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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. 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. We begin this out with tech earnings helping to offset cycnical threats building the energy market as US around tensions continue to simm up. Bitter chairb Academy securities right in. My best case is that the chatter from last week of an impending and very strong deal for the US comes to fruition. Pete joins us now for more. Pete and Monic Warrick. That's your best case. What's your base case?
Bias case?
I think is that this continues to struggle and it starts weighing a little bit more on the economy. You just pointed out We've been looking longer day to futures contracts and you're out to eighty dollars in WTI out to November now, so that's different, and you're starting in those longer months September, October, November, you're actually at the
highs of the whole cycle. So unlike the front contract, which we're still below kind of those spikes, we're seeing this kind of push out and it's really hard to figure out who's in charge in Iran. So I think that's a big issue, and it's really figure out who's willing to make that first move. I think when we talk to our Geopolitical intelligence group, the consensus view is that we will probably to end this war, have to
escalate once more. To actually win that we will have to go in that, we will have to fight, and we will have to put pressure on Iran. Trump sometime's reluctant to do that right now, but we don't really see winning any other way right now.
Right now, we're not tried in the economy. We're tried in the market, and there's slightly different things. The economy is not great in Asia, in Europe, there's a real threat. In the US, things are okay, but they're better than good. If you look at a US tech story and the earnings profile of some of the chip makers at the moment, what's your best bet in the market, how are you allocating capital? What are about have to full well?
As you know, we've been talking about this production for security, so we love that. And Intel was actually one of our names we've expect because we did think that the US had to grow chip business organically, domestically. I think now that's almost I've got to admit I started selling a little bit a header earning as I'm probably going to be closed a bit more. It's better lucky than smart sometimes, but you know, we've had that great play.
I think you have to start really looking tune out of Europe and thinking that Europe is finally going to get the joke that you have to invest in heavy industry. You have to invest in your own electricity production. You have to let BP, Shell Totel do what they're good at and not so worry. You know, don't worry as much about carbon in one degree temperature change is five years from now, when the reality is you need electricity, need energy. I think they start unleashing some of this.
They're getting a little bit more creative. I think they're getting a little bit more organized, partly because they're getting a little bit more desperate. You know, it kind of takes them years to figure anything out. They got kicked by Russia. Now they're getting kicked by iron. I think that's going to be really interesting. So I want to own the energy plays. I want to own kind of that production for security, not just now in the US, but really heavily into US.
They so we mentioned it briefly. You see the pressure on the Europeans and the economy in the PMI data. You see it in the markets too. I think the euro stocks fifty so far this week is down some three percent.
They are hit in both ways.
Number one, their energy importers, but they also don't have the techt story, And the tech story seems to be supporting the market in two ways. On one hand, you've got, of course, just the idea that there's upside surprise and the equities, but also the investment the capex, which seems to be supporting the picks and shovels that we see with the semiconductors and the energy stocks in the US. And that's been a huge support because that is existential spending.
It isn't necessarily something that's coming from an obvious use case.
It takes us the next week. So next week, next Wednesday, we get some big earnings from Microsoft, from Meta, from Alphabet. They are the big spenders, and some of them are also cunning jobs to support that spending. To Lisa's point, when they feel like it's existential and they've got the balance sheet to carry on spending at least trades, you want to be on the wrong side of to get on the other side of.
At the moment, I think we're all kind of waiting to see if software can really turn around. So the Microsoft story, I think will be really interesting, right can we get this turnaround software? And you know I'm him tempted. I don't think I'll get to the point this weekend, but I want to write the note, like you know, your costs or someone else's customers. And I'm getting a little bit worried about the job situation. Right we kind
of have this working poor situation. We have affordability that's doing nothing but getting worse right now, and I know we kind of focus so much at gas.
At the pump.
I'm getting increasingly worried about what's going to happen to fuel costs? Right, Diesel is such a big component of fuel costs. We haven't even started feeling the impact of higher fertilizer prices on food costs. I feel this affordability like this working poor and people who are not able to make ends meet the way they thought. That income line keeps creeping higher and higher. Now you're starting to lay off some people, you know, very nice jobs in
many of these cases. I'm a little bit worried that there is a subtext of this economy that's worse and that the one thing we're not I'm still trying to figure out how to pick this up myself, but I feel like we are very good at identifying job loss lead recessions. Right we see the job loss, we start
figuring out we know how to deal with that. I'm not sure we've had an affordability led recession, And despite the fact that chips and things are doing so well, I'm increasingly worried that you're seeing pressure on the consumer ways their make hands meet, their make hands meat.
We got the bump from you know.
The tax relief and things, where are they two months from now?
So a lot of people will be nodding along and they'll be saying, we see this in the data, we see this in the sentiment that we have, of course coming out through all the surveys that indicate this fear about affordability.
But then stocks.
Get rewarded for cutting staff and saying that they're going to invest in AI instead.
How awkward is that?
I mean, do you think that that's going to be the theme going forward? That if companies cut a staff wholesale and say we're going to invest in AI. That's a by the stock moment.
I think at some point people start getting worried about the job losses, and not at that individual company level, but at the national level, and say where are we And you know it was just what two months ago we were going to have the AI took over all the jobs, and that kind of narrative disappeared.
I think that starts coming back right.
This is a little bit concerning if you're going to lose these jobs, who's going to take those jobs? The same time, you know, continue to use AI. You hear about AI slop and people having to redo work. I believe with big law firm just have to make some announcement that they'd included some hallucination.
So this is not yet perfect and we're treating it that way. So thanks, you don't want to read it for your love and again.
Yeah, I keep for you looking at the fire side and you you might be the only species that extincts ourselves.
It's like we're sitting there and going out over our week.
The market's encouraging it. And this is the key point Lisa makes it. This was interest Citerni research a number of months ago, and I thought it was the most important point in that research piece, Lisa was that you replace the operation expenses the op X, with the capex,
and the market rewards you for it. So then you drop the opex again, you boost the capex, and the market rewards you for it, and that's the labor market doom loom, and you end up in this really, really bad situation where the market's doing well and rewarding that kind of behavior, and unemployment starts to climb. Now, I'm not saying that's the base case for you, the base case for you, or the base case for me. I'm
just saying that's the fear. That's the fear of what could happen in the next several years well.
And essentially if you start to see companies have to justify their expense in capex tied to AI by cutting staff for efficiencies, then what does that set us up for? I mean, is that essentially what you see going forward, Pete, that there's going to be a sense that companies have to cut somewhere in order to keep spending on AI at the speed that they have been.
There's certainly some of that sense right now. And again I think they're going to get more and more investment in the semiconductor industry, right I think that's just one A.
You've got these companies. B.
You can start looking at places like Nokia ericson what in Europe might benefit if Europe can kind of get serious about AI. You've seen some smaller companies. You know that Blackbeer I think is a company I own a small bit of. All of a sudden, that's interesting because they're doing something in the space. So you're seeing kind of every and I think, look to okay, what else can benefit. I think that's going to drive that part of the market. I think it continues to do pretty well.
Can I just get funn of word on government intervention? Intel talked a lot about spirit and what's going to happen. There was save that conversation for later this morning. Intel. I don't want to downplay the real developments taking place of this company, but how many companies do you think of re engaging with Intel because of the government involvement and the halo that offers, and maybe they want to play some people.
I think when that was part of why we had the prosac right and we concluded Intel because of the ten percent government stake. And part of my thesis had been Trump likes to win. Trump owns this on behalf of the American people, So the American people are winning, but people are going to do business with this company because you want to be on the right side of Trump. So I think that was part of my thesis. I think that's probably played out very well, for better or
for worse. I do wish that when we're making these investments, whether it's in that there were some guidelines set up and that we had some group that actually does this and was well organized. That's not how this administration works, and fighting how this administration works isn't a good way to make money. Figuring out how the administration works and taking advantage or following it.
I think is Ben's nice.
Defense contract is Flying Spirit because that was going to happen next Now.
I do think I'm looking for, you know, anything in the drone space. The drone space is just going to continue to take off. I think a lot of those companies are private, though I'd expect a lot of IPOs. As we were talking offline, you know, there's going to be IPOs and everything. I think you're going to see that. And I think surface drones have not get enough attention.
That's you know, boats basically, So you can look at companies again, I think the shipbuilding industry, which is allegedly why the Secretary of the Navy was let go as he was not focusing enough on shipbuilding. That's an area I think is going to gain inten I look at Brunswick for example. They make small boats, you know, not military or anything like that, but why don't they get involved in this.
I think you're going to see that this.
Drone space explode, and I think shipbuilding really is a big focus that we need to do. So that's if I'm bathing right now, I'm shifting some money out of maybe the semis that have done so well, I'm looking for other things.
Stay with US Mulblindberg surveillance coming up after this. So here's the latest this morning, a US soldier facing charges for allegedly using classified intel to rake in over four hundred thousand on polymarket betting on the timing of the capture of Venezuela's then president Nicholas Maduro. With the latest in Washington, Amory has more Montinggomery, Good.
Morning, John, And it's not just what's happening in terms of this criminal investigation, but also the CFTC is lodging its very own in parallel civil investigation into this soul. And this marks the first time we see that regular take that step when it comes to prediction markets. It also comes to this own White House sent out a memo to staff a few weeks ago to make sure that they are not making these kinds of bets, especially
given they have access to information. And we've seen a number of sizable trades, not just when it comes to trading platforms online like Caushee and Polymarket, but also in our own financial markets, especially when it comes to massive oil positions put on in a timely fashion before the President comes out with a truth social post and for more of this. I'm very glad to be joined by John Lieber of your Asia group or friend of the show. John,
thank you so much for joining joining me. So the CFTC is also joining in on this in a parallel suit. Are we going to see more of these kinds of lawsuits?
I hope so.
I mean, I think this is actually a pretty major issue where you've got government officials who are using their position to profit and the proliferation of new markets that allow that to happen with very little oversight and very little regulation means we're going to see more of it. So I'm actually surprised the CFTC has gotten in on this. The oil investigation that they're launching about Trump's Aron attacks,
who knows where that thing leads. I mean, these could be some very politically sensitive investigations, and I think that as these things proliferate, you're going to see more of this.
Rep.
Luna yesterday took to Twitter and said, less the DOJ plans on going after all the crooks in Congress currently insider trading.
This is simply skewed justice. Will there be.
More pressure on Congress to also make sure that Congressional lawmakers, senators, staffers cannot trade.
Yeah, there's been pressure on Congress to stop getting rich off of inside information for decades now, and it seems like members of Congress somehow find a way to keep getting wealthier. So I doubt there will be any serious enforcement. The Stock Act was passed over a decade ago, and there haven't been that many prosecutions, meaningful prosecutions brought under it. I think that probably Congressional staff are certainly scared about this.
Members of Congress are right now more or less above the law.
Here when it comes to Congress and the War and Iron there's an important deay line coming up when it comes to the War Powers Act.
Does it matter to this White House?
No, I don't think so.
I think the War Powers Act, which was passed decades ago in order to be a check on the president's power to do exactly what Trump is doing in Irun right now, is more or less defunct as long as Congress is not willing to enforce it. And unfortunately, the only enforcement mechanism they have is impeachment, and we know they're not going to impeach Trump, So what are they going to do here?
Does this change though potentially after the Metrum elections, if we do see a changing of power, whether that's in the House or the Senate, it.
Could I mean, the Democrats would certainly control the House and maybe the Senate. But you still have the enforcement here, which is you know, it doesn't it isn't really there's no real enforcement channel. And I think President Trump, who in his first term disputed the legality of the War Powers Act as an unconstitutional check on his ability to conduct foreign affairs, I think probably continues to just ignore this.
Well.
Obama sort of ignored it as well when it comes to Libby's So we've seen.
This simple circumstantial legality, right, circumstantial rule of law, where you care about it when it's your side, and you don't care about it when it's preventing you from doing what you want.
When it comes to the war in Iran, where's your rasure right now? In terms of this potential off ramp talks that are happening. There was a cease fire announced yesterday by the President. When it comes to Israel Lebanon, does that help the United States when it comes to trying to get the Iranians back at the table.
So if you look at where the two sides are right now. The Iranians look pretty dug in. They've got a flow of oil moving out. They've got oil revenues that are much higher than what they originally budgeted for this year, with two million barrels a day on average going out over the last month or so. That probably drops significantly under the US barricade that's happening, but the
US is quickly backpedaling off of its position. We don't think Trump is able to go back in in any meaningful way because of the political constraints that are on him in the United States, and the Iranians know this. So I think the negotiations that are happening right now eventually do lead to some kind of a deal that reopens the strait, let's say, by the end of May, and I think this weekend is going to be a key times two sides are exchanging ideas about what exactly
the Iranians are going to do. Probably they stop, are forced to stop enriching uranium. They probably get some pause over some period of time, and the US probably ends up lifting some of these sanctions, which looks a lot like the JCPOA that President Obama.
As you're saying this, I'm like, Okay, I've seen this deal before that the President then ripped up and Trump want Is Trump willing to take a deal that he in his prior term would say that it is not efficient?
So if o're betting on poly market, I would have lost a lot of money betting on Trump right now. So who knows what he's going to do. But right now, the signals that the White House are sending or that they are backing off of their heat demands and they want to get a deal to make this thing go away. And that's at least the direction of travel right now. Trump of course can change his mind at any time for any reason, but that's what it looks like right now.
