Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Joining us in the last forty eight hours the Great Bullmarket Pinata Edward. You heard Denny Chiness. How are your Denny research? How the last forty eight hours been? When I believe you just shifted probabilities? Absolutely have your roaring thesis? Well has it been?
I got to be a bit of a realist, given what is going on. I'm still sticking with sixty percent for what I call the Roaring twenty twenties. However, I had given twenty percent to a melt up because things kind of I've had that potential. Still it's not a high probability, and twenty percent to melt down or recession
kind of a bucket for everything that could go wrong. Well, now, just five percent for a melt up that's very unlikely, am, and thirty five percent for things going wrong, which they are.
Amazon does a thirty seven to forty two billion dollar bond offering Damien tells me it's going to be six phone calls. Heath Terry brilliant over at City Group publishes and reaffirms ai viability in revenue, in profit, in getting things done. With all this, I agree with it. Kep X synthesize in as you mentioned, spreads have a move the bond market screaming stability. These other news items screen fold them into your roaring twenties theme.
Well, I mean, we've we've done pretty well with a thesis so far. We've got a few more years here left in the decade. I think this will pass.
You're short selling yourself, folks.
It's the Yardeni and campooral low of October a few years ago, and in Ralph and comportant, Thank you, Niled it continued, thank you very much.
So look, I think in the short term we clearly have an issue with the strait of our moves. It's it's it's hard to get optimistic here unless we see some tankers actually going through there without any incident. I know the President would sounds like he wants to declare victory here pretty shortly, but you know, I think I think our and lost the war. They just don't really
know it, and they're not acting like it. The problem with this country is that it's a terrorist state with a terrorist organization that basically spreads terrorism around the world, and they're professional terrorists, and so it's very hard to kind of beat them just by blessing them with the bombs.
And back in December, you correctly, I'm going to give Ed a softball here. He correctly called for an underway position in the Max seven and the baskets now down in six point three percent year to date. I'm curious, do you see further weakness in US textocs right here right now? Or is this a buying opportunity.
Well, I think it's becoming very bifurcated. The companies that still have moats, the companies that you know are basically competing in still fairly stable marketplaces, I think are fine. The problem for the Magnificent Seven is that they used to be kind of like the Game of Thrones. You know, it was like seven independent kingdoms that had moats and didn't really bother each other. But ever since AI, they're competing like mad and it's you know, it's a AI arms race.
We're ready continue with that, your denty doctor, your DENTNY of your Denny research, can't say enough about his research. It's going exceptionally value your Denny report that you get from him, literally on a daily basis. Damian says, are in time king with edit YARDNNY. We'll move forward here in a bit too further discussion of what we saw in the Secretary of Defense's press conference here a bit ago, but it is about the Martin markets. Here's the summary
for those of you across this nation waking up. The Vicks was thirty five. That is painful. We've come in dramatically to a twenty four point five point seven with red and green on the screen, but a decidedly better tape today than what we witnessed in the last forty eight hours.
With the market opening, Alexis christopherus.
All right, thanks very much, Tom, and investors continuing to try to assess how long this war with Iran will go on and what its global impact will be, especially on the oil market. So we have a mixed start here to the morning. The S and P five hundred down three points at sixty seven to ninety three, Dow Jones Industrial Average down about twenty five points, but the Nasdaq and the green right now by about forty two points,
so Russell two thousand is a just fractionally. We've got Brent crude at ninety one forty four, the barrel down seven and a half percent, WTI crewed down about to seven percent now to eighty eighth four the barrel, and the Bloomberg dollar spot indecks at eleven ninety seven eighty four spot gold by the way, bouncing back up one and a half percent at fifty two to fifteen the ounce, and Amazon returning to the bond market, selling the debt and as many as eleven tranches ranging from two to
fifty years. It's the latest in a series of jumbo bond sales by hyperscalers as they gear up to invest in what else but AI. That's your Bloomberg opening bell report, Tom and Damien.
Alexis, thank you so much again, Ready green in the screen, nas deck with a little bit of the bid twenty four point twenty five and.
The viks ed you're denning with us.
Always associated with Professor Tobin at Yale, but before that high above Cayugas Waters at Cornell University, as our prosad is one of the great optimists of International Economics. His new book out of Cornell is The Doom Loop on the Economic Order. He even gets Game of Thrones to the first chapters. It's serusely doing and economics you, more than anyone I know ed, pushes against the concept of a doom loop. What do you say to the people that feel the gloom feel the doom?
Well, you know, there are a fair amount of perma bears out there, and a lot of people listen to the perma bears, and that perma bears very often sound very logical. The problem is they don't provide a balance. And perma bears will get you out at the top of the stock market, they'll get you out in the middle, they'll get you at the bottom at the bottom. You'll never be in the stock market if you'd have a pessimistic attitude. Also, politics sometimes gets in the way of
clear and clear headed investing. The market tends to go up as long as earnings are going up, as long as the economy is doing well, and that's been the case for a long long time. So I have this view that corrections and bear market start buying opportunities rather than reasons to panic.
Well, and you talk about the economy doing well in all seriousness, does economic did they even matter at this point?
I mean, look at last week's payrolls.
