Iran Is The Thing That Keeps Me Up At Night: Former CIA Officer

He is the former acting director of the Central Intelligence Agency, and he is also the founding partner and the president of the security firm The Arkin Group. He joins us here in our eleven three oh studios. Jack, thank you very much for being here. Do you have a security clearance? I do. What is your reaction to the news reports about the potential for revoking the security clearances of several former administration security officials. I can understand why the presidents upset.

I can unders stand um why it's painful to listen to them. But free speech is a big part of our critically important part of our system, and you can't. You have to be in the political rena. You have to live with it. UM. I do think there's questions about why we have so many people that have security clearance. Last time I looked at was the three millions why

government officials carried into the private sector. I mean legitimate reasons is but to go after because you don't like what's being said, I think is wrong foot it well, and I don't think it has legs. If you'll use excuse the pun, I don't. I don't think there's gonna be a long lasting story. I don't think you're going to do it, but you know, it rattles everybody's cage.

Another thing that's rattling everybody's cage right now is President Trump's rhetoric toward Iran UH, similar to the approach that he took with North Korea, basically threatening them and UH and and the idea of sanctions are definitely coming up. What's going on here? Well, I think there's the bigger picture of where we headed in Iran. But let's start

with today's today's news, if you will, UH. I think the fact that Rohani, president in Iran, spoke out so forcedly and said if you do try and sanction, as you know, be the mother of all wars. I mean the predictable reaction. You don't have to be a rocket science to know that President Trump is going to come back and loves a good fight, and they're just going to come back as strong as you can, and says if you think that's the mother of all wars, what

do you see what I have for you? So I was reading an article day where quoting someone saying, you know they're dealing with the for fish in this pond. Now you know what they might have gotten away with and passed with challenges. But if you know, if they really think they're going to use force the Iranians, then then I think they need to be prepared for a pretty harsh response. I mean, I don't think it's all bravado. So you think that we could have a military altercation

with Theyran I've been concerned about the prospects. It used to be my concern about Pakistan having nuclear weapons that kept me awake. The thing that has troubled me, and I've written about this in my quarterlies for the past year. The Place to Watch. I mean, I'm obviously fixated on the Russian Helsinki meeting, but I would say the longer term issue where there's a real risk, is Iran an arm relationship with them. Jack, You've had a thirty two

year career with the CIA. You're also the author of a book called Good Hunting, a spy Master's story based on what you know. Do you believe that the meeting that took place between Vladimir Huon and President Donald Trump was recorded? That's a good A good question. UM. I would I wouldn't bet a lot of money, but I

think it was limited to the stenography. All right, now, they'd have to have an agreement, and I would think if I were either the participants, I would not want to record it because you're not sure how that meeting is going to go. I think it's too risky to have it recorded. I think they were prudent. Actually, if you want to have UM, you know, once in a while, you really do have to do one on one and Uh. I seriously doubt that it was recorded, but I wouldn't

bet a lot of money on it. Do you think that President Trump's lack of uh castigation of Prussia for their involvement in the election, which is agreed by bipartisan groups, that there was meddling the Russian government in the US elections. Do you think that the president's tepid kind of approach to that puts US into greater danger? I think the UH.

I think President Trump was on a roll, depending on how you look at it, up until he landed in the UK, and I thought something wheel fell off of the car in terms of the preparation and strategy of the meeting. And then I honestly must say Helsinki, I thought it was a huge setback for the president in terms of the exerting what looked like a very strong president. I mean, you may not like the policies that may not be popular. Eventually popular already cuts up with it.

