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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global
headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app right now on market.
Sarah Hunt joins us this morning.
I was looking at the operating income of the banks with Golden Sechs coming out, and they just their profit growth is there, but it's not techlike. Are they profitable and are they a growing profitable entity the big banks or are they not?
Well, the big banks are just getting bigger, right, so to the extent that the regional banks are suffering because the bigger banks are getting bigger. There is growth, there is it tech like growth. No, But if you see if you start to see some other areas pick up, like capital markets, which has essentially been more abound for the next for the last couple of years. They're pointing
to some opening in some of those areas. I think the bigger banks continue to get bigger, and I think in that sense there's growth, but no, it's not going to be a hockey stick like some of the tech sacs.
So, sir, I mean, we're getting into the meat of earnings here this week.
Here.
What are you looking for for this earning cycle from some of the leading players.
It's a combination of what the first quarter looked like and what their expectations are for the rest of the year. Because I think that given where the valuations are in the equity markets and all the geopolitical tensions that we're talking about, you're at some fairly lofty valuation levels.
So you need to.
See some real earnings come through here, and to the extent that people are already expecting or to be better, they need to not just be better, but the going forward has to look pretty good as well.
So I mean, it's interesting you talk about evaluation here. We've had this big, big move for equity prices off those October lows, up twenty five percent plus for the SMP five hundred. I don't think we've seen necessarily that type of earnings expansion as well. So where are we in terms of valuation here?
We're on the higher end, right so to the extent that some of the technology stocks have got the hockey stick growth that is supporting multiples because people are expecting the earnings to grow into those multiples. So the multiples will come down because the earnings are coming up. But I think if you look at the market as a whole, we're on that higher end on the multiple side, and that's it's been a real multiple expansion more than an
earnings catch up. And if the earnings don't end actually end up coming through, I think you have some vulnerability there.
So what do you do if you're in the game, you know there's a lot I often talk about people that have missed this school market. Let's say I'm in it and there's like stage two, stage three.
The whatever. How do you treat cash right now?
I mean, if you're trying to be an adult and you're running at five percent cash or eight percent cash, do you want to build that or do you want to put money to work right now?
It's a combination of things. I think there's nothing wrong with having something like a five percent cash position somewhere in between. That the higher up you go, the more you become at risk of not just not really managing money. If you're supposed to be an equity manager, right you want to be looking at what's going on. I think the market has broadened out. I think that there's some
opportunities in some of the spaces. I mean, I've talked about energy for ages, but certainly what's going on right now. You've got some longer term better prospects for the energy group, which is unfortunate because the geopolitical situation. But that combined with the energy transition story, means that you're seeing some of h oil prices.
Three month T bill five point three eight percent, one year tea bill shockingly lower five point one five time.
I mean, it's like ninety day money.
You're all set there in your triple all large cash fund here, So what do you want.
To go through?
I learned this weekend we just did the end a quarter review. I had a two and twenty payout.
Nice.
Great, we gross up thirteen point five percent.
Nice.
There's some fees involved.
There's everybody's got to get paid, just got to be paid.
You know, we got two and twenty Sarah, So what do we do here?
I mean again, technology has been the leader in this market since I can't remember when, and is that still.
The case here?
Does technology need to drive this market?
This is the question of the week, folks. Sweety just asked this is this is everything?
I think the answer is yes. I mean if you just look at where the growth is, it's on technology. So do you need other things to do well as well?
Yes you do.
But if you really.
Saw a problem with technology, that's going to be a problem for the entire market. I think it does need to keep that leader.
So are you a buyer?
And this whole AI stuff, Tom and I are still trying to figure out what AI means.
When you went down to Duke this weekend, O got smart? I got smart?
Well, you look at all the areas that are going to be impacted by it. There's a huge spend going on right now because of it. And the question is how is that going to make us profitable? Because the real with AI is can I get my margins up by using it in some way? And the questions are sort of like AI question mark, I'm going to make
more money. That question mark is coming through. For some of the players like Microsoft and some of the cloud players, it's going to be a question going forward how you actually monitor.