I mean, the market looks straight through that for like three seconds, and then tomorrow we're going to get a CPI print that, by definition, after the last week's events, is already stale.
So you know, talk to.
Us a little bit about the economic touch points that you're going to be most focused on here.
Well, Look, I think that the economy still matters, because earning still matters. One of the I used to be just an economist and also a strategist, and being a strategist is a lot easier. All you got to do is forecast pe time Z, and that's very easy to do. Getting it right, of course, is the challenge, but it's still it's still those two variables, and the earnings outlook, I think remains quite strong because I think the economy will remain resilient.
I mean, in.
Twenty twenty two, we had an oil price shock and the economy made through it just fine. I think I think the data that the stock market is looking at is not just the employment numbers that they're looking at, the productivity numbers. And that's really the bullish story is that the productivity is making a huge comeback.
And we began our conversation Tom mentioning that you had upped your probability from a market meltdown from twenty to thirty five percent for the balance of this year. You know, my question is this. You know, when I think of meltdown, I think of something on the order of a systemic liquidity shock. And this is a different sort of shock than we've witnessed, you know, in two thousand and another. You know, kind of what funding and financing metrics are
you most focused on here? Like, what kind of a liquidity shock do you think can happen?
Well, clearly, when you look at history, you find that more often than not, it's a shock in the credit system that causes problems for the stock market, and you get a financial crisis because of FED tight and something blows up and that becomes a credit crunch. It's credit crunch is the cause of recessions this time around. I think we have to recognize remember that the Fed's are awfully good at playing whack a mole in the credit markets. You know, as soon as something blows up, they move
in pretty quickly. March at twenty twenty three, we had a banking crisis. There's only three banks that it was solved over the weekend.
Yeah, I got fifteen ways to go here. But let me just go to the experience I mentioned earlier, this modest drawdown we had in nineteen eighty seven. In my memory, I don't have it in front of me, folks, is what a rebound from October twenty seventh to the end of the year December of nineteen eighty seven. I remember the sweat in August of nineteen ninety eight, and off we went to the race to the rage of nine.
What's different now in tech versus the collapse of March of two thousand and one earnings.
We had a lot of dot coms back then that they weren't making any money. We had a lot of telecom companies that were solar financing, so they're kind of creating their own magic. Until these companies, these seven started to kind of finance each other, we didn't really have that issue. But they're huge cast generators. I think their expenditures are going to prove to be very profitable, So I'm not particularly worried about the earning side of the text story.
It's part of the show this morning, commercial free the conversation too important, ed your Donndnesfendari coming on here in a moment. Damien sas Are and Tom Kane with Alexis, Christopherus and Michael Barr across this nation on YouTube. What a couple of days on YouTube. Thank you so much.
For this new digital distribution.
I can't say enough about it. Subscribe at Bloomberg Podcasts for all that we do here in the New York Morning Damien Sasaur with ed your Denny.
So and we talk about the Roaring twenties theme. We talk about, you know, the potential for market mail down and market meltop. Talk to me about your stagflationary nineteen seventies redux theme, red reducts, reducs, ducks, it's reduced.
We call that reducts.
I mean, I mean the stag fleationary. You know, you know that word's coming back. So tell to us a little bit about you're seeing there.
Yeah, there is a certain amount of deja vous all over again. You know, every time we've had oil shocks in the past, we've typically gotten recessions and bear markets. The one near term exception was what happened in twenty twenty two. We got a bear market, but we didn't get a recession. I don't think we're going to get
a recession this time. The recessionary expectations have gone up, but the US is much less energy intensive, and all by the way, we're an exporter, yeah, of oil and gas, which is a huge difference for what happened in the nineteen seventies. On the other hands, shutting the Strait of Hermus is a radically different historical development just hasn't happened before. And so my short term caution bearishness is totally predicated
in this geopolitical development. I want to see some tankers get through the strait without giving a shout out.
Well, I mean you just mentioned that, and that's where I was going to go. I mean, golf traffic is basically all or not right. I mean, there's nothing going through. And you know, and we just saw last week US Treasury Secretary and Scott Bess and basically slamming you know, JP Morgan for putting out research about maritime insurance and things of that nature.
You know, how focused do you on some of those alternative data sets?
You know, kind of trying to gauge out, you know, whether or not shipping you know, companies even want to you know, pass through the street of removes now, and it's funny to back it.
I mean, who knows it's funny you ask that.
One of the reasons I'm I'm very positive on AI is because we're using it all the time, and we've become real fans of Claude and so Claude is is in our staff now and we're toying around. We're just asking Claude to follow the shipping lanes in the Strait and there there's actually data, so but we only started doing it yesterday, so I do it. The other thing is I also want to see the data on drones.
I mean, it's fine for the president, you know, to declare that we're almost there, almost mission accomplished, but that's not going to be the case unless the drones stopped flying into the neighbors, into the straits, into you know, aiming at our ships.
And in March thirty one, I believe it's another end of the quarter if we can get there, and then into April and JP Morgan reporting and off we go to the Q one earning season. What does Edger Denny c with a broader sense of use of cash.
