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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordert. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.
Here's the latest.
This morning, the President slamming NATO, telling the Telegraph he is strongly considering pulling the United States out of the Alliance as members refuse to join the war with Iran joining US. Now is Admiral Pierre van Die, the NATO commander for Transformation. Admiral, welcome to the program, sir. I'll share with you what the President said to the Telegraph. In their story this morning, they say the President was asked if he would consider reconsider the US's membersh ship
of the Alliance after the conflict. He said, quote, oh yes, I would say it's beyond reconsideration. I was never swayed by NATO. I always knew they were a paper tiger, and Putin knows that too. By the way, Admiral, what's your reaction to that quote and what's the future of this alliance?
So thank you for having me.
It's the first time I'm on a US TV or life, so I'm very happy to be able to share some comments with you. So well clearly understand that we themity are not maneuvering on the political level. So I will not commend this debate, which is a strong one, which is about the transathletical inks and how the things go on the political side.
I think what we have in.
Front of us is a world where the crisis is not any more the good understanding of how the things are going. It's much more a question of shock. If I may an image, A crisis is when you're the ties of your car are flat.
A shock is what you hit a tree.
We are in a world where hitting trees now it's a new normal, and I think for an alliance it's a strong, strong challenge to be able to adapt at a very high speed to these shocks.
Admiral, though this goes beyond just politics. This is about operational issues for the Alliance. When the UK only allows the US to use Basis for limited defensive action.
When we see reports that Italy is.
Denying and military aircraft permission to land in Sicily, and you have the US questioning whether they should even have bases in those places if they can't use them, the question still remains, what is the future of this alliance From an operational standpoint, what is the future of this alliance?
I think the strength of the Alliance is to have having been able during more than seventy eighteen years to discuss and to find a way together. It's the consensus ace, which is not driven by majority but by consensus. And so that means that you have a unique place in the world where you have thirty two nations that discuss at political level on a daily basis. And so I know that since this war is going on in Ukraine,
they are very intensive discussion at natal level. It's not only the nations themselves one by one with the US, it's it's all together in the in the NAC. It's a NATO non athnotic console where this discussion occur. And I think it's a strength for the West. It's something we need never to neglect is the fact that we are together. We are committed by bonds, and so we need to there always tensions that it's not the first time, but we need to to solve this as a united alliance.
Can the alliance exist though without the support of the United.
States, This is a great question.
So mister Trump, during the LA he submits UH last summer he achieved to ask to the Allies to spend three point five percent of the GDP for their own defense. That comes by the fact that the US have other priorities. They are not only focused on Europe, and the crisis in a round is a good demonstration of what they said.
So it's a moment for you Open to stand up and to.
Do largely more than they have been habitted to they did before during the during the Postcord War decades, UH, the Opens have been somehow the free riders of their own security. Today there is a great change, and now we need to ramp up in all domains and to be able not to do without the US, but largely with a smaller force of the US given the other commitment these US forces up over the world.
And what is it ability or will to potentially help the United States when it comes to reopening the straight or hormone A. We're struck by the UK Defense Secretary minister in an interview really struggling to answer basic questions even about how many frigates the US has the UK has presently at the moment.
So there is we he inher it third years of these investments in all domains, in the industry, in the weapon stock, bise, in the in themitry, in the number of soldiers. So it's not by a flick of a switch that will we change that. That means a strong, long lasting commitment from the opens to be able to ramp up. So we inherit a very bad situation, and I think it's time out to wake up.
Given the fact that there is a lot of questions right now about the US and the US's role with NATO. How likely is it that in five years NATO will still exist.
It's a very political question.
I think we don't kill we he inher it a system which is a good one. In fact, in other parts of the world, I think most of the alliance we discuss with, especially in the PACIFY, they are saying we should have something that looks like NET. So it is how it is, it's it's it's a big organization, but it's the one where we discuss on every day. You have a more than twelve thousand met read that
on a daily basis. They work on plants, they work on intability, they work on training, they work on concepts.
So this is a goal in the in Odiens.
And so I think it's a moment where we need to have a cool hands and not saying okay, because there is a crisis, we will kill the baby. I think it's a moment we have an heritage, we have something that works. I think it's a moment where all the stakeholders need to be responsible.
They need to they need to say okay what we hearer it?
And with this, this this alliance, I think there is a lot to do still uh and killing it will not make the world safer.
There was some questions about the act that missiles were logged at Turkey from Oran and that this potentially could engage NATO more directly in the conflict.
What's your response to that?
So some measures have been taken by secure It's the US General Greenevic, which is in chid of that kind of answers uh, and so he has taken measures in order to be sure that the NATO AR Area of responsibility is well protected against the will of Iran.
To spread the crisis outside of its borders.
And well, before you go, can I get clarification on something. Can you confirm whether Iran did try to strike the Diego Gassia base in the Internet Ocean, because we're still trying to gauge what the range actually is. What do you know about that?
So it looks like they have tried to send a three stage ballistic missile which is much more looking like a commercial rocket.
I think it was.
It was a messaging and they are trying to demonstrate their their ability to expand and to spill the crisis outside of the Middle East.
It's their strategy.
And so I think it's a moment where back to the Islands, it's a moment where I think we need to show that we are united, we are committed to defend one billion pre citizen over the world and not kill the baby at a.
Moment of tension with which I fully understand.
Stay with us. More Bloomberg surveillance coming up after this.
Oil down this morning by about a half of one percent on per and crude oil falling. As the President stokes optimism the AROUND war is nearing an end and possibly withdrawing before reopening the stratiformers and a world of the Atlantic Council noting potential issues with the plan, writing this would be a terrible president for the US because around it's actually in an enhanced position of making more money than before and joins US now for more and
welcome to the program. The last time we spoke, which I believe was about a week ago, you said, unless this sends in ten to fourteen days, the energy crisis are going to approach severe levels. The President is now saying it's going to take another two weeks potentially. And with that in mind, what kind of levels are we going to approach in the next two weeks.
Well, if you look at what's happening already in France and other countries where they're having runs.
On gasoline stations, I mean gasoline stations are.
Running dry because they're putting in these price controls and that's making everyone rush to buy. We're really having severe issues in a lot of countries that we in the US are quite insulated from because we're not experiencing this. Yes, we are seeing much higher gasoline prices, but the fact that we're not seeing any shortages is really giving us this sense of isolation. I think from the most important impact of this conflict.
Ellen, can the straight be reopened or can you see a supplies start to flow through there? If Iran continues to hold on to a control of this region, And I ask this at a time when Cutter is seeing oil tankers being bombed in Qatari land.
This is a really severe problem because if the United States ends this conflict or declares an end to it while leaving Iran basically a de facto control over passage into and out of the Persian Gulf, then we've actually put Iran in a much better position than they were in before this started, because.
Now beforehand, they weren't actually controlling it.
It was just this threat that they might actually limit traffic or they might threaten the safety of ships passing through. Now they are threatening the safety of ships passing through, and it is effective because tankers are refusing to cross because of Intera's issues and because they don't want to get hit by a drone.
And then if we leave Iran's.
Basically in a position to say, well, how how much are you.
Going to pay us to leave you alone?
And that is that's a whole new role for this country and also puts them in the position to make more money.
Well, when it comes to the money ellen in the past, anytime the United States offered waivers for Iranian oil, it was put into an escrow account, and there was it was dictated that it had to be used for humanitarian aid for the people of Iran. I didn't see any of that sort of language in the general license. So where is this money going that the regime is making right now off of selling their crude and the toll.
Presumably it's going straight to Iran.
It's not going in dollars because there's still restrictions on what kind of currency Iran can use.
But at this point do they really.
Care whether you know, Pakistan is paying them in yon or not.
It's going straight to the government now.
Because militarily we've hit certain sites, We've we've hit you know, factories where their.
Making these these missiles and drones.
They're not necessarily to produce more of it right away, but the fact that they that they have this money means that they will be able to get back to this in the future, or they can funnel it to their to their proxies.
I mean, the Hoothies are still a wild card here that.
Could completely change the situation in the Red Sea. And if they're doing that with Iranian funds, then have we really even put you know, anything in this situation in a better place? And I would argue that not necessarily.
I was told once again by a source yesterday that the Saudis are basically paying off the Hoothies to not get involved.
