when it comes to our own national defense.
Nick as we get into I can't remember what year we are of this war unfortunates much longer than anyone would like. Is there any expectation that there will be a negotiated settlement here? Admirals Stravitis, former head of NATO, made the comment recently to us that he believed is something like a Korea peace for land type situation is probably the best outcome.
So that certainly could happen. I think what the Ukrainians need is to really push the capacity of Russia to stay in Crimea, which will push them to the negotiation table. I think right now what the US can do is
to really start providing them more offensive weapon systems. We started that they started their counter offensive before they had anything near what we would need to do what they have been trying to do, which means more or F sixteen's which are just getting there, more main battle tanks and more long range artillery, which really has been a
game changer. If they can start challenging Russ's ability to stay in Crimea, That's when I think President Puutin will say, maybe I need to start talking about a negotiated settlement. And then I think it's up to the Ukrainian people what they're willing to potentially give for peace, and that's something I think we should support. We should also allow them to make that decision and not push it on them, you.
Know, Mick, As Paul said, there sure are a lot of hotspots around the world these days. So I want to take you over to China a little bit too. You know. One of the big concerns in years was some aggression from China towards Taiwan. We seem to have dodged that bullet, but am I being sort of too optimistic? There is that still a risk going into twenty twenty four that we see some sort of aggression towards Taiwan.
So I do think it's still a risk and we should not take that lightly. I think what we're doing in Ukraine actually impacts that. When China looks at the type of partner the United States is to the Ukrainians after Russia essentially invaded them. They're going to look at potentially what we might do with Taiwan if they were to either do a blockade or an actual attempt to invade a Taiwan. So that's the first thing. The second thing is that the Chinese military is not ready to
do this yet. So it's not that we've dodged a bullet. They just don't have the capacity. I don't think to even do a blockade that would actually hold up yet. But they're driving that direction. They're significantly improve in their navy, their significant and improving their overall military capacity in part so they could do this in the future if they like to do that. Right now, I think we need to be a good partner to show that we're a
good partner. So they have that understanding, and Taiwan obviously needs to take the lessons learned from Ukraine and start looking at how they can make themselves a harder target, because that might be ultimately what makes the Chinese decide it's not worth it.
Hey, Mick, just about twenty seconds left. Where could we see a positive surprise in some of these hot spots around the world.
This year, So a positive surprise. If you just said a surprise, that an easy edge, a positive surprise. I would hope that once we get all the weapons systems that we've promised and we support Ukraine, that Ukraine could get to a point where Putin realizes he could be in a phase of catastrophic failure. I think strategically he has already failed, but a catastrophic failure is regarding Ukraine itself,
and that would push him to the negotiation table. But it requires all of the partners of Ukraine are allies, to continue support and of course them do their job which they are, which is fighting tooth and nail to get back every piece of territory that Russia took.
All right, very good as always. Mcmutley, co founder of the Lobo Institute, giving us the latest on the geopolitical issues out there facing a lot of folks.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And I'm fall Sweeney. I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio