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A couple pieces of news. One, you have the senior VP resigns, So that's Drew, but Baglino, that's one part of the story. The other part of the story is at the carmaker slashing headcount by about ten percent. So put those two things together and what does that tell us about where Tesla is right now? So joining us is Steve Man, Bloomberg Intelligence Global Autos and Industrial Research analyst.
This is a great example of why Bloomberg Intelligence Radio can bring you the best analyst from all of our guys all around the world, and Steve is definitely one of them. What has been your take over the last few hours on management shakeups as well as headcount at Tesla?
Wow, it's actually worse than I thought I thought. You know, the first quarter sales drop was you know, hopefully close to the end, but you know, there's seems to be the light at the end of the tunnel is not really here yet, and it looks like, you know, it's running. Their plants are running just pretty much well below capacity at the moment, and there's still a lot of cost headwinds facing them. They're trying to balance a lot of
things in terms of deliveries production. They're raising prices. I don't know how long that's gonna last. So execution is risk. Execution is key for the company in the next you know, six to nine months.
So Steve, where are we now or where is the market when you talk to investors in terms of getting a sense of where EV demand is in the US and then maybe globally.
Well, EV demand is is waning. I think the interest rate is not helping, you know, it's uh they're looking to you know, as you know, the FED is probably not going to cut rates anytime soon in the next couple of months, next quarter or so, so that's going to condude away on big purchases like automobiles. We're seeing that across the board in the US as well as in China. Trying is a little bit worse for Tesla
because there's so much new competition there. But you know, sales is slowing for GM, sales is slowing for Ford for just had to cut production of their lightning recently announced about a couple of weeks ago.
So I think this year will be tough for the industry.
Now, you know, we probably won't see any improvement until as far as I'm concerned in twenty twenty six.
Oh wow, Okay, well that pushes it a way out. Here was interesting headline too, Paul. To your point is that Reuters is reporting that BP is cutting over one hundred jobs and it's electric vehicle charging unit. And we all talk about how we really need chargers to deal with the range anxiety, and now you have a big player here studding some jobs in this EV charging unit. Steve, why twenty twenty six? Why is it going to take that long?
Yeah? I think.
I think what the market, the EV market is facing today is that we had early adopters, especially on the high end, they're you know, they're pretty much tapped out. You know, they they can buy only so many The market is relatively small, smaller than the mass market. I'm looking at twenty twenty six because if you look at the Inflation Reduction Act, it's bringing in on shoring a lot of the EV battery production in the US, hopefully
it will cut costs. And at the same time, in twenty twenty six, where we're looking at more affordable evs coming into the market, that's going to expand the addressable market for EV's and that's why we're we're thinking, you know, twenty twenty six will probably be a better time for the EV market than it is today.
So how about profitability in that scenario, Steve, It's tough to make an argument that, you know, these evs can be profitably manufactured at a higher price point.
How are they going to adjust their cost structure to get.
Be profitable with maybe have a lower price point, I don't know, thirty thousand dollars or something like that.
That's a good question.
I think if you look at the EV startups in the US, you know that the only one that's really still profitable is Tesla. You saw Fisker being delisted. There's risk of them filing bankruptcy. Both Lucid and Rivian will need, you know, billions of dollars just to get them through the next couple of years. We're not sure if they're gonna get that money. Given the slowdown and the EV market. But on a bright side, I think Tesla is still
generating cash. You know, they're making some of the cuts today, I think really to maintain cash generation so they can continue it in vests for the long term, you know. For them, I think what's really important for them is the AI, the FSD, the full self driving systems that they're trying to build out. That that's going to be the future of the automotive industry. It's really those software based subscriptions that's going to drive revenue, not so much
of the automaking. So if they're trying to get there, trying to maintain cash, maintain some level of profitability, profitability to make those investments to get them there.
Interesting, I was thinking about self driving as I was coming up the Taconic, oring down the Taconic yesterday, and I was like, would I want to be in a self driving car right now? In the Taconic. I don't need the answer to that. I was driving and I was like, I don't know, man, I think I want to trust myself behind the wheel. Anyway, before we let you go, Steve, let's go to the SVP departing, So Drew Baglino. He leaving the company. As I mentioned senior
vice president, who is he? Do we care? Like how big a deal he was in Tesla? What did he do walk us through it?
Yeah, we do care.