Microsoft as you were going, I get thirty seconds Microsoft pre COVID fifty two bill excuse me, thirty eight billion. Thirty eight billion free cash flow. Oh, it's almost a double the arch question of Paul's great question, Can this juggernaut be sustained?
You're saying yes, Well, I'm saying that they need to continue to show growth and if they show growth and the juggernaut will be sustained. If the growth slows down, that's going to be a big question mark. How the rest of the market reacts as well.
Absolutely, Sarah, thanks for getting a start of this week. Sarah hunt with us greatly, greatly appreciate that. With Alpine Wood's Capital investors, I thought of Ian Bremer four or five six times this weekend, because you need to describe our G zero certitude, our comfort, our lack of warfare on the soil of the United States and the other G seven nations with what's going on out there. He codified the phrase G zero and we're honored that doctor
Bremer could join us this morning. What does the G seven do here? Of the Kissingerian diplomacy, Ian, you got to show up and be diplomatic. If you can't talk to the other side, how to should the G seven respond?
They're showing as much support as they can for the defense of Israel, and that is both intended to show Israel that they are not isolated in the global stage despite the war in Gaza and all of the opposition to that war over the past months. But the Iranian strikes in a sense are the higher priority for the G seven, but that they don't want to see. They really resist the potential for Israel to engage in strikes
against Iran that could precipitate a direct war. And right now, I would argue, you've got Benny Gans largely sympathetic to that message, someone that would like to be the next Prime Minister of Israel, and he has a vote on that war cabinet. And you've got Benjamin Yahoo, who is fighting for his political life and is not sympathetic to
that argument. Gants is saying, this is the time that you should strengthen alliances with countries like the US in Germany and on Yahoo is saying this is the time we've got to hit the Iranians back directly and hard, even if that means a more isolated and a more unilateral Israel. That is the nature of the debate inside Israel right now.
And what's so important here, folks. You know you see in Bremer and he's doing this media that meydia he's writing this book, and what you don't see is the granularism of his daily Eurasia note. And part of that Ian is about the structure of the Iranian government and a theocracy. Who's calling the shots in Iran right now? Do they have a legitimate government or is it a theocracy that staggers back to nineteen seventy nine.
Look, you know that they don't have a legitimate government in the sense that the people don't have a voice, They don't have the ability to vote for them or vote them out. And indeed, there have been a lot of people, myself included, that have both believed and hoped that people power would be more successful in rising up
against this brutal theocratic regime. But it is in place, it is stable, it is calling the sh internationally and domestically, and it does not want a war with the United States, and so I look, I think the important thing I've been seeing on the media over the weekend, please you know how extraordinary it was that the Israelis were able to defend so well against three hundred Iranian missiles and drones that they knocked down ninety nine percent of them
and there were not any depths, there were not any significant injuries. And that's a great story. But let us remember that the Iranians gave a heads up as to the nature and the timing of the attack to the Iraqis.
Why did they do that?
Why did they do that flying over Iraq and Jordan? Why does the Iranians give it away?
It's like pretend war.
Well, yeah, because I think they were trying to accomplish two things that are hard to do. At the same time, they were trying to show a maximum display of force in responding to the Israeli strikes on Damascus that killed a high level Iranian military official, and they were trying to minimize the likelihood that their show of force led to further attacks and brought them into a war they want to fight. So those two goals that they have are not exactly fully in alignment tom Right. And so
what they did was they tipped their cards. They showed their hand through the Turks and the Iraqis to the Americans. So the United States had the ability to send the Sentcom commander to Israel to coordinate a response, to get your vessels and your aircraft in place in advance, to let the Israelis know what was going to happen, to tell the Israelis privately and publicly that there was I
Clad's support for Israeli defense. In other words, give the Israelis a bear hug, help defend them as best you can, but also help constrain them, and constrain specifically the Prime Minister in making it hard for him to engage in full throated military response following this Iranian attack. That's exactly what the Iranians were hoping to accomplish. By the way,
it was also following the US playbook. In the one week following the Iranian proxy attacks that killed three American servicemen and women in Jordan, the Americans did the same thing. And so I'm sure that the Iranians figured because it's a dangerous thing for them to do, it worked for America. The US is going to get it if we do the same thing in response, and.