Well, you know, right now, the earning story has been phenomenally strong, and that's really what's been driving the market. The valuation multiple, you know, got up to about twenty two. It's come down because of this pullback so far, which is it's not a correction yet, but I think it has that.
Why are we this is too important?
Since when are we hysterical about your Denny pullback that, as you state, is not a correction as we learned it in school.
Well, you know, a pullback is a drop that isn't a correction. A correction is ten to twenty percent decline. A bear market is more than twenty percent. I happen to think that there is a thirty five percent the probability of things going badly, and that would lead to a correction of ten to fifteen percent. I'm actually amazed by the resilience of the economy, of the not just the economy, but the stock market.
The stock market.
Wants to believe that all will be well, very very shortly. We saw this amazing reversal also in the price of oil, as though you know, what were we thinking there's plenty of oil out there. Well, there is plenty of oil out there. We just got to get it, get to it.
Damian quick one in here, quick one.
Well, I mean ed what you sound It sounds like you're talking about just cleaner positions, right, And I mean, if this is really what this amounts to, where you basically we are giving a lot of you know, risky investors the opportunity to kind of you know, pair back their positions and clean them so to speak. Does that mean we might look for another leg higher into the you know, second half of this year. And can we really even see that?
Well, I haven't given up on seventy seven hundred by the end of the year. I can so yeah, I'm I'm arguing that it's not necessarily going to be a few more days of the war, but it could be a few more weeks. And that again, I have this tendency to look at solofsa's buying opportunities rather than reasons to panic.
Thank you for coming in my pleasure always. You can't say enough about it, folks. I enthusiastically support the work of doctor or Denny. We protect the copyright of all of our guests. Please don't call us to get his research, go to your Denny Research for his fabulous daily synthesis of economics. Stay with us more from Bloomberg's Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
Part of what we do here is a conversation with interesting experts. Damian Sasaur in time King Now with Patrick Murphy and the title is Executive Director Geopolitical Advisory at Hillco Global. That barely describes his public service. After serving in the Army in Iraq with the eighth Congressional District in Pennsylvania, he was known to move the puck like Markau of the Philadelphia Flyers up the ice for King's
College years ago. Has lectured at West Point, I should say taught at West Point and has a really legit army career, and of course was a former Undersecretary of the Army. Honor to have you this today, without question, our conversation of the day. As you look at the media portrayal of this one of our competitors called it a conflict. I went nuts because Vietnam was a conflict. This war as you look at the coverage, you sit there and you say, what are we getting wrong? What
it informed Damien Sasawur, Alexis, Christophers and myself. What's the thing we're getting wrong about this war right now in our coverage?
Well, the video doesn't match the audio, Tom Damian Alexis and that they could say, Hey, we decimated the Iranian navy. Fifty ships are now under the sea, but the strait is still a choke point. There are ships not going through. You look at seven countries have been counterattacked by Iran on sixty five percent of those attacks are an Abu Dhabi and Dubai. Yesterday it was an oil tanker that was hit. The day before it was the Dubai International Airport.
They're hitting civilian targets. There are people dying in that region. And I hear about the resolve of not letting Iran get a nuclear weapon and we should never have let them have a nuclear weapon. But the reality of it is we had a nuclear deal done that we walked away from.
How do we I shouldn't say how I'm editorialize and excuse me, folks. Is the White House listening to the Pentagon?
Of course they're listening to them. And God gave us all two ears, two eyes, and only one mouth for a reason. But I think great generals like General Colin Powell is one of my role models who I get to know. We followed after Vietnam what's called the Powell doctrine, where you have a clear mission, you use overwhelming forced accomplishment mission, and you have a clear extra strategy.
There is no extra strategy here.
The mission is yet let's deestimate the Iranian ballstic missiles, etc. I get it, but you can't necessarily do that with just airpower. And they keep saying it's not gonna be a protractive war. Well, why was the eighty second airyone just.
Put on alert? The light entre unit that I serve with an evasion in Iraq?
Why is it that you know every military expert will say you can't win this thing by airpower. And again, my brother's in the Air Force. I have a lot of respect for airpower, but you can't win regime change or wars just by airpower alone.
Well, Patrick, I love that you're focused on logistics, because when I'm driving up the Palsaden and State Parkway to visit you and my good friend John melconnup at West Point and we're sitting there gaming out what this really looks like. And we're talking about you know, golf traffic down one hundred percent since the conflint began and two hundred.
Vessels effectively trapped there.
You know, President Trump is talking about US Navy escorts, So logistically speaking, will that work? I mean, will that really get you know, firms who have suspended transit through the straight up ore moves to like like NYK and to two EOSK to start you know, shipping again.
Is that is that? Is that gonna work?
Yeah? I mean listen, we say it in kind of gotten.
You know, was helping lead the army amateurs talk strategy, experts talk logistics, and the logistics there in that region in the Strait is there's about five to twelve six thousand minds underwater mines that Iran has that might be in that water right now, five thousand not not and
again they may went out sea. And you know beside the you know, there are almost six thousand bustic missiles and there are ten thousand drones that they can you know, produce a month, so you know it's not And again, our military is the best military world I don't doubt that, but we should be humble in our greatness and not just in cert our young men and women in harms way. We just lost our seventh service member and another dignified transfer.