He's he's you know, I think he's the face to he's also the face of Tesla. Seems to be looks like to be the right hand person for Elon Musk. So it's a big loss for the company, no doubt about it. But you know, he's a he's a powertrain engineer for the most part, energy engineer, so he's you know, he's really involved in the battery if you saw him
on battery day. I think, you know, if you look at Tesla and what Elon Musk have been saying about Tesla's future, which is on AI, which is on full self driving.
Is it a big loss?
I mean, you can you can argue that, hey, you know, Tesla's moving on to the next phase. It's not about building the motor, is not about building the batteries. They've gone through that process over the past fifteen eighteen years. You know, I think, you know, looking forward, they probably need somebody more people around. You know, AI, you know, developed them algorithms for the future of the car.
All right, Steve Man, thanks so much for joining us. As always, Steve Mann, he covers the global auto industry for Bloomberg Intelligence base down there in Princeton, New Jersey. It's got to be tough, I think, to be like a Kathy would be so invested in this company, you know, not only financially, but kind of reputationally, and to have that to deal with a CEO like Elon Musk is so mercurial.
I guess it is maybe the right term.
And one of the you know, the results of that is you know, executive turnover, and that's got to be really challenging for investors.
Yeah, but you know what's interesting with her view is that it's so long term that I wonder if these things become just blips to her, you know.
Yep.
On the other side of it, Yeah, she's very you know, obviously had great success with this disruption kind of theory. But boy, got to ride with Elon Musk and his foibles.
It's true. Yeah, No, that'd be really hard. Would you do self driving? By the way, I really yeah, okay, good, so we're on the same page, But well.
Can drive me around? I mean, you know, I trust him?
Well, that's his second job makes sense.
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Let's pivot to the geopolitical front, because another busy weekend in the Middle East with the Iranian attack on Israel. Response, Doctor Aeriel Cohen joins us. He's a senior fellow at the Atlantic Council. Doctor Cohen, thanks so much for joining us here. How would you characterize the I guess the Iranian back attack on Israel over the weekend?
How would you characterize it?
First of all, it's an avert act of war. Israel was attacked with three hundred missiles, ballistic missiles, cruise missiles, and owns. The systems worked very well. Both in sentcam US Central Command that Israel was joined several years ago. That was the right decision to integrate Israel was its Arab neighbors, and the US, UK, France, Saudi Jordan and apparently UAE all participated in shooting down the Iranian missiles.
But this is just a first try.
By the Iranians, and a successful try, the largest drone and missile attack of the twenty first century. Both the Americans and Israelis and the Iranians, the Russians and the Chinese are going to learn do lessons learn from this, and probably moved to program to plan bigger and worse.
Strikes against each other.
We saw many, many, many drone attacks in Ukraine, and one of the lessons learned is the massive drone type of swarms of drones as we saw can be counted.
So that's a good news.
The bad news is the Iranian regime is dead set on destroying Israel. The chant every Friday in Tehran is death to America, death to Israel, and they will continue on their merry way.
So, doctor Cohen, the question yesterday was is this the start of a direct war between Iran and Israel and its allies or was Iran's attack calibrated and telegraphed retaliation. It sounds like you're in the former camp of that.
The direct war all Iran against the US and Israel is going on since the days of the founder of the Islamic Republic.
The Ayatolla Komani. You remember the.
American ci A station chief was kidnapped and tortured and then murdered in Lebanon in nineteen eighty three, Colonel Buckley, And one way or another I was covering a studying these events now for forty years. So it's an ongoing war. But this was an escalatory operation, and this is the Middle East. Israelis sooner or later will have to retaliate, even as President Biden is telling them to step down
and take a win. When you have three hundred missiles lobbed against your country, this is not going to stop there.
So, doctor Cole, what do you think Israel's response will be and or should be.
I think that as Israel has ongoing business of Gaza in the northern border against Gizabala in Lebanon, they will.
Not be able to.
Launch a large scale attack against around They shouldn't not right now.
But they have other tools.
They have cyber They were very successful with cyber attacks against the Iranian nuclear program, and they have other means to disrupt the Iranian military establishment and the Iranian economy.
Will this side step in many ways containment of Russia. So I follow the oil markets. And there is an narrative out there that if you wind up moving deeper into sanctioned territory or even enforcing the sanctions that are there on Iran, that opens up an avenue for Russia to sell more oil and make more money. How does the US weigh these two events?
Well, let me connect this to something that Biden administration just recently did, the foot of freeze on our LNG development going forward. And I think when we have malign actors like Russia, like Iran who are oil exporters, we the United States, Canada and others need to produce more, not less oil and natural gas for the market.
All right, doctor Cohen, So I guess one of the questions here is we think about next steps is the positions of mister net Nyahu within Israel itself.
How is his gripple on power?
How is his ability to continue to move forward with this conflict?
Well, I was in Israel during the attack. The morale is high, but people are sick and tired of NATANIAO. If the elections took place today, he would lose and his credibility is shot, both because of the criminal investigation that predate.
The Hamas attack, of October seventh.
And because of the huge, unprecedented failure of the Israeli intelligence and the military on Netanyao's watch. So he may be trying to distract the attention to move on towards the Iranian confrontation. I do not want to speculate, but I think sooner or later Israel will do the right thing.
There'll be a judiciary commission of inquiry like there.
Was after the Young People War of nineteen seventy three, when Israel also got a huge to teach a surprise fifty years ago to the day of the attack of October seventh, And after that commission of inquiry there will be consequences can etaniao after including criminal proceedings. I don't want to speculate right now, but he is politically living corpse walking.
Doctor thanks a lot. We really appreciate Doctor Ala Cohen, senior Fellow at the Atlantic Council, has had extensive experience twenty years. He served at a senior research fellow in Russia and Eurasian Studies and International Energy Policy at the Heritage Foundation. Wonderful to get his perspective. I think what's interesting Paul for the markets is how do you hedge the unthinkable, like going into Friday. It's like, okay, you don't want to take risk into the weekend. You want
to take some safety. But now, now, how do you do that? Do you sell puts? Like you know, I don't know.
Well, some folks are some folks are selling oil here Brent Crue down now about one point seven percent still, you know, up around eighty nine dollars per barrel. But maybe a little bit of a breathe of sigh relief a.
Little bit there.
Oh, absolutely, And also there's a seminary about there, like why would Iron want to hurt themselves even more on the oil front. Anyway, we'll discuss.
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Let's get the Ben Emmetts Senior portfolio manager and had to fixed income, new age wealth, the joints here in our Bloomberg Interactive Brooker Studio Ben A million ways to go here. Let's start with some of the economic data we got today. Some retail sales came in really strong. Here.
The consumer seems to be in pretty good shape. I guess it.
Still is BOM.
I think that the employment reporters start to have an effect here, you know, because this was actually the numbers that were weak in generary ferry as we talked about earlier, and as I looked through these reports that you're seeing, you know, basically items that are going to be feeding directly into GDP that were up as well.
As those non star sales.
So I think what the market is doing today is to say, you know, GDP's once again accelerating. This brings us actually back to the summer of last year we had a similar phase of having higher bond yields started indicating that having a stronger economy, and this report then confirms it. So I think it's a yeah, this just shows.
Once again like we just cannot be knocked off course no matter what guest is. The prices are doing, these sales are.
Up to I mean I'm looking at the tenure, I mean rates are higher. Alex and I've been talking about this all day. Rach are up another twelve basis points on the tenure. The four point sixty five percent here, the two year run a five percent watch here. So the bond market is telling you, I don't know, rach are higher for longer.
I guess higher for longer.
And if you, if you, if this continues, then the tenure is going to drift towards where the fat fund's rate is, maybe not exactly but not too far off. That would, I think be a really interesting moment for Marcus because that means that if you're getting a ten fet funds rate about equal, it puts all should puts a lot of pressure on the economy. So but I think for now, and this is our view, that we're going to probably move into this four seventy five to
five percent zone. You know, if this type of data shows that the GDP is going to be upgraded and the PC is going to be higher, we're going to have to expect that it's also going to be continued to reflect better growth.
On top of the supply.
We're going to continue a half it was very substantial terasury supply.
So Ben that definitely means like a biotech thing because like they have the growth, they have the cash flow, they're not going to be subject to any of the refinancing et cetera. But I'm wondering if this scenario just dens the rotation that we've seen. Right, this I'm sure is bad for small caps. What does it do the cickle goals space.
Yeah, you could think of that that anything interest rates sensitive as in the small cap space typically underperforms. With the view though that that we think the rotation, you know, the financial energy rotations really happens that that's not so much deriilty one it shows today with golden sacks like it's just you know, good trading environments. The energy market's obviously in play with because of the geopolitics. So I think that part of rotation is we think is working.
