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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. Here's the view on Wall Street stocks falling crew jumping above one hundred dollars a barrow for the first time since twenty two. Sarah Hunt of Valpine saxon words, writing, the positives that investors we're looking for are hard to hang one's hat on given the oil price Serge. Sarah joins us now for more. Sarah, good mornig, Good morning. What changed with triple digit crud for you?
I think it changes a lot of things. I think it's really, as we've all spoken about many times, it's going to depend on how long this lasts. Curve does not seem to think that this is a permanent state, and I think that what it changes is one the possibility of an economic slowdown or even going into RECESSI because higher energy prices can often cause that kind of an economic shock, and what happens on the earnings front, both to margins and to spending into everything else. Right now,
this is a near term problem. If it looks like it's going longer, it's going to change some of the mouth that everyone's been looking for for the next couple of years in terms of earnings.
Consumer facing names get and beaten up airlines, cruise lines, or get an absolutely hammered as crew continues to tick out. We have the point of demand destruction.
Now.
I think it's a little early for demand destruction. I think that there's some obvious things that are going to happen as you see prices move very higher in the short term, but I think from a longer term perspective, it takes longer than a couple of weeks of higher prices. Do we get a couple of months of higher prices, that's definitely going to hurt it. And they're on the margins.
People are going to travel less, people are worried about traveling to begin with, just because there's something going on in a big part of the world that's really important. So I think you're definitely going to see some pullback in activity, and that is in and of itself slowing things down.
Sarah, have you been reluctant to sell stocks any stocks in response to this, given the fact that in the past geopolitics is something that has always been a short term event for markets.
I think this is yes, I would say, I wouldn't say I'm afraid to sell anything, But it's more that is this something that is really a permanent change? And what's your time horizon if I needed you know, I tell people all the time, if you need money in the very short term, you should have it liquid. If you're in there for the long term, you're going to see a lot of volatility. We knew coming into this year it was going to be volatile. We didn't know
why and how volatile it would be so quickly. But you expect after a couple of years, especially if such strong equity performance, that you'll see more volatility. The question is really going to be whether or not this sticks, or whether or not this is something that markets continue to see through and look through and I think that there are other things going on in the background that
are also potentially problematic. So it's going to be interesting to see how that plays out, and not interesting in a good way.
Yeah, we see, of course what's going on with private credit. We see cracks in the US economy. I'm just wondering, is there an inflection point, something that you're looking for that would change your view, that would make you materially shift your longer term outlook for twenty twenty six.
I think if this continues to go on without figuring out what the off ramps are, I think that you know, it was a good move to say that we'll globally the G seven will release some energy because prices spikes so high, that's not going to solve the problem. The problem needs to be solved by having some resolution and having tankers be able to get through the straight up
home moves. Until we see some path for that, I think you're going to start to see people get more and more worried about those longer term both earnings estimates and just general economic conditions and the market. Right now, it's still we're still in early days. If that really extends, I think that's really going to be the tipping point.
Some of that depends on what your starting point is, what your assessment of current conditions actually is, and we've got very different views on that. Some people think we're okay. In fact, the Federal Reserve, the top of the Federal Reserve chair and power would it says that things are stable, they're okay. Others would say things at front out, what'd you come down on that one of the other.
I think that they are a little bit more fragile than I look. I think that you've seen some disruptions in the labor market. You certainly hear a lot of rumblings in the labor market about what's going to happen because of ai different sectors. There's a lot of spending that's coming out of that, though, so there are offsets to that. I think generally speaking, absent this shock, the
economy was doing fairly well. There were definite pockets of weakness, and you could see that in rotation in sectors in the market. You could see major rotation sectors. The headline industries are still fairly close to all time his, but there's been some major devastation in different sectors along the way. This is going to be one of those situations where depending on how long it lasts, and this is you know, just going to keep saying that we don't know yet
what's going to happen. But on the margin, nothing good comes out of spiking oil prices this high and shutting.
In oil and for well, let's pick a sector, financials. Lisa talked about private credit, Blackstone, then black Rock going into the weekend with a bit of trumble there. Then we've seen Morkan, Stanley and Goldman Sachs start to want to perform as well. This is going through the whole sector now, and not just the private market players. What do you think that's Siglink.
I think that's signaling some concern about weakness ahead and some concern about what are if you're going to have potential issues in both equity and bond markets, but you also have this private credit thing. Is this would be the top of the story if we weren't going on this,
this would be the absolute top story. I think if we weren't going through what we're going through right now with I Ran because this is one of those it started out small and now you're seeing a couple of other things and then a couple of other things, and that's the kind of things that market don't like. It's that uncertainty that markets don't like and investors don't like when everyone has been sort of trying to reassure everyone that it's all okay, and then you start to see
things that make it look a little less okay. So I think that would be a much bigger headline if we weren't in the middle of this, and that would be something that would be starting to worry markets going forward.