I spoke to the former Centcom commander Motel yesterday as well as a six time CIA station chief, and they said nine to twelve.
Months straight is open again until things.
Are back to normal.
Potentially we have a deal.
Yeah, I think, well, I mean I think there's going to be. There's kind of two levels of a deal. There's like the memorandum of understanding that allows the blockades to go away and the Iranians can open the strait once again. And then there's a deal, which is, you know, you move uranium out of the country, we get inspectors in. Here's some cash. So I think that the deal part
of it might take a little longer. But right now we think they are headed towards some kind of memorandum of understanding that would sketch out the parameters of a deal without even if something's not written. But I do agree that the disruptions we're living with right now are going to be with us for a while, and the strait's not going to be fully open till at least the middle of the summer, if not beyond that.
Right Actually, I said yesterday that they were laying more minds. Doesn't the Iranians want to make this as complicated for the president before the Metrum election?
Certainly that's what it looks like right now. There's been a lot of reporting about how Trump's tweeting is disrupting the negotiations and the Iranians, I think, think they're playing a stronger hand, and I think they're playing a stronger hand too, So I think that puts the Americans at a very difficult position in the negotiation here.
If we think they're winning, then why would they back off.
They want it to be I mean, I think everyone wants us to be over, for LEFE to return to normal.
Stay with us. More Blindberg surveillance coming up after this. If Veronica Klankov SETI writing this on the Fed's next move, we expect a combination of self decoor inflation and loosening labor markets to help Wash convince the maturity if the FMC to cut rates before the end of the year. For Ronica joined us now for more.
For roonicha good morning, Good to see it.
Kevin Walsh did not really articulate a good arguments cut interest rates this week. Is that because there isn't one or because he didn't want to?
Yeah, I think he just repeated this.
You know, productivity enhancements, gains from AI, things like that that can be disinflationary. We can cut and not stand in the way of stronger growth. That's argument the administration has been making, though I don't think that's one that other FED officials are going to buy until we see it in software inflation data itself. Yeah, he was not terribly convincing, at least in terms of the near term.
Pass your time info cuts changed has it been pushed down because of this shock of the Middle East.
Yeah, we did. We pushed it out to September.
But I think what we'll see and obviously it will depend, of course on what happens in the Middle East with oil prices, but the focus the next couple months will absolutely still be inflation. Data will get some uncomfortably strong readings even in April and may, I think, but as we get into the summer, I do think we won't see, you know, the substantial pass through of higher energy prices
to core inflation. And what has happened in the summer of the last few years is that that's when the labor market starts to look weaker, and I think that will repeat, and then the pattern has been that then the FED cuts in September.
How many scenarios do you have right now on your desk and potential outcomes for employment and inflation?
Too many?
Yeah, there's too many, even if you weren't even if we weren't dealing with the oil shock. You know, this is a labor market that's very unlike any that we've seen before, and so it's really hard to forecast when you don't have historical comparisons. To to basose forecasts on so all we're really doing is for the labor market at least looking at you know, this is a very low higher low fire dynamic.
It's happened this way for a while.
What that has meant the last few years is starting within the next couple of weeks, jobless claims start to rise in the summer, and that precedes a rise in the unemployment rate by the end of the year, just three to four tenths.
It's gradual.
But yeah, this a lot of ways, this is an economy that is very unfamiliar to us.
Is there anything about the earnings that gives you pause? Given the fact that we're seeing very strong earnings, consumer discretionary companies coming out and saying that demand remains strong even amid some higher prices, and you have credit card companies coming out and saying people are still spending. I mean, at a certain point, do you say prices remain where
they are right now? In the energy complex, we can maintain this level of activity and frankly that becomes more inflationary than it does, but suppressive of growth.
Yeah, the earnings and the survey data and these anecdotes, they're they're interesting, but it's always kind of hard to translate those to macro forecasts aggregate data. I mean, if anything, in some cases it seems like earnings are stronger because of job losses and cutting costs. That way, what we've seen in the actual spending data of the last.
Few months or so is, yes, consumption is very resilient.
That's been the story for the last few years. But we were slowing as we were getting into this year. Of course, we've had a very strong retail sales print this week. A lot of that is nominal higher gas prices. There is a bit of a cushion right now for some consumers, you know, getting higher tax refunds than they did last year. But the primary driver of if people are spending or not, I think is aggregate take home labor income, and that is slowing this year.
This is the Bloomberg Survendans podcast, bringing you the best in markets, economics, an gient politics. You can watch the show live on bloombog TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the bloomblog terminal and the Bloomberg Business app