But you're right about tech like that you gotta let your winners ride as Cameras said too, like we really have to not trade them but basically invest in them and stay with them because that is that is where it's happening in the economy. I think this is part of an impact to once again from all the infrastructure spending that starts to show up in the economists, making it each time stronger. Right, So why getting so much
strength of unemployment rate? Unemployment and it feits to spending so I think concluding tech remains in play here even though the tay yield may go to five percent.
So I mean, oh, your head of fix thing comes, let me ask you, I can sit into your treasury at four point ninety five percent.
Should I do that?
Or should I go out on the credit curve a little bit and maybe look at some corporate bonds, whether it's an investment grade or high yield.
How are you guys positioning?
So I put a little note out on Friday for New Edge that was I was sort of coming to the point of looking at the very short of the ye curve where anything that's floating rate, investment grade, or treasury. So even someone to extent howgh yield, it's just performing like so incredibly stable because you're getting all this interest.
Right, So the spread of floating rate.
Bonds over the treasury are anywhere but to two hundred three hundred basis points depending which area.
In, that's pretty attractive.
You keep collecting that interest and if you think about what's going on with the ten year yields. So on Friday we rally a lot. On geopolitics, we come in today we have a completely opposite picture. That's a lot of volatility. So I think from our point of view, you want to be a little bit more positioned down on the shorter end of yel curved because the yuka is not going to normalize much as fats on holds.
You collect all that interest and give you very stable performance and sort of wait it down until we get higher yields in the low end that at some point is going to start slowing down the economy. We do think though, that the by zone for the ten year will probably be in that for the four seventy five five percent range, that we would think that a lot of people will start looking at it and buying.
We probably do.
Do you think we get to five percent on the tenure?
I think it's fairly likely, and that's not just because of just today's number. But one thing with bonds Kurrny is that if you look at term premium as we call it a little like wonky term. But if you take what's expect from the fatter the next couple of years and where inflation is, you take that out of the ten year, there's almost no yield there.
There's very little compensation.
And if I then judge the way this geopolitical event is played out against an economy that doesn't get off thrown. Of course, it stays above trend. The volatility of bonds long end bounds will stay higher and should likely drive it a little bit up towards that five percent. Lastly, this refunding announcement that we're going to get believes that
on April twenty ninth. There's something really interesting, Alex about the t bag the advisory community that put presentation out a few weeks ago, they actually made it forecast the tee will supprit you decline, but the long end supplies to stay the same. If the Treasury follows through on that advice, that should be refracted into the U curve.
And that isn't right now, not enough. I think there's a low term premium.
So I think for all these reasons throwing the fat to that the fat's gonna got's going to be more more priced out. You're gonna get to five percent, you believe the technical analysis from prefinancial CRISI up with the now you look at retracements, you could go even as high as five point three, which is where the fet funds rates. That will be pretty extreme, I think, and it will be a real buying opportunity. We think the zone comes into four seventy five five percent.
So the Fed, what's your call for twenty twenty four? Will they cut in twenty twenty four?
So I was listening to Williams today who were with Mike McKee, a good interview. He still stays very confident that they can do it. But and he's important to listen to because he's actually the person that put out the framework and how they want to do it. Meaning if inflation continues to get on track down to two percent, even though it's slower now, that fat that fat Fund's rate that's restrictive can be at some point cut down to take the restriction out. He thinks that's that they're
still on course with that. I do think that the markets are probably more rational about earlier this year and saying yeah, it was not seven cuts, that's probably one of the two cuts. The windows obviously narrowed a lot, right, because as much Bowle said in the interview, I think it was also Mike Cue anyone else. The election didn't matter for them to make this great decision started in seeing you.
Probably they are going to keep that in mind.
The windows I'm giving Ben a look of like, yeah, all right, Ben Emmons, Yep, you go, yeah.
Ben, Thanks so much for joining us.
Ben Emmonds, Senior portfolio Manager, head of fixed Income at New Edge. Well joining us live here in our Bloomberg Interactive Brokers Studio.