We're six months into this conflict here, I think I speak for a lot of folks when I say we just have no idea how Israel get out of this situation today versus day one. How do you think this plays out going forward?
I think most people are focused on Iran right now and less on Gaza. That will of course change back given the nature of the horrible civilian casualties, the famine that's going on, and the rest. But this does give the Israeli Prime Minister and his right wing government more of a lease on life. They're likely to be there for longer as opposed to forced out soon. That's a problem for Biden. There's less focus on Gaza, which means that not Yao's going to have a harder time being restrained.
In terms of eventual ground assault on Rafa. I suspect it will be less dramatic, less overwhelming than he might have wanted to do before the US ultimatum, and there'll be more humanitarian aid coming in. But I think those attacks are still happening, especially because it's harder to now get the Hamas breakthrough on the initial hostage release in the six weeks, see and.
Get some rest.
You've been up all weekend. Ian Bremer there owning the high ground on our G zero realities. Doctor Bremer, of course with Eurasia Group looked to his top ten risks at the beginning of the year, my book of the summer with Chip Wars on our technology.
So what we're going to do here is different.
We have a former Supreme Commander of NATO, James Travitas, vetted at one point as a vice presidential candidate by one of the sides, and Erbral Stravitas joins us this morning, Ebro. I want to talk about one thing. I want to talk about Oury Burke destroyers. Now we had Spruance, one of my heroes. We had Spruance Destroyers and almost Zumwalt said we got to do something fancier. And now there's Zoomwalt destroyers.
And all that.
How do Ourley Burke destroyers defend themselves in the Eastern Mediterranean from oncoming drones? Their technology is world class, isn't it?
It absolutely is. And by the way, I'm thrilled to talk about it. I commanded uss Berry and Arley burg class Destroyer second of the class. I commanded a squadron eight of these destroyers in combat. I commanded many of them.
We're gonna focus.
I'm gonna interrupt right now, folks, we're focusing on this today because of all the media bladder. I get it, I love it. I'm glad we're doing it in Bloomberg. This is the adult on your men and women at sea. Admiral continue on the Arlely Burke in the Berry.
So the ships are about five hundred feet long, sixty six feet wide. But here's the punchline, Tom. They carry about ninety five anti air and land attack missiles. They have an unmatched capability to defend themselves. Three hundred and fifty sailors aboard two helicopters on most of the ships in the class, and they've been used most recently over the last forty eight hours in the Red Sea and the Eastern Mediterranean, knocking down the Iranian air attack and doing so quite effectively.
Right, what's important here? You know, folks, we got an idea of a nineteen year old in the deck of an aircraft carrier. I think it's something we all understand from Vietnam. Ford Max Hastings grabs it beautifully in his book on Vietnam, at must vedis, do you have like a nineteen year old kid handling a Falance close in weapons system CIWS for point defense against drones from Iran?
Absolutely, there'll be somebody maybe twenty twenty five at the most, sitting in the combat information center with his or her finger on the button for that sea whiz system as we call it. It's a gatling gun that fires uranium projectiles if any of the missiles get through the air.
Defense is the.
Longer range ones.
We use those close in But the whole ship is manned by very young people. When I was captain of the ship, I was thirty seven years old.
Wow, this folks is just so important.
And I got to get one more question here because Paul's looking at me like when do I get to talk? And amasturvedis, just where are we in our navy development? We've got this whole thing that we stopped their shipbuilding. But I don't mean the gerald Ford and the enormous platform. How many more berries and Birks do we develop?
We're going to be bringing out a new class USS constellation class frigate that's almost as big as these guided missile destroyers. First one is having her keel laid this week, as a matter of fact, So the follow on classes, frankly will be even better than these early burks, and they're pretty damn good.
Admiral, It's been a busy week in that part of the world over there, with the Iranian response and shelling of Israel. Put into context of how about risk are our ships and our men and women in that part of the world, and how do we protect them better.
Perhaps our sailors are on board the unmatched, most capable warships in the world. They can absolutely defend themselves in any scenario, but there's always a possibility of a missile slipping through, of a mistake being made in a radar bad intelligence as you're looking in the opposite direction. These kind of incidents can happen. So thus far none of our ships, our warships, have been struck by Iranian or
hoothy ballistic missiles or drones. But the sailors there absolutely have to stand their toes to execute their mission, not only defending themselves but defending our allies in the region like Israel.
Adamirre, what do you expect from Israel over the coming days and weeks. Here it just feels like we've kind of gotten into this stalemate type of situation in that part of the world.
The Israelis have said they will respond to this three hundred and fifty drone ballistic missile cruise missile attack. Fortunately, the air defenses were discussing destroyed. It knocked down three hundred and fifty of them essentially, But Israel will respond. However, Paul, I don't think it'll be a massive jets whistling above Tehran kind of response. I think it'll include offensive cyber maritime operations, special operations. Don't look for a big escalation at this point.
One more question the airon Roling's doing this because we want you to come back in the show. I noticed that the USS Barry was named two years ago the Navy's top Pacific fleet sub hunter. Bring that over to the Hormon Strait. How much risk do we have of it RAN? Without our technology like the USS Berry shutting down the Hormone Strait.
RAN could shut it down Tom with mines putting minds in the water. That's why our mind sweepers are stationed over there. Our allies have mind sweeping capability and then finally, the Iranians also have diesel submarines quite quiet, quite capable, but a ship like uss Berry should be able to handle that threat as well. Watch the mind sweeping. That would be the way they would close the strait.
Admiral, thank you so much this morning, Admiral Stravitis. Of course I can't say enough about twenty thirty four and just out moving on to the technology that we can't imagine. Elliet Ackerman and James Travitas twenty fifty four.
It is my book of the summer. A day to look at the front pages around the world. Sue Decker x DLG the iconic of this. Sue Decker's on the board at Costco. She emailed, she did.
Like a DM, like not an email, a DM on Twitter, Lisen that's like where you're talk inside to Lisa Matteo.
Did you really spend five hundred dollars at Costco?
Five hundred eighty dollars to be exact, missus.
King's looking at your photo going, my god, we don't eat like that. They eat.
It's my once a month kind of going there, and you got to stock up.
I have the extra freezer, I have the extra freeze, you do.
I put them in the garage where the beers. That's where the beer is, and I come over.
It's healthy beer, it's gluten free beer. Sue Decker at Costco says, thank you.
What do you got?
Yeah, that was quite a time. So we talked about Netflix. That one was crazy.
From the New York Times, I want to talk about We've been talking so much about squatters.
This one stood out to me from business insider.
Waters have taken over Gordon Ramsey's restaurant in London. Believe it or not, at least six people they're living there outside York and Albany.
This is according to the BBC two.
The restaurant was temporarily closed, so that's why this happened. And they're not sure when the squatters first showed up, but they're calling themselves the occupiers. They have a sign outside, they posted a sign, they locked themselves inside, they boarded up the windows. They're threatening legal action against anybody who tries to kick them out. Ramsey's called the authorities about the property, but so far they're still there.
So this is a small mad Why New York Mayor Adams just focused on, you know, the rights of both sides of the transaction.
I don't see it's brutal.
There was a Yahoo financed chart out over the weekend on where the inflation is rent number two, home ownership number three.
That's all there is to it. I'm sorry, our audience is correct.
The people we talked to are ron They're all micromanaging inflation.
I'm sorry people are getting crushed.
Yep.
Absolutely Yeah.
Maybe groceries are better now, but I don't buy it.
What else do you have?
The New York Post the once popular power Lunch.
Remember we've been talking about, you know people, maybe they're trickling back to the office. Apparently they're coming back because the Power Lunch is making a comeback.