But it was strong, whether you liked it or not. I think the biggest and most troubling thing about that meeting it was a sense of of weakness and not coming out ahead, which is a very bad place for a president to be. I remember I was a kid, but I remember Khruschef meeting Kennedy on the first seven meeting, and they didn't want Kennedy to make the meeting, and

he did. He being Kennedy and Khrushchov belf. It was a disaster for Kennedy after that meeting, Putin went off and decided he was going to push, push hard and put missiles in the Cuba. But he didn't realize that. Jack Kennedy at the same time realized he did poorly, and and and strengthen it. And then you had a confrontation as close as we've gotten a nuclear war. And fortunately for Kennedy, we had in his pocket inside intelligence from the spy Pankovski and was able to push back

on Krushev. So I think there's a dynamic here and what is Alice Trump going to regain his strength? And does that come from pushing back? And um, I think that would be my recommendation. I am a bit befuddled by the call for a second summit in that context, I thought I had a pretty good grasp of what was going to happen next to now ambivalent Jack. One of you are various UH duties. You headed the CIA's Counter Narcotics Center. You also worked on the response to

the United States to Russian incursions in Afghanistan. Do you believe that there's a casual relationship between human behavior and logic? That's that's a really interesting question, but I'm not sure where you're coming from, and I would say, yes, qualified, quite qualified. Well, I think we all think we're very logic, all right, But I do think that we all come out of the same place with a DNA and makeup that was somehow related to some uncle who was a

little flaky. So maybe we're not. We're trying to be logical, but we do have personalities that are developed. Um so yeah, I'd like to be optimistic that mankind woman kind as well h are logical. Well, let's hope that logic prevails. Jack Divine, thank you so much for being with us. We could spend another hour talking. Uh so many questions,

so we'll leaf to have you back. Let's start our focus to emerging markets, in particular Turkey assets are falling out of bed there after the central Bank unexpectedly held interest rates where they were despite the fact that inflation was spiraling out of concern and that many people were saying that they needed to support the currency. Of course, uh, the president's son in law is now helming the central bank. So Damian Sassour joins us. Now fixed income started just

for Bloomberg Intelligence. Damien, Wow, Turkey, are you surprised by this or is this just uh, you know, an ongoing mess that just gets worse. Well, I'm not surprised than it is an ongoing mess, and it's it's one of his own making. It's one of it's one of one's own making, right. I mean, we have a country that's operating with a six point one percent current account deficit UM. It's debt is funded in external currencies and it's all short term portfolio flows, right, So how are they going

to fund their debt? How are they going to fund the country's operations? I mean, the only way to do that is to raise rates and appeal to offshore creditors to continue, you know, basically making its economy more investable. And it did not do that today. And so now we've seen the lira the worst performer pretty much um outside of Argentina on the year down local currency, Turkish debt down twenty nine percent year to date in dollar terms.

Uh yeah. Now you've got yields in the high teams now seventeen point eight percent five year yields and local currency. It's just it's getting bad, it's getting ugly. You've got inflation there of around fifteen percent I believe percent inflation that's right. I mean that was that was in June. It's average a eight and a half percent over the last five years. Just to give you a sense of just how far things have gone, I mean, think about p M I. P m I felt to its lowest

level on record in May. That signals slower GDP growth. I mean, the only way that could possibly think they're gonna, you know, move their way out of this is to accelerate growth, right, is to grow their way out of it. But clearly that's not happening either. And so where does

attention now shift. It shifts to the financial sector. And hey, we're an earning season, right, So you've got all the big Turkish banks reporting starting tomorrow and through next week, and they're also huge, huge issuers of US dollar debt and they're gonna have trouble rolling it over. When I talked to emerging markets investors, particularly the debt world, they say, you know, in general, we still find some things to like in emerging markets. Credit that's sold off a lot,

but we're not touching Argentina or Turkey. Some people are actually tiptoeing back to Argentina Turkey off limits. I'm just wondering I mean, it's Turkey just a completely idiosyncratic story unto itself, with a government that just is getting itself deeper into mess. Or do you see signs of something more pervasive happening across the board and development more? I mean, and you know, I mean I I every time I think I've got emerging markets figured out, Lesta, they always

another Turkey pops up. And you know, it's just unbelievable, the stubbornness. And look, it's it's not unprecedented. Right, We've seen in South in Brazil, we said Dilma, you know, you know, contesting the credibility of the of the Brazilian Central Bank a few years back. We've seen recently in South Africa something somewhere. We're seeing here in the US Trump saying he does think rates should continue to go up, right,