Yeah, the idea that panic and sort of retail investors trying to pull their money and not getting it all back is very concerning to people. Can you put these two stories together off the oil price shock and credit concerns tied to private credit. The idea that some kind of increase in oil and decrease in consumer spending power could catalyze the fears that people see in credit soon arthan maybe otherwise would take place.
Well, it's interesting because I think those fears were catalyzing on the back of expectations of problems in certain sectors, like the software sector specifically, But whether or not the reality on the ground is that they were as bad as it looked I think the problem is more that
everybody makes a decision in one direction. I don't know that the higher oil presses are going to make that worse, because I don't think that the credits that people are worried about are ones that are so tied to the consumer, and I think that would be the link that I'm not sure we see yet, but it doesn't mean that it isn't there, and certainly people are going to start looking for that.
Stay with us more Bloomberg surveillance coming up after this. Janette laws Statigue's right to the following. President Trump can pull out of Iran in three weeks and gas prices will go back to normal. The risk is if the conflict lar Slonka Jeanette joined just now for more Jeanette, that statement begs the question if the president, if this is still in the President's hands, and if Iran wants to make this messy, they can make this messy for quite a while.
Absolutely, I mean this could definitely be their risk here for the United States is obviously that this becomes a much more protracted war, or it also creates civil war and just chaos within Iran and then within the larger Middle East. Region. So there are definitely a lot of risks to the administration here, but I do think that the administration is really focused on this four to five
week timeline. Do you think that they think that they have a plan to accelerate attacks on Iran to try to get to their specific goals, which is getting rid of the weapons that could be targeted at the United States and Israel, getting annihilating the army of I'm sorry, the Navy of Iran, and trying to then also prevent them from going after ships in the Strait of Hormuz, and also maybe potentially trying to get some sort of
regime change or at least governance changes going forward. So do you think there's obviously some risks, but the administration probably is looking at this still being a four to five week timeline. We'll obviously see if that changes, and then what does this look like they have so that there is a surge coming that they will increase their attacks on Iran. So we'll kind of have to see over the next week to see how does this play out and then how does that change the timeline going forward?
Janette, are there any independent assessments of where the administration is on achieving main principles of that timeline, in particular wiping out weapons that could attack US and allies, as well as potentially regime change at a time where we now have a new supreme leader that President Trump has already said is unacceptable to him.
Yeah, I mean, I think obviously the regime change is going to be the biggest challenge for the United States and Israel. And I think you have seen the United States a little bit walk back that exact goal for this military operation, but you are kind of seeing the fact that they are trying to They were focused on getting Iran's air defenses along the coast so they could then strike deeper into Iranian territory. They to have achieved that goal at least particularly so far, but I think
the big question is there's a lot of unknowns. We don't know if Iran has more missile capacity that they are still kind of holding onto, that would be important.
I think that the United States has been highlighting the fact that missile attacks and drone attacks coming from Iran have been down seventy or eighty percent, and they do think that they are losing firepower, but we don't also know what actually might still be there, So there's definitely still this risk, but I do think the administration sees that they have made some progress with getting out certain air defenses, using up some of the supplies that Iran
has that has been using against the US and its allies, and also that they're starting to be able to strike further and deeper into Iran. So that is a little bit of some progress towards these ultimate goals.
The US is fighting this war alongside Israel. How aligned are these two nations that they are ultimate goals?
Yeah, I mean, I think there's I think the one thing that was important about why potentially we may have gone into this is that there was an alignment between the two countries on the actual ability to go after Iran, and this is a they both I think see this as an opportunity to really kind of strike at the weapons that Iran had that it was potentially using to threaten both of those countries, also trying to go after certain, you know, other pieces that the Iran has been trying
to do with its nuclear program. But obviously we may see some disagreements longer term. We saw the disagreement over the weekend about the fact that Israel struck oil depots in Iran and the US was opposed to that. We also may see differences of opinion as to whether or not we're actually going to get regime change, or would the US be more willing to accept some other outcome versus Israel. So I think there could be more fractures
going forward, but we haven't seen a lot yet. But obviously the longer this takes, that could obviously become something that becomes a bigger risk.
How much physipal they say, do we have on what's happening inside Iran right now? This is a population of ninety million people something like that, with very very complex power stress. As anyone who's followed that country for a while, we'll understand, Janet, those strikes from Israel are really really important because that undermines the domestic support for what is happening. And that's been an argument of both Israel and the US for quite a while to try and get the
Iranian people on side to ultimately tople the leadership. There's a little sign of that right now. How do those strikes help?
Yeah?