I mean, I've been there at Doingver Air Force Base, Welcomar, you know, troops home that gave the ultimate sacrifice. It is heartbreaking for those families, and I'm glad the presidents, you know, I give him credit that he that he showed up. But you know, I can't help, but was this war necessary when we were at the one yard line with the piece deal in Geneva just a weekend prior, you.
Know, Patrick, I just like to expand on that, you know, sticking with logistics here. Just last week we heard US Treasury Secretary Scott Besson slam JP Morgan chief commodity strategist Natasha kind of a for basically making irresponsible comments about maritime insurance and about you know, three hundred and fifty two billion of coverage needed to you know, protect these ships in order for people to start chipping again.
Mean, what are your thoughts on that.
You know, how does that play in to you know, the bottleneck, the supply bottleneck that's coming through the market data.
Listen. That's why I said my opening comment was the audio is not matching a video.
That's right.
An oil tanker was just blown up yesterday. I mean UAE is getting sixty five percent of these attacks.
And why is that?
Because they're probably the least defendant and they're going after Civilly. And you know, as I mentioned that Dubai International Airport and or oil tanker.
Yesterday, it is shut down. It is a choke point.
And when you talk about twenty percent of the world's oil natural gas goes through there, that is a problem.
And people in America.
Yet, when I got gas yesterday in the Jersey turn bike ride coming up here, I was at paid four point fifty.
You know, I didn't get the ninety three. I got ninety four.
I got the ninety one to save a couple cents per galling and I'm doing pretty well for myself. But I'm cheap, right, And Americans already last year had a thirty percent increase in electricity bills. It's going to get worse, and people don't understand electricity is based the power that you get is from National Gas. That's what power is at the anchor of our electrical.
Grids across the nation this morning and particularly to Pennsylvania and Patrick Murphy with us, a former Congressman from the eighth district. He is a geopolitical advisory at Hillcote Global and of course the former Undersecretary of the Armor. I want to go to your wheelhouse of what you taught at West Point and your service to the nation, and that is my entire knowledge. Here is Tom Cruise in a movie with Jack Nicholson.
Oh, I figure that was one of my favorite movies.
You are in the judiciary part of the army, and you've got an immense respect for the process of law there versus outside and all that. How do you adjust an executive, How do you adapt to an executive that can do this on a whim versus legislative authority.
Yeah, for two hundred and fifty years we've had in America that was a limited federal government. That was the whole point of our government when we broke away from England. And you're right, I did spend six years in the army before it became a judge, avicate my law degree and taught consci law at West Point. That Constitution is the bootboard of our country. This is not a TPS report from Office Space. This is a document that we take a blood oath in the military to support and
offend that Constitution against all enemies, barn and domestic. And that's a constitution that has been annored by this Congress. I blame the Congress for ignortons. I believe that Congress that is just basically said, mister President, you want tariffs, you know laterally kind of thing you want.
Yeah, And by the way, what's your advice to Senator Fetterman and others who maybe at the margin would like to get a little bit of a decision tree back here.
Yeah, I would like the first step maybe have some courage and a backbone to stand up to a co equal branch of government, the executive branch that they've taken over, support and defend that Constitution too. And they all represent in Pennsylvania's case, twelve million Americans that want them to do right by our men and women in uniform, to follow the power, follow the power doctrine, to have a clear mission and what is that? And use overwhelming force
and have a clear excess strategy. We all know there's no strategy here. We all know that it is real tough to go in and take out the Venezuelan leader without Congress standing up, you know, and to do it and violation and not just the Constitution, but the War Powers Act that you know says that within sixty days you got to bring it the Congress.
Otherwise you have to get out.
They haven't gotten approval from Congress, and Congress continues to have no backbone.
Across this nation. Patrick Murphy with us with Elko Global and of course the former Undersecretary of the Army with Damian Saso this morning.
Damien, Yeah, you know so, Patrick, you know you mentioned Venezuela.
I think you need to kind of group that together here with Ryan and talk to us about what this means for the upcoming meeting with Xijian Ping, you know, I mean, you know, we had a guest on earlier who was basically saying that this that the President Trump might be incentivized to extend the war that much further in order for him to have more leverage when he's meeting with President Chiesian Ping, you know, talk to us a little bit about the calculus what this means for
the US negotiations with China.
Chima loves the fact that we're going back to Middle East and nowhere to be die tied.
Down down there.
It is not in our financial rites when you look at you know, as as Tom mentioned, you know, the greatest greatest defenseman in the Flyers' history is Mark hal but I say the greatest hockey forever is probably Wayne Gretzky. You passed the park where people are going to be? Where are people going to be to sell our American
goods in Asia? Fifty percent of consumers earn Asia. Why are we focused on the Middle East and not strengthen our relationships and do what we need to do to make sure that's there.
Okay, this is.
Critical on Damien brings up China, and I go back to Admiralstvetez, who has been such a supporter of my work with Elliot Ackerman the Marine writing twenty thirty four, which is They're wonderful book, my book of the Summer a couple of years ago. Folks, where unintended consequences get you into mess is our military, I want to call you a congressman. Is our military Patrick Murphy, exhausted by the multiple platforms of being in Asia, having to transfer
to the Middle East? And yet, as Damien says, worrying about China and Taiwan, do you sense a military exhaustion at this point?