So this is nothing new. But for a president to basically just shrug off the markets, um to install his son in law as the dual head of the Central Bank and the Finance Ministry and give him the control, it's basically he's I mean, now the markets believe he's a puppet, right, And so you know, Idawin's on the record is having said he does not think high rates are good for the economy. He wants rates lower, and

we're seeing evidence of that here today. And it's just h yeah, No, I a a central bank that's um, that's sort of um, not independent, that's not targeting inflation, that's not targeting full employment. You know, the markets have a funny way of of showing them where the clearing rate, where the clearing prices and um. And I think that's what Turkey's undergoing right now, and we don't know where

the bottom is. They mean, if you're an emerging markets investor for debt and you're looking for corporates, what sector I'm thinking commodities, maybe extractive industries, mining companies, oil companies. How are they doing? Yeah? No, I mean you're now now we're going to shift out of Turkey and we're getting to get into the fun stuff. So the fun stuff is this I happen to think that. I'm sorry, we don't think the data tells us that commodities are

over sold. Right We're starting to see for the first time, we've seen copper short up, COMICX copper, we've seen a net short, a speculative interest moved, you know, it's moved short. It was, it was, it was long for as long as we can remember. It's now gone short. We're seeing the same thing in oil and other commodities, and what that tells us is that these markets are vulnerable to a short squeeze to a near term rebound which could be accentuated to the upside. So that's good for all

of the commodity producers. Latin American specific, Peru, Colombia, and Chile are three that come to mind there um. But then you know, you've got You've got you've got Russia, who's a pretty big oil export over they have their own problems, and you've got a handful of other there's the Middle East and so forth. So so so yeah, I happen to agree with you. I think you know you're going to see a pivot on the corporate side and

emerging markets toward commodity exporters. And we're seeing a little bit of evidence of that now, although you know, we'll see what happens. But I like your thoughts about copper very interesting because copper has dropped more than seventeen percent in price, not this year, just since the beginning of June. Absolutely now it's oversold. I mean, the red metal is oversold. If you would ask my colleague Mike mcglonany's actually on vacation now, we should get him up here. But yeah, no,

he would agree with you completely. Vacation. I'm sorry, he's not a vacation. He's actually working from home. But yeah, right, But you know, broad commodity sell off, I mean, that's where we are, and we need to see that kind of rebound in order for emerging markets to catch a bid, I think and uh, and we might very well be on on the verge of that. Thanks very much, Damian Sassaur.

We love having you on Fixed Income Strategist for Bloomberg Intelligence, telling us all about Turkey and commodity related emerging market debt. One of the biggest question marks right now is around oil, particularly are we heading much higher than seventy dollars a barrel? We're much lower? Uh, And a lot of this hinges on Iran. Joining us now Will Ryan, founder and chief

executive officer of Granite Shares in New York. Well, I want to start with Iran because we've gotten this battle of words between President Trump uh and the Iranian leaders and I'm wondering do you think that the market is pricing in some kind of escalation here and the likelihood that Iranian oil fields would truly be taken out of service for the rest of the world. In short, no,

I don't think so. Um. Iran is a huge producer, one of the largest opaque producing countries, and so if there was a disruption or an escalation that resulted in disruption, that would have a big effect on supply. And right now what you have is a situation where we have strong demand for oil and almost certainly you see the price being pushed higher. How much higher? Uh is impossible to say, but I mean give us a range. I mean, are we talking, you know, five dollars? Are we talking

twenty dollars? I think you could see ten to twenty. Yeah, alright, Well, before we get into some details about commodity related funds, I want to talk just a second about granite shares because, UM, when I was young before I think almost just around the time they invented the telephone, UM, one of the ways to be interested in the world was to read annual reports, and it was quite exciting because you got to see how things operated, how companies created products are

versus all over the world was one of the few ways to really access the excitement of what was happening in the world. Tell our listeners a little bit about granite shares and how you're trying to bring some of that excitement back. Thank you, um So, grantite Shares is really, you know, it's my expression of what a modern day E t F company should be about, or an asset manager should be about. So we specialize in E t F E t F so the new technology, if you will,