Okay, this is according to side.
Dish, a number of Midtown restaurants, newer hotspots. They're reporting the power Lunch expanded not just from Tuesday to Thursday, but five.
Days a week.
Really.
Yeah, So they're enjoying the food, they're making big deals. And here's something interesting, Ladies who's lunch?
Ladies who lunch?
Oh?
I love that is back. So the women are making the deals too. They're going out for lunch.
More.
Friday is the more popular lunch day.
Because the workers don't go back to the office after lunch, so you can kind of make a longer lunch, maybe two three martinis.
I'm sorry, but good morning. Michael McCarty in Steve Millington. I mean, the bottom line is there. I was power lunching on Friday.
Yep. I was stunned how busy it was, given when Monday is.
A new Friday and they actually talking to Steam about it, and you know, he totally agrees with what the New York Post is saying, there's just a new step, a new pop, let's go. I hope it continues. I think people know how bias stam on this.
I'll be at the La Gourmet Deli power lunching today with my sandwich. But I know usually I'm a Michael Stone that that's my go to spot. That's where the media folks hang out.
It's like, you know, media, I just sit at the bar, you know, Like you know what I saw there? Nick Corlish, Yeah, he.
Was in some intense private meeting. I think he was trying to sell Google or something. But Nick Corlis came he was there. Yeah, he was having the green asparagus with the French sauce.
I can't pronounce.
Next fancy stuff and this is the last one.
It's it's a bit of a battle going on at the gym because a lot of these implacers are taking their phones and they're filming themselves and they're posting all these things. The people in the background they don't want to be on their feed. So it's this back and forth thing about people saying, stop filming yourself at the gym.
Enough of it around?
Do you film yourself with the gym's gonna say? You're looking at us like you guys have no idea what I have no idea what you're talking about?
Do you have your phone out to Jims. Our audience wants to know.
The thing is, I work out at home, I go to the gym and you've got the power Jem.
This is not like the peloton tom like or like the little walking on a treadmill nose.
She's got like free weights.
And it's like there's a house it's like three houses down from Dann Lobe in the hand.
I don't know who owns it.
And it's like literally four thousand square feet of gym equipment.
Do you have something like that?
Not four thousand maybe a little piece of that.
But all of my friends who go to gym, that's what they complained about. They're like, enough of this already, Like do your workout. You're taking up my time on the bench. You're doing this, and so.
You got to get your phone all set up and the lighting and all that.
Okay, we're gonna get serious and good morning. Jeremy.
I through who I Adore out in Vancouver is just phenomenal out on YouTube. It's really helped me a lot and trying to keep this aged body going Lisa.
How long should you work out with weights?
With weights? No less than two days a week?
Oh no, he's Jeremy's four days or more? There? What's fine? I see guys in the gym and they're there for three hours? What are they doing? Much? Too much?
They don't want to go home?
That's there.
How many minutes do you work out in a given day with waits?
Me?
Forty minutes, that's it, forty minutes. But today say in arms day or his arms shoulders and that.
After after the trip's what's I do a.
Hockey Seriously, I do a hockey workout. I do it in less than twenty minutes, and I get about eighty percent seventy five percent done because I don't have time.
For this stuff, not like you don't have that.
Long and I am taking photos y Pharaoh. Pharaoh still talks about being the gym because I'm actually lifting weights.
The rest of them are doing three sets.
In that is what is Barrow doing.
I like not seeing tell up? Not seeing tell up? Does this? You do like one set? Get over it and move on. That's it.
I'm just gonna follow Lisa. She's the expert's yeah, yep, she's all right.
But the bottom line is about.
Stop film Stop filming yourself.
People are tired of it. They don't want to be seen.
It's actually some legal issues too, or starting to go from this.
So yeah, well I don't in the background of your social media posts. It's according to the Wall Street Journal. Okay, yes, all right, Lisa, thank you so much.
For Thank you, Lisa. That was brilliant, Starting stronger.
This is the Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am. Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Hoomberg Business app. Mhmm