No, in a sense that yes, No, they're not exhausted period. Our military is the best of the world, and they are motivated, and they're not motivated necessary to go into unnecessary wars to motivated to do the job that they were trained to do.
But has our military been weary.
After the longest wars in American history over twenty years, over two decades in Iraq and Afghanistan. And what's between Iraq and Afghanistan Iran. So that's where our troops and our efforts are right now, with over five thousand strikes in the last eleven days. And it is not making frankly, our country and certainly not our economy stronger. And you know, I know, obviously Damian mentioned Venezuela, but how about the tough talk about Cuba. You know, we had a pistio,
we had a nuclear deal with Iran. They got rid of the nuclear program. We walked away from it. Then they got you know, ambitions again, we walked away from a pistol on Cuba. And now President Trump gets there and you know, he says, there's state sponsor of terrorism. Right now, Again, I am not I don't lose sleep that the toll was killed, but the new I told who, the new Supreme leader. It was his father and his
wife that were killed and that attack that Saturday. So again are they gonna And he's known as being even more hard less exactly right.
So I just have Odjeda.
And it and it ticks me off when a lot of these political leaders in Washington ce cent.
Our young men and women of Harm's Way and they never served.
And Davian the Secretary of Defense the key quote that's going out across media right now quote our most intense state of strikes inside Iran is Tuesday, which is today.
You know, you know, Patrick, I have to ask you, and you know this may be outside of your remit, but if you had to take the temperature on the ground and some of these other Gulf nations like Barrain and Cutter and and and the UA, et cetera, and how many of them do you really if they had to pick a side between the US and around you know, what side do you think they'd take?
I mean, I do think they would take the United States because we have we have decades, not centuries of our worders are bond and we're not there to take their land, We're not there to take their oil. But our ambitions right now are a little out of whack, and our tough talk is a little about.
Out of whack.
Where we have to respect the world of law, we have to respect other country's sovereignty.
I look forward to speaking to you again. Patrick Murphy, thank us so much. Executive director Geopolitical Advisory at Kilcoke Global and former Congressmen of the eighth District of Pennsylvania and former Under Secretary of the Army.
Stay with us.
More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube in an unusual interview with one of our favorit people, joining us in studio, Andreas Sudermann.
Chairman of the board of directors at vantebelt Is as well, and the back of an envelope, I think of German malaise. I think of these key elections in Paris. A lot's going on in Europe as well. How does Brussels, given the arc of domestic politics in Europe, adapt to a war.
Well, that's a tough question to answer.
Tom.
By the way, thanks for having me this morning. I think Brussels at the moment is less of a factor here. I think it's the national capitals, as you.
Said, that need to get their act together.
And there has definitely definitely been a wake up call over the past eighteen months since President Trump got elected for the second time round, and the Europeans know they.
Need to shape up.
But exactly how they're going to do it and how joined up they're going to be, that's still up in the air.
The image of a French aircraft carrier with seven destroyers around it, I mean, with the submarine sinking of a boat in the Indian Ocean, I mean, what is the symbolism to Europe of the French moving east to the Middle East.
I think that's very significant.
I think also the offer by President Macron to make the Force Fraut potentially available in forward deployment for allies. I mean, that's that's a big development that happened.
What was it two weeks ago?
You know, we've talked about it, but I think one can't talk about it enough. The Germans doubling their defense budget very quickly and you know, moving away from their balanced budget orthodoxy.
I think there's a big move.
All of that's happening right now, but it's not in a joined up manner, and I think that's what we're waiting for. That's why you asked about Brussels. But Brussels isn't going to be the factor. He it's the national capitals and domestic politics that got to determine.
That I should mention the ship Damien Sas or the Charles de Gaulle. Mean, yeah, how could there be how could there be any other ship named the French fleet Andreas.
Markets are clearly reacting to the Middle East conflict, but relative to past events, I mean, the price action just appears to be, you know, quite needed. To me, I'm curious to hear your thoughts on that. You know, do you see potential for the current conflict to fantastasize into a full blown varshock. And I guess you know, do you see any risks of the plumbing underneath these financial markets right here?
Of course, it could totally spiral out of control. I mean, we don't, we don't know, you don't know. I think nobody really knows. The markets are certainly not discounting it. Otherwise you'd have seen much, quite right, a much stronger reaction downward. And it is really surprising that the markets have been so sanguine. I have to say I agree with the The biggest risk to the plumbing is the potential hazards in the private credit space.
Totally sorry, I'm being right.
We want.
Tom waiting for that to I mean, come on, continuation vehicles, deteriorating, COLO demand, come on.
And you don't know this, but on Damien's screening is a countdown clock, given Iran, given the president, given the press, coind of what's coming up? Tom?
When are we gonna talk about private credit?
But let's talk about these principles first, right, I mean, I was having that conversation with a friend of mine the other day. I said, look, I grew up a banker, right in the eighties, you know, I saw how loans are being made to mid and small sized corporates, commercial paper. Absolutely, I know how how much due diligence went into all of that, and why because the risk the capital of the banks are at stake. That's right, right, that is,
it's real money. Right now, you move this kind of off balance sheet with everything that's happened post Great Financial Crisis, and who whose money is now at risk? It's sort of anonymous savers, right, So how do you think the due diligence compares relative to a bank that extends these loans on their own balance sheet? And it's going to be subpar.