I think that was one of the main concerns that the United States had was that those tacks could actually make opposition less willing to go after the regime and less willing to kind of a rise up in that way, And so that was why the administration was a little bit more upset with Israel for going after those attacks, because they do want to make sure that there are conditions where we're not actually helping to rally the Iranian people behind the leadership and feeling like they in particular
are being attacked rather than the regime and the security forces that hold up that regime. So that is definitely a risk. Obviously. The other issues that we do have these internet blackouts, which doesn't mean we always have a full understanding of what is actually happening within Iran, and that makes it a little bit more difficult to know
what could be the ultimate outcome. Obviously, one of the big issues here is that we don't necessarily have a good understanding of could there be an opposition leader who could actually rise up and take over in Iran like what you saw in nineteen seventy nine. The fact that the Iotola was a particular figure that I think is something that is going to be a risk going forward, and to see if that ultimate goal can be achieved.
Stay with us more Bloomberg surveillance coming up. After this surging oil prices sending bond you attire across the globe, investors raising bet central banks will keep ranks on hold. The former Kansas City FED president as the George, writing, with oil prices surging over one hundred dollars a barrel, inflation is sure to move higher. The Fed will want to look through this price pressure, but it will likely
stay there and for entering radcouts or entertaining redcouts. The former Fed president joins us now for more and so welcome to the program. Let's just get to that statement and your experience too. I always want to lean on that you lift the twenty two energy shock. Can you frame for our audience the similarities the differences between this moment and that one.
Well, good morning, Jonathan.
Yeah.
I think I think the uncertainty that we've talked about for some time is one of the characteristics here that we have to remember. We have been relying heavily on a consumer that has faced significant price shock coming out of the pandemic. This is a consumer that has felt the impact of the tariffs, and they also have felt the uncertainty associated with a job market that has shifted significantly, and so when we rely on the consumer, as we do here in the US, that becomes a real focal point.
I think for trying to understand now we have added a new shock, this gasoline price at the pump. We understand that diesel prices will be affected, which of course will feed into the cost of transportation and other things. And I think it creates a real point not just of uncertainty, but I think heightened risk around consumer spending and growth as we look ahead.
When you were at the Federalserve through the twenty two shock, household balance sheets arguably much stronger and the labor market was much tighter. Do you think differently about how this price shock or the energy market will work its way through the economy.
Yeah, I think you hear a lot about the K shaped economy, and I think that will come into the four now. We have really been relying on a group of consumers that can power through this. But you can only stress weaker household balance sheets that have again had the benefit of having jobs. That has been really I
think one of the tailwinds here. But there is a breaking point, I think, and so I think the FED will have to be particularly focused on thinking about how that consumer is going to be positioned today to be able to look through this kind of additional price pressure after.
They could go one or two ways. On one hand, you can make an argument for easing policy and to try to give lower income consumers a better scenario, a better backdrop to meet this price shock. On the other hand, you could say the FED has a role to play to combat inflation. Which side of the equation do you fit on?
Well?
The FED has been focusing on the labor market and on weakness at I think the risk of inflation even before this oil price shock. Now, I think the FED and you hear them increasingly talking about the risk of inflation. They have allowed it to extend out for a period
of time. That now puts them in a very very difficult position, I think, and understanding how they're going to weigh their policy risk, whether they continue to think they are as well balanced coming into this March meeting, I think is going to be something to listen for here, because you are going to have headline inflation for sure, We'll be getting more numbers than this week to see that, and I think the calculus around keeping those inflation expectations
in the long run anchored is going to be a point worth talking.
About rates Traders are pricing in rate hikes over at the ECB as well as the Bank of England. Do you think that as this progresses, if it does continue for a longer period of time, that that's going to be a scenario that's reflected in how the Federal Reserve is being priced.
Well.
I think obviously a little bit different for the US to think about that in the FED as it contemplates its updated dot plots, But I do think it stays their hand on being able to suggest that they are looking to rate cuts, but maybe in a pause mode. I think this kind of environment will really remind them that inflation target has to be credible and they have to keep focused on that, even if their tools right
now are in conflict. They are looking at a job market that may be stable but has shown signs of weakness, while they have been looking at inflation that continues not only to be persistent, but as we've been talking about, is now going to show some upward pressure.
Would you describe this lave market as stable?
You know, I consider it stable in the sense when you step back and look at the unemployment rate, which is our best gauge. I think of how that labor market looks, it does mask what is underneath that surface of a lot of moving parts. I think we're beginning to see the real impact of some of the immigration
policy hits here. We're beginning to see the uncertainty, I would argue, play out where businesses are happy to hire for positions they feel confident about, but they're not going to move hard and fast relative to the growth levels that we've seen. So I think it's a tentative labor market in my view, even though we continue to enjoy relatively low and employment br.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg 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 Bloomberg Terminal and the Bloomberg Business app.