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This is Bloomberg Intelligence Radio. Happy Monday, Happy Tax Day. I'm Alex the alongside Paul Sweeney. We're live from Interactive Broker Studio right here in Midtown Manhattan. Looking at the crud market. Here, you're looking at Brent down by about almost two percent, same for WTI, so you're now at eighty eight for Brent, about eighty four for WTI. So kind of what's next. Ellen Walld is president of Transversal Consulting, and she's a great person to talk to on the
price and fundamentals as well as the geopolitical risk. Just a handful of guys who do that really, really well Ellen, It's great to get your perspective. I've gotten so many notes for Strategist this morning on sort of what they're what's baked in now to the oil price? What's your call what geopolitical premium is in? How much should be in?
I think there's definitely some geopolitical premium that is baked into oil prices, but I think it's been that way
for some time now. I think that because this attack happened over the weekend, the price action was really really muted, even more than it would have been, you know, it was otherwise considering that there was no oil supply that was involved or threatened in any way, and so we didn't even see any you know, potential ups and downs or brief spikes just because there was no trading going on. I think the question really is, now that prices are kind of backing down, what's the next step. Where are
things going? And if there are any indications that Israel is going to launch further attacks against Iran or there could be more retaliatory attacks from Iran, I think that could definitely cause oil prices to go up, maybe another dollar or so, but we'd have to get some really strong indications that something incredibly major or explosive would happen in order, I think for oil prices to really spike higher and stay higher for longer.
Ellen talk to us about the demand side of the equation.
Before October seventh, that seemed to be the driver here of global oil prices, you know, the ups and downs of global demand.
What are you seeing in terms of demand these days.
Yeah, what we're looking at is, you know, we did see some pretty strong demand in the United States. Gasoline demand is not quite as strong this week is maybe it was in previous weeks. But when we go, you know, looking forwards the summer, I think we're expecting to see pretty strong gasoline demand over the summer in the US. And also what's going on with Asia, especially with China,
because they're big drivers of demand as well. And I think we're seeing some reluctance in Asian buyers to buy oil or to order cargoes more cargoes from the Middle East because there's a concern about whether it we'll get there. And that's actually fueling demand for American oil, which could actually either push up the price of WTI or keep it a bit more elevated as opposed to coming back
down as the geopolitical premium goes down. So I think that it's kind of a complicated picture and does depend obviously on the economic situation globally. If we see some kind of more recession, we could see demand falter. But right now it looks pretty strong heading into the summer.
Which brings us back to the supply picture. Ellen. So when you were talking about stronger action from Iran, the elephant in the room is closing the straight or Her moves where a lot of oil passes through, and that would be a huge line in the sand for oil and would cause unbelievable spikes in the oil price. What is Iran's capacity to actually do that because they've gotten kind of a good gig under President Biden in terms of you know, their exports are up, right, their oil
exports are up. Do they really want to mess with that?
Exactly? And I think the only case in which Iran takes any kind of action to shut the streets of hor Moos to shipping. And so remember what we're talking about is this is a small passage and Iran, you know, could do this in number of ways. It could either block it with ships or it could fire missiles off of nearby land. That could make it impossible for ships
to traverse this area. But for them to really take that action means that Iran has nothing to lose, because if Iran cuts off other ships abilities to go through that, then you're going to see the US Navy cutting off Iranian ship's ability to come through the streets of Horror moves as well. So Iran really has to have nothing to lose, and right now it's got a lot to lose. It's got a very thriving contraband oil industry going on.
It's making a lot of money, and as oil prices go higher, even though Iran has to sell its oil added discount, it's going to make more money, so it doesn't want to mess with that. In fact, it probably wants to sell more oil to you know, to its buyers as opposed to less. So if Biden starts to mess with that by enforcing sanctions harder, then that could kind of stir things up and make things more tense.
But right now, you know, unless Iran's oil industry is shut down, it's to say, if it's oil industry was destroyed, then it might have the motive to do that because it's got nothing to lose, but it's.
Definitely not yet. I mean just from perspective, Like in March, I runing oil output hit a five year high, about three point two five million barrels of oil a day. And the conversation we were having earlier with doctor Ariel Cohen was if sanctions are lined up heavier on Iran so they can't export that much, that opens the door for Russia to start selling a little bit more as well.
So talk to me about how you balance, as someone in the Biden administration, how do you balance those two where how do you do that?
Well?