At what point does that stop?
It stops when they have access to the Persian Gulf again once they can once they can ship out of the Persian Golf, and they don't have a need to continue to pay off the Hoothies at maybe such a such a high rate.
Ellen just more broadly, what's Saudi Arabia's role in all of this. We've heard from the UA, or at least reporting from the Wall Street Journal that they're considering serious getting involved in some sort of effort to make the straight of war moves independent and a free flow for traffic. When does Saudi Arabia get more intensely involved.
I think they get intensely involved as a member of the GCC.
You know, this is a waterway that they depend on.
Me. Remember, we've had major, major wars on a much larger scale fought simply, you know, for freedom of the seas. This was something that that Woodrow Wilson cited when he brought the United States into.
World War One.
So the idea that Saudi Arabia and the UAE and Cutter and Kuwait and Iraq want free passage or a freedom of the season and freedom for passage through the straight of for moves, that's a very basic right of nations. And so I do think that if there's a potential for them to make a difference in securing that that they will get involved as part of the greater GCC.
Stay with us Multblemberg Savannah's coming up off to this, The first treading day of April could be a long treading day. The President addressing the nation later on this evening, I was.
Thinking to myself, how many people were excited, thinking maybe this is an April Fools joke, and I don't have to stay up until ten or eleven PM to understand exactly what the mood for Q two is going to be.
Well, source called me last night after that news became public and said it's going to be the Academy Awards of Verbal Intervention.
What's come a little bit later on this evening, it's everyone walked straight this morning, Steve and Uthur federated right in the following We are treating this as another brick in the wall of worry as the US markets advanced toward towards our s and P five hundred target of seventy five hundred for twenty twenty six. Steve, John Zusnaphimos, Steve.
Good morning, good morning.
Why is this just another brick and a climbable wall of worry?
Well, we have an expression at federating hermies.
You know, if it can't happen, it won't and I think you know the alternative really can't happen, and you're seeing her, you stepping in here. We can't have twenty million, okay.
Eleven million barrels a day. I guess if they can.
Keep the Red Sea open of the world's oil supply, which is eleven percent unavailable, that just takes oil, you know, roughly, I think, as you guys know, it's about ten bucks a barrel. So you're looking at a number in the one fifties that would kill the global economy. So we have a fifteen percent probability that that's what happens. So that's why we're sort of suddenly cautioned here. We have
not added to equities. We're keeping our forecast in place at the moment, but every week that goes by, you know, we get closer to the summer driving season. I think you know that the gasoline output, you know, they have to store it in advance. They can't produce enough to meet demand during the summer season. So yeah, crack spreads are closing in on twenty dollars on top of the oil price. You know, that gets you two levels That
often results in a demand response. So a few more weeks of this, you know, we're going to have to take down our GDP forecast.
Just tell you it's going to be a fewal weeks.
I think that's why he's looking at those number of weeks.
I think they're doing the math on this, so they really do have to figure out a way to get this over in a couple more weeks or people are going to start taking down their GDP forecasts. We you know, we entered into this with GDP ahead of consensus. We're at four percent for this year because of all the stuff that's going on with the one big beautiful bill and you know, the stuff people have talked about, and the underlying earnings pretty good.
Investments are pretty good.
So fortunately we're entering into this with strong number. So this doesn't yet put us into a recession scenario. It's more like lower growth than we're anticipating. I'm also looking very carefully now. We've got earning season coming up in another ten days or so, and you know it's going to be great. We know that coming into the thing. But the question is is this going to be like
the weather. You know, everyone's going to be talking about the weather here, which is the Mid East, and guidance might be more conservative, and that's probably not good for the market either.
So there are a lot of unknowns.
There are no unknowns, so then they're unknown unknowns and it's just a really muddy moment and everyone's really frustrated. Which when analyst came in yesterday and said, it gives me a lot of time to take a step back and have big thoughts. So I'm curious for you to have big thoughts to understand how structurally the market has changed. Even if say this is a short conflict, there will be an inflationary read through, and if the economy is strong,
even more so. And right now it seems like we're pushing up against the limits of both fiscal borrowing as well as just how much the FED can stimulate or monetary policy makers can really stimulate. On the other end, how much do rates at four and a half to five percent in the United States maturely change the outlook for US equities going forward if they're not going to come down all that much, and if it's the same around the world.
Okay, so we tend Lisa, you know, we're trying to invest against a three here horizon. So we're looking out past this and saying what world are we going to be? And we should be back to a world that's growing reasonably well, all those drivers we've talked about, the AI revolution, et cetera, and a market that is significantly cheaper than it was three months ago. So on that view, we'll come through this. The question is in the meantime, how
do you navigate your way there? And as I said, if this goes on longer, I'm more worried about the demand impact. You're more worried about the inflation impact. But I would say four and a half is another Magano line for the Trump administration. We saw that back in April of last year. We got close to it again just recently. We're not backed down quite a bit now. But yeah, I mean four and a half is not a good.
Can you have both not necessarily downside surprise if you do have some sort of ends to this and companies can maneuver through it, and then also get the disinflationary pull through that a lot of people are expecting later this year. I mean, do you have to have one of the other, either a downturn and growth or stick your inflation and central banks are not going to be cutting rates that potentially could pressure valuations.
Well, I don't think the inflation is going to be stickier if they really do get this done in the next few weeks and get the straits reopened, right, because people are not going to factor in those higher prices forever, which is what you need to be stickier. So I'm still not on the sticky inflat. I'm more worried about the summer driving season, the demand impact. They're going to figure out a way, whether it's Trump declaring victory, but
the Iranians, what are they going to do? The only thing they've got left is the straight of forem moves.
So the markets, though, can you declare victory and still have the Iranians in control of the strait of removes and not have normal traffic?
I think that's going to be very difficult, right, That's going to be the issue. So it's a two way negotiation. The you know, the market right now is like a multi dimensional chess board with some very smart players in it. And so I think when I play that kind of chess, I've got a board at my home if anyone wants
to try it. The thing that the thing that makes me most difficult for me when I was younger and used to pay my sons were younger and a little bit crazier, is an unorthodox player that you can't predict that's on the board.
If I think dying is winning, you're dating with an unorthodox player, that's for sure.
Yeah, And that's what makes this so difficult for everybody, because we've got an unorthodox player here who's playing for different things. You know, economics is not necessarily their their driver.
Te pot steel question.
By the way, the first pot was is the market is going to be okay with around controlling the stratiful mus And the second pot was with restricted energy For the first part the short term, I don't think the market will care who's in control of the stratophormus along as the energy is flowing. The most important part is whether the energy is flowing, and right now it's not flowing. There's just a hope that the President moves on Ironte's control in the near term maybe and then the energy
starts flowing again, they'll charge people for it. I don't think in the near term the market is going to care about that. Over the longer term, that will have consequences for the kind of premium that will be put on crude coming through the stratiform mods, the risk around that. But in the near term, this market has been itching to move on.
Now the longer term outlook for oil has gone higher regardless because of that.
Job, which is why they said was trading at eight.
And you know what we're looking at is a demand impact here of people saying I got to have a bigger reserve to avoid this, and longer term, this is probably really good for nuclear energy companies.
That's the structural shift.
Just one final question, tech multiples, real multiple contration through the last month or so, is that compression and opportunity or does that speak to the structural shift we're seeing and how we value this s equity market.
Think, you know, as you know what before just the day before this started, we took down our target for the year and we took down the tech multiples because we saw the big megacaps going from big free cash flow generators to in the near term, not being big free cash flow generators.
And we don't know how long that's going to go on for.
So we've kind of switched our portfolios, fortunately towards hard asset companies, you know, more value intensive. And I think once you come out of this, you're still faced with that problem, the AI disruption on the software side of tech, and you know, the free cash flow decline. That's why companies that are growing free cash flow right now tend to be on the old economy side of the of
the kind of like Chevron. I mean, they're scree cash flows ballooning Micron by the way, free cash flow and that stock you know, down significantly here down thirty percent, but their free cash flow is going to go up by eight times over the next couple of years.
So I think that's where the market is going to end up going to.
You know, the tech is okay, you're the price I think has already kind of corrected, but yeah, I'm not sure it can lead us out of this.
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