in the asset management space. And really the reason why they're driving so much popularity and investor flows is because on the whole, lower cost, more transparent and liquid. And in terms of specifically why I started the business, I felt that there was an opportunity, or actually a rare opportunity to really do two things. One was to reinvent the way people access commodity markets in investment form. And too, I felt like the timing was right for a new

sort of ball market in commodities. And when I took about reinvesting the commodity market, before investors had accessed or had access to commodities in two ways, either to buy partnerships that issued k ones, which can be pretty clunky for investors around tax time. Or they could buy notes from banks, and notes from banks have credit exposure to

that particular issuing bank. So I thought, here's a way to actually change the way that investors get access improve the solution, so by offering it in a fund of forty act fund without k ones, but without the credit risk of the the issuing banks of notes, and provide that exposure to the broad commodity markets. Okay, thank you, that's a great definition. And now I want to turn to the actual way in which investors can speculate or invest, let's say in crude in oil markets. Is that a

specific market and there are there specific challenges to doing that? Yes, So, so investors have a broad array of options when it comes to investing in either individual commodities or broad based commodities. Um and you can invest in gold, for example, something very specific. You can invest in other metals, you can invest in crude, or you can invest in in broad Now I would say just to just to be clear that when we're talking about precious metals, we're talking about

owning exposure of fun. For example, we have the Granite Shares Gold Trust, the ticket code is bar and what that actually holds as physical bars of gold. So every share is backed by a tenth of announce of gold. Now that's fine for precious metals because the natural state is stored in a vault and we can do that, but when we go outside into other commodities that either decay or die over time, you have to obtain that exposure of your futures contracts. So when we're talking about oil,

we're not talking about physical barrels of oil. We're talking about futures contracts are linked to the price of oil. So since we started with oil, I'm wondering, what have you seen recently with respect to the investors that have been using your e t f s in that space and do you find that they tend to be more speculators or more true investors. Well, we um We offer really two broad diversified commodity funds, so take us C O, m B, and CMG, and that's really for the investor

that wants to take broad market exposure. So those people are really more longer term investors that are looking to

to gain longer term exposure. So we don't offer some of the more racy individual commodities for example, Um, that may be something we do over time, but at the moment we have just the two broad based commodities, and then we have gold and platinum, and so really that's somebody that is looking to put five percent of the portfolio typically into commodities, and the decision making process that they're going to go through is really to evaluate how

much energy exposure do I want within that particular fund, and that leads you to to the decision of whether you buy one or the other. Okay, the reason I was focusing on oil and futurist contracts is there is a natural seasonality not only to oil and other commodities, but there is a rollover effect because you have the expiration of those contracts. How do you avoid that natural decay of value when you're dealing with futurist contracts, great question.

So you can't avoid it. That's a market structure issue. So by definition, when you're investing in futures contracts, the contract you own, depending on what expiry date it is, is going to expire at that expiry date. That is

the whole point. And so by definition, to maintain that exposure we call it rolling, you have to sell that contract before it expires and buy the next contract, And that has a friction associated with it because you're selling one contract and buying another, and depending on whether that contract that you're buying is trading more expensive or cheaper in the money, you're out of the money. Exactly. That's either a positive or negative effect. I've been looking at

comb as. You're one example, right, and this is it was trading right about twenty seven back in May, now trading at around twenty five s, a drop of about eight and a half percent. Do you believe that that's an accurate reflection of the overall commodity market? Yes, So what's happened actually, and this is this is a great point because I think you know, it's important for investors. You know, there are three components that make up what we call the total return of these kind of funds.