More concerned with what's going on in be credit some of these credit instruments as opposed to what's going on in the Middle East.
I mean, I think that's what you're saying saying.
Here, Well, well, we'll know after the event. Certainly the market should be concerned about that. Absolutely.
How large are those shadows? I mean you you guys are way too young to remember this, but I remember going on in October, I think Thursday with a martini in May and oh, portfolio, what is that? What's the fear that you have now of it? Is that pure leverage, is it?
What's the unknown unknown.
Of private credit?
Andreas well, I don't know. I'm not smart enough to know the unknown unknowns. But what I can tell you is I'm slightly less concerned than I was, and I was concerned in two thousand and seven, eight and nine, because ultimately the transmission mechanism of this going wrong initially is going to be probably consumers savers and not not
systemically into the banking system. Now, as you say there might be unknown unknowns, I mean, you know, one of our competitors in Switzerland had loans on the balance sheet nobody knew about, and so that was an unknown and who knows what banks have done that nobody knows about, But right now there's no evidence of that.
You know, one of the big buyers in that market are insurance companies, right, I mean long duration buyers. And you know to me, I mean I look at insurance and.
You know that stuff very well.
Yeah, insurance talks.
So that's when I'm thinking, I mean, and I'm wondering if you have any thoughts there. I mean, demand from insurers for you know, thirty year paper for long duration papers kind of gone down as you've moved into the private credit market, right that short duration you know, that's short duration stuff. You know, talk to us about the potential for asset liability mismatching in the insurance industry. I
mean the insurance industry. By the way, Tom, for all your for all our audience listening, is one of the best performing sectors in the SMP this year.
So I'm just curious to hear your thoughts there.
Well.
As you know, I worked for a Lance for a long time. I was on the asset management side, but clearly they found out some of the some of their investments to to audience global investors from I was Leading and PIMCO, And you're right, I think in the in the twenty tens, when into switched low, they went to ultra long now to my surprise, entire surprise, though, they
didn't manage that transition extremely well. So they didn't really take the hits that you might have expected as interest way its rose, and so that speaks to their ability to manage risk on their balance sheet. So I've also seen the insurance stocks do really, really well, really well, so that there's no real evidence at the moment that they're not managing this appropriate. So so I'm kind of kind of bullish on insurance.
We are three minutes away here folk from a press conference. General Kine is always timely, but with some headlines here, I wonder if there'll be a delay. The Pentagon press briefing room with the two Flags prepares for this press conference. Andrea Sertterman with his chairman of the Board of Directors, Vuntable with us. I want to talk to you about the voice of the elites. I advinced no words about this. Lawrence Fink of Blackrock single handedly saved Davos this year.
Larry got upset. He said, we got to continue this in some form, you know, the gossip leguard maybe would go from ECB over the world economic form. Where's the new voice of the elites moving forward the next one year, two years, five years. Does it need to be reconstructed?
Of course, But I mean that start with a presupposition that But you know what actually the elite is? Now that's an interesting question, isn't it. I mean, is the is the elite political? Is it moneyed? Is it new moneyed, old moneyed? I think the definition applies differently to different countries and different political systems.
I mean, you might.
Argue that, I think people will have different views as to what the elite today in the United States is. For example, I'd be interested if you have an answer for that.
Tom, what's kind of asking what's an emergency market?
Right?
What's the difference between an emerging and a developed market?
You know what is you know, what is a you know, middle income economy versus an advanced economy?
Right?
I mean it's what's a wealthy individual resil relative to a middle income household? I mean, you know, I guess you know, elite. He has many different I guess meanings to make different people.
It's very different. It's very difficult. It's very interesting to see that. You know, in the late twenty tens, it was expected that the the the elite that expressed important views, be it on societal issues or economic issues, would be the leaders of large corporations, right, And that's changed quite a bit in the past few years.
It's changed quite a bit, and that elite has become less noisy. Let's vocal.
Can I do an audible into the press conference? I still haven't recovered from Harry Kane going from Tottenham to Baron Munich.
But good for him. He's finally won trophies. I mean right now in a renegotiation. It's amazing. I mean, tell us the response of Munich.
To the Harry King going there, Well, I'm successfully getting it done.
I'm not a Bayern Munich fan. I'm an Arsenal and Burdsad Dortmund fan.
So that's what we got.
And we got whooped by Bayern Munich a couple of weeks ago. No, but Harry Kane did exactly the right thing. I think what would be really interesting if Brian re signed him and for how long, because Byan have history to basically end contracts in the early thirties of a player. Now, it is true that strikers picked the type of striker that Harry Kane is having longer careers and certainly longer careers than wingers. So let's see, I would if I'd have to bet two year contract.
Okay, this has been I'm so sorry it's too short here, but we're waiting for a press conference. We've got to get a Lexis in with market reaction.
And thanks for having.
So put it on a calendar. We'll get our team.
I think when you define a lead at somebody who graduated from Vandervalt University and played the middle linebacker for the high school.
I mean that would be my definition.
That would How are they doing in March Man, it's not going to be.
Thank you, Thank you so much, Chairman of the board of directors at Vauntable.
Stay with us.
More from Bloomberg Surveillance coming up after this.
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Courtney Rosenberger Gelman, who joins us from Statiga, she has to put up with Dan Clifton. Ow Boy, that alone is a heavy lift to say the least. Courtney, do we have an oil lobby in Washington.
We certainly do.
We have a very strong oil lobby who has been in contact with the administration. You know, had of the June strikes that we had on Iran, so they have been involved throughout this entire process.
Courtney talked to us a little bit about not just Iran, but the impact of Iran and venezuel on President Trump's upcoming meeting with Chijinping. I mean, do these two events change the calculus at all for the upcoming negotiations between the US and China.
The way that we're thinking about them is it's about leverage.
So I don't think it's kind of a coincidence that the President is saying a four to six week timeframe for this event, and March thirty first April first would be about four and a half weeks into the US and Israeli strikes on Iran, and we do think the administration wants to have as much leverage going into those talks as possible because what they're trying to do is they're trying to show China, you know, we can remove your proxies, we can remove your sources of cheap oil,
so that goes to Venezuela and Iran, and also showing we're trying to kind of consolidate Western security. So that also goes to some of the rhetoric that we saw earlier this year on Greenland as well. This is about getting leverage ahead of twenty twenty seven off of concerns that China might be more aggressive in their posture when they do have the capabilities with Taiwan well Courtney.
You make a very very interesting point there. That's an incentive one might argue for President Trump to make sure that the conflicting that Iran actually extends a little bit longer than anticipated from hearing you correctly. And look, oil supply disruptions have ruined many of president's here, and you know, for me, you know, we have midterms coming up, so I'm curious to hear your thoughts on which local races, which primaries do you think you're going to you know,
catch your attention here as the focus shifts. But more importantly, you know, how do you think the markets are reacting to Iran and whether or not they're going to reward or penalize the Trump administration.
Yeah, so I would say, you know, when we're thinking about this, certainly there's there's a case for the president having as much leverage as possible. But I do think that there is that four to six week deadline here. Again he wants to have the leverage going into the meeting. And there also is, to your point, the lack of political capital here. You know, most polls have this underwater,
including with independence who are key to the midterms. We've seen betting market odds for a democratic suite search, you know, ten fifteen points. Over the last month, we've also seen all our thematic baskets leverage to a democratic administration start to search as well. So it does seem like the market is increasingly pricing in Democrats off of concerns with the president is too concerned with foreign policy, not concerned enough of affordability.
For where you said, and the cacophony of a presidential press conference, which is its own piece. Thank you to all of our team for companies that Cohen and I thought was brilliant today with Nathan Hager. But Courtney, is there a cogent energy policy in this nation right now?
I think that the energy policy is produced as much as possible because that is key to national security. It is not just a US energy policy. I think we're increasingly going to hear about a US MCA energy policy. So USMCA is up for review in July. We anticipate that Mexican energy reforms, which have not been implemented to either the US or Canada's standards, are already key to these negotiations.
Okay, this is a core question, Daman. We're going right back to the University of Kentucky with Courtney Rosenberg and Courtney just as simple as I can. Why is the price of oil in tex U sort of kind of like the same as the price of oil and Abu Dhabi discuss oil is one price?
Yeah, I mean there's been a decent kind of gap between WTI and Brent, which I do think is notable. But I think that that goes towards the administration's argument of energy security, where the US is less exposed and less susceptible because we produce so much. Certainly we are kind of at the mercy of the global prices, but the US is best positioned, in our view, out of many of these other countries relying on energy imports.
Courtney, thank you, thank you, thank you. Thrilled to have you with us today. With Jason Trennard. It's Strtiguous Research Partners, Courtney Rosenberger, Gellman.
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You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube shouldn't care.
And of course the physicists from Voden always and forever. My basic take is the bond market is Damien alluded to really is taking war? Well?
Is that a good summary?
It is from a spread perspective, right, But the issue that I have here is that there's a high correlation between bonds and equities at this point, meaning that bond prices are going down, equity prices are going down. So there's a high correlation market, meaning that typically whenever equities take a hit like what we're seeing with the shock with oil, typically bonds are there for a reasonable hedge.
So this high correlation that we have today with bond prices going down, yields going up right, and equity prices going down, means that people don't really have a very effective hedge. So what they end up doing is they try to move towards cash. So the question then becomes is liquidity okay in the market? Liquidity's okay in the market, we can trans I mean, people can move cash around.
And then the third is contagion, So we're not seeing widespread default risks and contagion really rippling through the markets at this point. So far, this is being viewed as an inflation shock. It's not yet turning into a growth scare. That's the tipping point that we have to watch.
I'm going to get the breaking news out of the way. Amazon's going to call up Morgan Stanley trying to move thirty seven to forty two billion dollars of paper. Maybe it's outside your remit, but maybe it's not your thoughts on another big tech with a big bond deal.
Look, this has been an ongoing trend, right you know, We've seen a lot of the big technology companies coming to the markets. There's a lot of funding for CAPEX. We see this broadly as a very big CAPEC cycle. This is something that we were talking about last year. The last time we saw a CAPEC cycle like this was the nineteen nineties. Typically, when you get this type of investment from a CAPEX led growth cycle, you tend to get higher productivity. That's exactly what we're seeing right now.
That should raise higher real term growth and should high and should raise potential growth. So I think this is part of the cycle where investments are being made, and I think that these investments are going to pay off and the outcome of this is going to be from higher productivity.
Well, Jimmy, you call this an inflation shock, and I got to just think back to the pandemic. I mean, I got to believe central banks and governments and officials have learned a lot from that experience, you know, and I think you know you mentioned in some of your work standing RePOP facilities and FX swap lines and all the tools that are available to central banks to help protect against you know, what is effectively of our shock.
My question is can it still happen? And what are you looking at?
What indicators, what signals would you be most focused on to sort of give you a little bit of advance notice that things are getting really bad up?
Yeah, no, And it's a really good point.
I mean, look, central banks are well prepared with FX swap lines and repo facilities, you know, to handle a lot of liquidity shocks that they weren't in the past. So what I'm going to look at first and foremost is is rebel markets. If markets are functionally well functioning, well, that's really the primary source of leverage. That means leverage markets are going to be okay. I would look at
people have whenever there's a shock in the markets. There's always demand for dollars because a lot of debt, particularly in emerging markets, is dollar based debt, meaning that people need those dollars to pay off their debt. So therefore they tend to conserve dollars or buy dollars in advance. So typically you get stronger dollar and then sometimes I could create a shortage or a squeeze in the dollar markets. We're not seeing that right now. This is good news.
I want to highlight some things that are good news. Right We're not seeing these liquidity shocks.
News on the show.
You know, we need it sometimes.
Jim Karen with good news continue.
So so the liquidity shock is not happening, The broad widespread contagion across markets being making this a systemic event is not happening. But the correlation shock is happening. And that's really a debate on the inflation metrics right now that you know, I guess we'll find out more tomorrow, but you know, with CPI, but that's going to be the issue.
Well, Jim, talk to us a lot a little bit.
You had mentioned previously about the correlation and being stocks and bonds prices up, you know, I mean, sorry, prices up, prices down, and they go together. It doesn't matter. So how do you build balanced into portfolios? And what assets what seaf haven assets I guess are most attractive to you in this environment. And by the way, we all know what a few of them are. We're talking about gold,
the Swiss frank but they're expensive. So you know, how do smart investors' institutions really look to diversify in this environment?
Yeah, so you said the magic word diversification, right, So a lot of the things that we're putting together in portfolios, and the way that we went into this is we had defense sector related assets invested in. So from the equity markets, we tend to invest in baskets of equities that will look at AI defense. Even some of the financials have actually actually been pretty have actually been pretty attractive.
The broad broadening of the markets of cyclicals, small caps, mid caps that had been doing well recently taking a little bit of a shock, But we think it's a buying opportunity.
That's the way that you do it.
You don't really think about it as owning bonds versus stocks. You really think about it as diversifying your portfolio into high quality into defensives and in income related assets.
Jim Karen with Morgan Stanley, and we continue all sorts of good people coming up. I believe that your Denny scheduled here on the equity markets. You mentioned tomorrow's report. Folks, it's not Jobs Day, it's not the Fed. But between three eleven and three thirteen we get a mountain of data. Is the guestimate bouncing your economics off the skills of Jim Karen, and that we have a new entrenched inflation.
So inflation is going to be higher than what we thought maybe two weeks ago.
Right.
So when I look at the oil markets, and oil is going to be a big factor into this whole thing, I don't think that we're going to go back to the low prices in oil this year. There has been some demand destruction and it's going to take a while to get that back, and I think that's going to be all of twenty twenty six. It doesn't mean that oil stays up at these levels or near one hundred dollars. It just means that they can come down, but they might not go back down.
But I want to give this this is too important. If we have this and if we have stagflation, just as one phrase, does the stag save the yield? I mean, does the stag push against the inflation?
Okay, so the stagflation would be very interesting. Yes, it could lower yields, but it could also widen spreads, so that might not necessarily be so friendly for credit markets.
See that's celtech physics. Well, I mean, you know only Karen can do that.
Oh, Jim, I just got to ask you before before we run. I mean, like, credit spreads haven't barely they're not moving, right, I mean they haven't really you know, reflected fundamentals for the better part of forever. You know, what do you think it would take to get spreads to move? And do you think there is gap risk here to the market of them moving from sad I don't know, eighty BIPs to like one fifty overnight or something.
I mean, what are your thoughts here?
Yeah, so I think it would take actually a pretty large inflation shock. So that would be effectively oil prices staying at one hundred or above for an extended period of time. I think that's when you're going to start
to see some real demand struction. You're going to start to move into that stagflationary environment, and that's valuation killer, and that's really where people start to talk about defaults and demand destruction, and that's when you get wider spreads, and that can actually hurt the markets.
Jim, thank you so much for coming in. Really really appreciate it. Jim Carron, I kind of get mortgage Stanley.
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