I think the Biden administration also has to come to terms with the fact that it's price cap policy on Russia is basically a failure. It's not really stopping Russia from making oil on it from making money on its oil industry. So yes, if Iran has less to offer,
then Russia can fill in those gaps. But I think there's also the issue of Russia's participation in the OPEP plus output cuts, and if come June oil prices are still in the nineties, then there's gonna be a lot of practic on OPEK to raise its output and Russia's part of that, and Russia would love to sell more oil obviously, so this whole whole thing is a very complicated dance. Meanwhile, the Biden administration wants it's going to want more oil on the market because it doesn't want
high gasoline prices going into an election year. So they both want Russian oil on the market. They just don't want Russia to make a lot of money off of that oil. But it seems like they can't really have both of those things.
Well.
Torsten Slock over to Pola Management put out a chart today that for me, who's not a oil expert, was really illuminating what you're saying.
The US is the biggest.
Oil producer in the world, with about twelve point nine million barrels per day. Why don't our friends in Texas and Oklahoma just start pumping out more oil?
Here?
Great question, and the answer is that this is not the same oil industry as it was in twenty fifteen, twenty sixteen, twenty seventeen, where it was all pump pump, pump, drill, drill, drill, put out as much as you can, don't think about, you know what, you're selling it for the return arns. It's just growth, growth, growth. That's not the oil industry. Now, there've been a lot of consolidations. Oil companies are running
very lean games. They really cut out a lot of of you know, fat during the pandemic, and they're at a point where they don't have to produce producers, they don't have to grow in order to satisfy you know, their uh, you know, their their shareholders. They're they're sitting very well. Sometimes, you know, they may drill more wells, but it's become much more expensive inflation. We all think about oil prices causing inflation, but what we don't often
think about is how inflation acts on oil production. And so everything costs more to drill now, and so they may see a benefit in not expanding drilling so much. They are increasing production by getting more out of every well, but there isn't necessarily a benefit to drill, drill, drill when uh, you know, they've got a good thing going right now, and it's becoming more difficult to drill more in terms of the prices, the supplies and all of that.
So uh, and there's there's less incentive for them to do that at the moment.
You're all oil learn on you, Paul, Right, okay, all oil nerd for you. The US produces a different type of oil than the oil you're going to get in the Middle East.
Sweet cruit.
Yes, yes, John Tucker, we were just talking about you yet.
Just real quick boil b O.
I l great function all.
The different types of oil. It's like sixty different types of oil, and.
All of them have different qualities and you can use them to refine into different kind of products. Uh So, even if the US was producing like forty million barrels of oil day, which obviously is like not possible, it wouldn't make up for the loss that you'd see in some of the Middle Eastern countries because they have the heavier stuff, which is really good for other products. So that is your Alex Laine of the morning. You are so welcome, Ellen, Thank you very much. Ellen Walld a
president of Transversal Consulting joining us there. There was also an interesting article, I think it was in a journal that US oil executives finally have a direct line to the White House that like now their calls won't be rejected and they actually can go and talk to the Biden administration.
So I that's why it's interesting.
Oh yeah, Like a few years ago, when first time gasoline prices went to five dollars. I asked a CEO of a major oil company in the US, has the Biden administration called you. He's like, not even tried. Wow, yeah, but now that may be changing a little bit.
So yeah, I would think. So we get star oil and gas industry as long as well as we need the green stuff.
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Here.
When we get back to geopolitics, front and send yet again, Aaron David Miller joins his senior fellow at the Carnegie Endowment for International Peace, joining us in Washington, DC via that thing called Zoom. Aaron, talk to us about kind of how you view the Iranian response the Israeli defense.
Over the weekend. Here where do we go from here?
No, I think it's a story. Thanks for having me. What I would describe as the good, the bad, and the ugly. I mean, the good is easy at Israel's technical mastery of air defense backstop by the United States, it's military aircraft and air defenses by the Europeans, the French and the Brids. And not surprisingly, but I think in an unprecedented fashioned by kiirg states who participated in this Middle East air defense alignment of radars and intelligence,
which is in precedent. There's never been a Middleast war where the at least the Israelis received that kind of support, including oak and so word from the Jordanians who downed a number of drums. That's the good news. The bad and potentially ugly news is number one in a real war, and I think the Iranians actually telegraph this and calculating and calibrated it so that they wouldn't prompt a massive Israeli response. In a real war, the Iranians would probably
launched thousands of missiles and drone drones. That's number one. Number two, you have new rules established now. I mean it was thirty three years, been thirty three years since any Arab state attacked Israel directly. That was Saddam Hussein in ninety one, who launched forty three scud missiles. Then Prime Minister Shamir was persuaded by the Bush first Bush administration not to respond. But you now have new rules between Iran and Israel, established an a rivalry and for
which there's no solution. So we're now forced to deal with the cruel realities that we're best going to be managing this and trying to contain it. The Israelis have made it unmistakably clear. I think that they intend to respond. The timing and the scale of that response, I think is still very much up in the air. Maybe they'll look for a calibrated response that reinforces what has clearly been obvious, which is Israel's technical mastery and superiority over Iran.
But there's no guarantee, of course, once you go up the escalatory ladder that Iron won't respond. Then then you raise the issue Balla. You know, that's kilometers away, that's not hours away. There's Balla lunch, missus will It's not gonna take hours to get Israel and they got a lot of them.
Aaron, this is a pretty grim picture that you're painting at this point. What are the chances that that's how it's going to play out or is there real ability for President to President Biden to diffuse this.
You know, diffusing would mean meeting Iran's and Israel's core requirements. I'm not predicting regional war, which would lead to dramatic spike in oil prices and probably plunging financial markets, and a degree of instability in the Middle East has never experienced before. It's a matter of managing and containing, that's the question, because there's no solution to deal with the fact reality that Iran is a nuclear weapons threshold state.
There's no real solution to deal with Iran's proxies. That's always been management issue, whether these are shelling international shipping or seeing shippers to go around the Cave of Good Hope, which is additional thirty five hundred miles, which raises rates and interferes with the global supply chain. There are no determinative, comprehensive answers to any of this, and if we need to complicate it even more, you have an Israeli Amas war.
Although the Israelis seem to have scaled down their ground campaign in Gaza, that carries so many uncertainties, including the fate of one hundred and thirty four hostages, thirty of whom Israelis believed were either killed in captivity or died on October seventh. Their body's taken to Gaza to trade for Palestinian prisoners. So, you know, I wish I could make it happy. But again, I'm not predicting we're going
to a major regional war. But I guess my takeaway here is it's going to require a degree of restraint from Iran and Israel, and to a certain degree, some diplomacy from the Biden administration, particularly with Ralis Aaron.
Do we have any clearer picture today than we did on October eighth? What really the end goals are for Israel here? What would be a victory.
A victory, I guess would be three things. Number One, Hamas would be not as a political force, but as a military force, would be undermined and destroyed, so it would not be in a position to pull off another October seven. Israel would kill the senior leadership responsible for the October seven attacks, and the redemption of the hostages. If those three things were accomplished, that would be I
think you could put that in the victory category. Although the price of victory, the price of victory is something that needs to be factored into this, particularly when it involves the exponential rise of Palestinian deaths and the humanitarian catastrophe, catastrophic starvation. Samantha Power, the AID Administrator, even used the words several days ago.
Famine.
So I'm not sure the Israelis can accomplish those three things right now, six months.
Into the war.
There's no indication, right they have not killed the senior leadership. You've got a truly tragic situation with respect to hostages, particularly the women hostages. And you have a situation where Hamas, probably out of their thirty thousand fighters, have at least
ten thousand fighters that remain. So I think we're talking here again about a lot of uncertainties, and I just don't see a sort of determinative ending where Gaza becomes secure and stable, the Israelis in the Saudis normalized, in the Middle East remains as converted into a happy conflict place, or everybody's getting along with one another, all.
Right, erin thanks Lott, we really appreciate it. Aaron David Miller, Senior Fellow at Carnie Endowment for International Peace, is standing by and then or thank you for joining us. I have to wonder then, you know, as an investor, how do you It just means we're going to be very sensitive to any kind of headline that's going to cross, which is maybe what we're seeing in the market sort of right now, and it's going to make the overall
data that we see. I wonder how much more relevant that's going to be when these headlines can be very effective.
Yeah, it seems like, you know, just to date, the market is kind of powered through all of this Middle East tension, much as it has the European geoconflict in Ukraine, seems to just generally bypass it and focusing on, you know, maybe a little bit more local issues, I eat, central bank policy, corporate earnings, so maybe a day to day
basis that might be totally from this. But if you look at this market really since October, which is you know, kind of the low of this market, you know, s and p up about twenty five percent during that time here, So despite all the geopolitical tensions around the world, much much hotter than I think anybody would like to see, this market is moving higher.
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