So the first one is the spot price of the underlying futures naturally. The second one is what we're just talking about, which is the we call the roll yield, which is either positive or negative. The third one is the return on the collateral. Because when we invest in future as, we hold treasury bills as collateral and they generate an interest rate orbit not not a huge amount, but still generates an interest rate, and so those three

make up the total return. What's actually happened is the market structure for the majority of commodities is shifted into backwardation, so people are being paid to be long that exposure and oil for example, Well done, Thanks very much, Will ryand he is the founder and the chief executive of

Granted Shares. Talking about investing in commodities through E T F S Well, Verizon decided that it is going to seek to partner with either Google or Apple to provide television when it launches the first super fast five G service to homes in l A and Sacramento later this year. A big question, why didn't they go with Hollywood? Why didn't they go with the traditional television networks? And here to talk about that, John Butler, Senior Telecom Service as

an equipment analyst with Bloomberg intell Agents, John, what happened here? So, first of all, Verizon just held its earnings call and the question didn't even come up about content really, so I think the and that reflects the fact that the company is focused on launching these new five G services. Uh, tell people what five G is so five G is sort of a next generation wireless technology. It is ultra fast. It's probably ten to a hundred times faster than the

four G connection you get today. What's really important is you can as a carrier, you can begin to pars off or create these little slices of dedicated network for your business customers. And so Verizon is looking at that, going wow, an ultrafast dedicated connection. What appeal that's going

to have for the business community. And so they're structuring this whole sort of commercial plan down the road, but the initial launch is going to be to over build your cable guy or in some cases, I guess your teleco providing broadband internet services to the home. But that is a first step. Okay, I'm just sorry to stop

you there. I'm trying to sort of figure out what we're who's doing television, who's doing the tech part, who's doing what because it seems like there's ever merging of all of these things, of the content and the providing of the services, and this just sort of increases the confusion. So Verizon wants to provide television, uh, and it's going to use Google and Apple, which have their own maybe which have their own sort of content providers in various ways.

I'm trying to struggle like who's doing what here. Well, there's a lot of convergence going on. So a lot of cable companies now can provide your telecom services. They provide internet, they provide videos. So does Verizon. I have Verizon FiOS at home. I don't get my telephone, I get pardon me. I get my telephone, my video, and my broadband internet all from Verizon. And I think the appeal for residential customer is bundling. You get service discounts

across the board by going with one carrier. They sort of reward you for that in a lot of markets. For Rising doesn't have the infrastructure to compete with cable by bundling like that. They happen to in my neighborhood. But they only have seventeen million homes across the US wired to do that. So the plan is to use the ultra Fast five G to provide a last hundred foot connection to the home using wireless, so they don't have to dig trenches like they did in my front yard.

They don't need to put five or in my basement they put an Antenta on my roof and provide service. So what would Google or Apple actually do and who's the loser here? Well, the punchline is do you want to I guess if you're Verizon, do you want to provide just the dumb pipe as it's called, or do you want to begin to fill it with sort of

value added services? Uh in In this case, it would be video services coming from Apple, which doesn't currently have a streaming service, or Google, which has I believe it's a sixty channel service on YouTube. So by partnering with them, Verizon doesn't really need to get in the content game in a big way like a T and T is doing, for example. They can sort of stay out of it.

But what they're offering in terms of the five G link over a cable operator or in competing with a cable operator, I should say they'll be able to come to customers and say, well, not only give you the pipe at a discount, but we have content that goes along with it. Wow, when you say value added services, all I see is an extra bill to pay at the end of the month. You have Apple, Amazon, Netflix, Spotify, Hulu, Pandora.

Now you're telling me what I didn't even add in the mobile services, so that may be T Mobile or Sprint or whatever. If you've got Plus. Now you're telling me that a T T is going to offer something. Are they're really going to offer anything that you don't have to pay for? I think they'll have a very ultra low cost add supported tier on direct TV now, which is their streaming service. I will add with Verizon.

By the way, the partnership with Google or Apple is rumored at this point, not the five ge services of course, but the content services to go along with it. So we'll see if it happens or not. Either way, I would say what you you're speaking to that that convergence between telecom and cable operators and now even Google and Apple is really happening and going to continue. By the way, I just don't want know why this convergence has to cost so much money every month, And meanwhile you have

Verizon with its own content provider of oath Man. My head is spinning. Yeah, just keep writing the checks, all right. Thanks very much, John Butler, He's our expert when it comes to telecom services and equipment. He's our analyst for Bloomberg Intelligence. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on

Twitter at Lisa Abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio h