Stocks Extend Highs as Traders Await Truce Update

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We have an esteem guest who has serious knowledge about these tensions across Eurasia. His name is Daniel Tannebaum. He's been a wonderful support of the show and we feel that his time is so important versus the Q and A that we've been hearing. He is with Oliver Wyman, a senior fellow Atlantic Council dead tan Obaum, you are encyclopedic on sanctions and the economic tensions with Moscow. No doubt Vladimir Putin and his team is listening to.

This press conference. How does it translate in Moscow?

I mean, I think Moscow has been the winner for the last few weeks, tom because of the increasing oil prices through this conflict, and as we saw, there was about a month period where the Trump administration authorized the purchase of Russian oil pretty much by the world. So I think Russia has certainly been a beneficiary of this

We just heard from the Secretary Defense as well as military leaders about the tremendous military success the US Armed Forces is having in that in Iran, which has led in large part to this seasfire. What are next steps do you think? How do you think this really plays out?

So, I mean again, I think it also depends on success is dictated by what was the objective. You know, we've heard a message about regime change, bringing back my political science education from GW. Regime change is really a change in government, which I'm not sure we've seen here. Where I think this is going is I think it's a reversion to a deal similar to what President Obama hammered out in twenty fifteen under the Joint Comprehensive Plan

I mean, I looked in at where we are, and I think the lynchpin of so many conversations I have is China coming to the rescue of Iran. I believe the leadership in Beijing yesterday said that may not happen. What does Oliver Wyman know about the support Iran can receive from China.

I mean, China's been providing support, but really inso much is continuing to buy Iranian oil throughout this crisis, and there have been tankers that have transited the Strait, albeit at a far smaller clip than what we've seen in the one hundred plus ships a day that was Iranian oil bound for China. Now there's an interesting moment with this blockade. Of the blockade, oil is not going to China at this point, but it takes time for this

I've been dyinga ask this because d'An Tannabaum's the only one who I know who read Patrick O'Brien twenty one volumes Napoleonic War three times. Dan Tannabaum, Is a blockade like a sanction? Is it just as simple as that?

Well, I mean it's another use of hard power. I mean we've obviously used blockades in different forms of American history. Is in another form of sanction. I mean the sanctions are trying to use economic warfare to force a change in behavior. Obviously, the blockade is more direct interaction with the threat of seizure, of boarding, of potentially interdicting vessels that are moving in contravention of this blockade, which thus far we haven't seen. Is in another form of sanctions.

And we hear that from Admiral Bolton on Bloomberg this weekend, yep, just four or five.

Days ago as well.

Paul Sweeney with Dan Tanemam Hey, Dan, we kind of went into this war with Iran with effectively an open straight of Hormuz, which obviously benefits countries all around the world. That is not the case today. Do you think we can get back to an open straight Because it's not just the US and Ran here. This is countries all around the world depend upon goods and that flow through that straight.

And it's pretty clear that Iran didn't realize the full extent of what they could do. Obviously, when your back is against the wall. Iran has never attacked other Gulf states. They've never militarily blockaded the Strait. I don't know if we go back to where we were unless there is a deal that both sides feel comfortable with. And if you'll remember, the negotiations were ongoing as the attacks began

So I guess that one of the questions then will become, I to what extent do other countries come and become involved in this and maybe securing this straight? I mean, Secretary Hexit was raised that point several times, So I do.

I think that will come over time. I've spent a substantial amount of time this week in DC with a number of European government officials, and the message is this, we agree with the objectives of what we believe the Trump administration is trying to do with Iran. But had they just consulted with US as this conflict began, this might have been a different situation, either for pushing diplomacy

Board, because obviously, to your point, Paul, the world.

Suffers from this. This is not an American issue, but it's certainly been an initiated conflict for the US against Iran.

Here I look, Dan at your study of this for thirty forty years, and I'm going to ask a really serious question because whether it's the treatment of the Secretary of Defense, the Chairman of the Joint Chiefs of Staff, or the new guy in the press conference, Edminal Cooper of Sentcom, with great respect to Tanabam, are we at war or are we at conflict?

So look, I am not a kinetic warfare expert. I think historically and I worked in Congress when there was a vote on the Iraq war definitely declared war. Congress voted on it. I do think we are at war at this point. We've got a substantial amount of American soldiers, aviators,

Right, Thank you so much for coming into our studios in Washington. It is the meetings of the International Monetary Fund and World Bank and of course the if obam where this is a p with Oliver Wyman.

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Robert Dahl joined just CEO CIO at Crossmark Global Investments.

Who's the only one of my rolodex who was there in nineteen twenty eight when.

The last time this happened, Bob, you and I had never ever seen this.

It's amazing. Why is this happening?

Because good news is good news, bad news is good news, and no news is good news.

You buy stocks, but look, you buy stocks.

But we had a guest earlier who said, the structure here is what's changed. The retalization is Barry eichen Green would say, the financialization of the system is when you and I had a standard and pours outlook book.

And that's fair enough.

There are a lot new buyers that have significant buying power and volume power, if I can use that term, individuals, young people, hedge funds, quantitative tools. So the traditional quote unquote investor that looks at companies, we're shrinking tom as a percentage of what's going on.

So what do you think is driving just kind of marketing trends here? Is it maybe just momentum trend trading? Is that becoming a bigger part of it.

All the above, Paul, There's no question about it. But look, let's let's be fair. Prior to this war, the economy was pretty good, YEP. Earnings were better than pretty good. This war has been brief, and if it really is over or close to over, we'll go back to those tailwinds. And that's what the market is focusing on.

So one of the big themes has just been you know, AI, and I'm not sure that I think when this war winds down, a lot of those themes got to come right to the forefront again, AI, private credit, those TEP types of things.

What are you focusing on?

You're absolutely right. Look, let's be short termed for a minute. Earnings have just started so far, so good. I talked a lot of analysts during the war and they said, I.

Don't know what to do with my estimates.

I'm gonna wait because the company is gonna report in a couple of weeks. See what they say about the first quarter and projected going forward. Then I'll deal with my estimates. My guess is there's some NIX out there and estimates have to come down a bit. I don't think it's a disaster, but enough to be a little worried. At twenty one times, yes, down from twenty three times and up from nineteen times, but I'd like a lower multiple with all this uncertainty.

So a brilliant adults scattered out chart.

This is Matt s Manaro with zero hedgehop thank you for their market year is a real good compendium of what's going on out there.

Since nineteen twenty eight.

When the S and P is up like this five percent verst fifteen days of April, the market is up thirty two percent on average the rest of the year.

Where do I? Yeah, where are you signed? Bob Dahl?

You and I know it's just not that easy, And I'm going to go to Frankly, James Kramer over at the Death Star has been very good about this in Time memorial. The answer is, very few stacks drive us higher. What are those very few stocks? In July or in.

October A great, great question. Of course, I don't know for sure. I do observe in the market the last couple of days, as we've moved now to a new all time high, breadth has been pretty mediocre.

It's not convincing.

Now.

I'm not gonna I'm not gonna poop poop a new high. I believing, I love it.

But I think I think you're gonna see some of the technology stocks software coming back from the dead. I don't think the semis are over. They need a correction. They're going through that right now, and I think you will see then other cyclicals do reasonably well as long as the economy.

Is okay, which it is. Joe Eisenthal saves Bloomberg surveillance today. Thank you Joe with a tweet out without Life. Us JAB has claims to zero seven two hundred seven thousand in April eleven week. The estimate was two thirteen, so they came in better, more optimistic than expected.

Yep.

So you know it's an interesting bob. I mean, coming late last year kind of into this new year, we had a rotation in the marketplace, getting out of some of those high multiple named high growth names into some value some small mid caps. How do you see that playing at.

These I think that will come back. You know, value tends to do better when growth is pretty good, and growth seems they'd be pretty good. Look the the trade around AI got concerning first it was we got all the money we need in cash, and then we'll give it to you in inequity. Then we'll raise fixed income to do all the capital expenditures. Post labor day was kind of trust us. We'll find it somewhere. The Oracle AI deal, I'll never forget.

That still has me concerned.

I think some of those CAPEX numbers have to come in.

Is the use of CA I mean, when was the last time, Lisa, Oh, you weren't here, Lisa, excuse me, Lisa today for Alexis Christopher's Bob Dahl. I look at this and I'm just saying to myself, it still comes down to c IFA one, two and three, which is revenue growth down the income statement, cash generation and use of cash.

It's not broken, is it.

I totally agree with you. People are not spending enough time, in my judgment, focusing on cash flow, use of cash, price to cash frow, price to free cash flow. These are the instruments that will get us through.

Is this bond issue?

Ince Martin mcdigliani, doll nailed this, you know depends the Pennsylvania.

School in nineteen twenty eight. Remind me which school were you at? Allenton?

No, that don't make that mistake.

I mean, you know, I'm sorry. Lehigh.

It's like the home of Stephanie Rule, right, I think so? Yeah?

I think you get them mixed up.

Can you imagine Stephanie Rules in the student union at ten am after calculus class?

Yeah? Too much, Bob out of Lehigh? You studied.

This is the bond issue, Ince An alternative to use the cash to me a portion of it.

Is no question about it.

I agree with you, But I come back to it's just not where the cash is coming. It's free cash flow and the growth of it. You know, I try to run portfolios that have priced the free cash flow that's well below my benchmark and roe above my benchmark. That trade off tells me I've got quality and I've got growth. And if I can do that in combination, I think I went in the long term.

What screens well for you under that scenario?

The financials Okay, I mean Look how much they've been pummeled since the first of the year. Yeah, they had a great year last year, so they gave some back starting towards the end of last year. The numbers so far are pretty good.

Yeah they are.

So I would on this weakness year to date add to my financial position.

Bo I got to bring this up, and I'm going to do with you. And it's such such such a great honor.

We lost Mark Mobius at a wonderful age of eighty nine.

For John Templeton and John Gilbraith.

Years ago, he invented emerging market analysis.

You used to be Paul, you're too.

Young to remember this bow and I remember emerging market investment was by the telephone company and by the concrete company, and then you moved on to Anaconda, Cooper and Johnson and Johnson. Mark Mobius changed the language of.

What we did.

Sure did.

Look, the planet in the developed world is not growing in population. So if the planet's going to grow, the emerging market consumer has to carry the day. And I think that's a great long term plate. Yeah, it's volatile. You have to have your seat belt and shoulder arn is on. But if the emerging market consumer does not buy stuff. The planet's doomed because population shrinking. China and Japan, we're not too far from that.

Can you do this more often?

I would kill for Bob Dolan Victoria Fernandez together.

Oh, let's do it?

Are you?

In speaking terms? Many of most days? Most days? Okay? Thank you, thank you so much, just greatly, greatly appreciate it.

This morning and this wrapped around waiting for the press conference and all that. He's a Crossmark Global investor.

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I think she was supposed to be with us like a couple of days ago and the world blew up or whatever.

But I'm sorry, this is like a big deal.

This is Lauren Hackfelder with Morgan Stanley, and what this is a is real estate. So I'm going to start with a dumb question. The tone I got four or five months ago is well, that was harsh. It's over except on Twitter at cranes in your world. I'm still seeing all sorts of challenges in real estate.

Is it not over? Well?

We are four years into this real estate correction. It is a little bit like that line in The Godfather, just when you thought you were out with everything going on and are on right now. But real estate, actually an infrastructure for that matter as well, is set up pretty darn well today. So there is a lot of unknowns, obviously, But what we do know is that energy price is likely to stay higher, geopolitical risks likely to stay elevated.

I think of real estate, I throw it into the group of alternative investments, and I think about non correlated returns. Is that what your clients are thinking about these days, are thinking about? There's too much risk out there in a stock and bond market, at least in the near term. I'm looking for some non correlated risk in return.

It's a really important point you're raised, so particularly when we've seen the breakdown of some of the classic correlations, right when when equities and bonds are, you know, moving in tandem. For example, real estate has continued to show its lower correlation. And in fact, when we've seen periods

So I get in the Bellety this morning and I'm coming down Fifth Avenue.

I turn left of fifty ninth Street.

The potholes are you know they're doing The mayor is doing a good job in the potholes good I could say. I slide by Steve Ross's new mega project tucked behind a GM buildings.

I can't remember.

It's Madison and something and it's going to be umpteen stories high. In all that, I think that's a class A property. Those are no brainers. Right now, like people with money are lined up to support Steve Ross and related on a project like that.

I think you're still seeing a real bifurcation between the best and the rest. And that's true on office that's true and residential.

Okay, So for you and.

Morgan Stanley at the margin, which is your choice that the rest or the.

Best generally speaking? The best generally?

What do you? I mean, but some of the values out there. I guess there's a class of investors out there in real estate, like there's in every asset class that wants to take go in into the bottom and try to turn something around it. Do we have people like that in real estate that says I'm going to go take the Lipstick building just for example, at forty cents on the dollar because I can make a return on that entry price.

Yeah.

Absolutely.

Look, let me say it this way. What we want is really attractive entry point but still really high quality real estate because at the end of the day, demand growth and limited supply is what's going to drive income growth. And this is a window where we're seeing, for the first time since the GFC, the opportunity to consistently buy assets below replacement cost, below what they would cost to build, and that's.

Attract geographic Geographically, where do you see the best opportunities?

I guess globally.

Yeah. Look, I'd say first and foremost, this moment in time really reinforces the importance of global diversification. So last year everyone was talking about the end of American exceptionalism. I think today reinforces that the US is relatively better positioned.

Right Asia and Europe showing.

Greater vulnerabilities around energy exposure, et cetera. But yet we're saying you need to have global diversifications. So we've been very active, in particular here in the US in Japan that's a very active market for US, but also throughout.

How'd you get into this?

You're at Eale doing ethics, politics and ecademics. What there was like a Morgan Stanley recruiter said, hey, you real estate, go love it.

How did this happen?

How did this happen?

I started as an investment banking analyst out of Yale, and Morgan Stanley has the best investment banking analyst program on the street, and that was amazing. And then I got to, you know, get exposure to investing in real estate and said this is fantastic.

Okay, So you've been doing this for years and it's the fancy stuff like you say Japan and all that, nobody cares. Here's what we care about New York City. I think Boston actually could be worse. The housing, the office, the mathematics of your world at the local level is a disaster. What's your prescription? And a cup of coffee with the mayor of New York City? What would you say to him?

Gosh, it is so simple. We have a profound affordability problem that is devastating for this city and the answer is supply.

Okay, So do you want to East Germany with a million you know apartments up?

Well, by the way, Germany has historically underbuilt and that is why. So if you look at Europe, Europe has historically regulated rental housing pricing and with that has really constrained supply. And it shouldn't surprise any of us that when you constrain rents, you constrain supply, and actually that makes it less aff.

What kind of supply we got to go here? Lucas Shawan is entourage just got here. What kind of.

Supply is efficacious for this city?

You want attainable priced housing, so not necessarily rent regulated, but attainable housing. And that is doable with the right public private partnerships.

Lauren, think you we gotta come back and talk about this more. We got to give her like it's not just New York, it's you know, twelve or eighteen minutes, you know, Lauren, Thank you, Lauren. Thankshold with us.

Just Outstanding had a global real assets Morgan Stanley Investment Management.

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It's time for link the interview and a great emotion. Wendy Schiller changed civics if you remember that name, folks or social studies in America by not writing six hundred page histories of Alexander Hamilton, but writing brilliant, short, terse textbooks that were in English and readable about the heritage concepts of this nation. She has done this at Brown

When Frank Doyle hauled you into the office.

Frank Doyle, guys, is this acclaimed engineering juggernaut and they took him from Harvard down to Brown.

And how did this happen?

Wendy does Frank bro Wendy, I'd love to give you the worst job at Brown, please accept?

How does that happen?

That's pretty much how it happened. Tom, Good Morning, Tom Bolney's up. Yeah, so I've done a bunch of leadership.

Chair RAN's Thomas Center was interproductor of the Watson and Stute now School, a public policy at Brown. And basically that's how it happened. You know, no, no good deed goes unpunished. And Frank Doyle has handled a lot of a lot of one after the other kind of external sort of shocks to Brown really well. And he wanted he wanted somebody who's been around a while and who he knew had exhibited leadership, and that was me, and he literally did offer me the job.

So it's hard when your provost calls you and says, would you do this?

To say, you know, I'd rather go on Bloomberg with Tom keene and and Lisa.

Yeah, one more question then I'll get to the business at hand. When you have a faculty meeting, I mean, do you order out pizza? I mean, is that what they do at Brown University with the best pizza in the world in Providence, Rhode Island.

You know what's interesting about academics now is that after COVID, a lot of those you know, group meetings.

Companies are on zoom so and it's a changed well.

It's a change in faculty governance, and it's it's you know, there are pros and constants, so more inclusive, but no shared pizza with Provos.

Schiller Paul Sweetey.

Professor talk to us about just kind of the latest stay of play, state of play in Iran here from the perspective of President Trump here, where is a reasonable off ramp for him in his administration here? And how incentive is he to do that?

You know, right now the president is balancing a sort of show of might or display of force for you know, sending again more troops to be stationed in the Middle East.

So he's not sort of saying.

We're not going to do this, even though he's getting all sorts of signals from the Republican of Congress that they would not support this, and the American public at the moment in public opinion, Pulling says no, no ground troops.

But he's not backing off a display of force.

You know, I don't understand closing the strait in addition to Iran trying to close the straight, but I guess in that way it says this is a global property and we can't afford to have you arbitrarily close it. So I think he's trying to balance, you know, the idea that Iran is a quote unquote bad actor. Iron has sponsored a lot of global terrorism aroon. You know, according to the United States cannot have a nuclear weapon.

But with the actual tools to go in, and so far.

It's a balancing act that has kept him out of any kind of commitment of ground troops, which I think is really you know, the red line for the United States and for the presidency. You know, I don't know if that is something that would actually bring the Trump presidency down perfectly in terms of support among the Republicans.

And that's a real concern for the president.

He may be willing to lose the House representatives, he is not willing or happy about losing the Senate as well.

Wendy, I went back and this is off of Max Hastings and is wonderful one volume on Vietnam. And I actually found the New York Times article Paul of the first day American Army troops marines maybe came as short and they have the you know, they're coming out of the water and all that, and to day and like nineteen sixty three, ninety sixty five, whatever, Is it correct, professor, that we provide a Vietnam analog to our analysis of this war?

You know, I'm not even sure we can, right, because, of course, as you well know, Eisenhower is the first one Republican president. Eisenhower sends the quote unquote advisors to Vietnam, and then Kennedy keeps the mayor and kind of loads up on them but doesn't go full scale.

But that's a consistent build up over a long period of time.

You know, we had as as you also know about almost five hundred more than five hundred thousand troops in Vietnam at one point, which is you know, triple the amount, almost triple the amount we had in Iraq at our peak. So the weapons of war have changed, we would never need that kind of build up, and we don't have a draft anymore.

So I think that is hard.

But I think the impotent that Trump has, which is the instinct I don't want to be in a ground war.

I think that is a strong impulse in this president.

And I think it is based on looking at even back of Korea, but certainly Vietnam, and look at Afghanistan and I Rock, which took you know, fifteen to twenty years each.

So I think that's what he firmly wants to avoid. But you know, this is the problem with war.

You know, you start military action and it unfolds on you and you can't control it.

Wendy, the political costs here, how would you gauge them? At this point? It is an unpopular war. If you just look at current public polling here with the midterm elections, what do you really think the.

Risk is to the Republican Party?

Oh?

I mean, I think, you know, the Democrats have been winning special elections, you know, for almost a year now at the state legislative level in places like Iowa, and they've been winning congressional elections not in Georgia, but they did pretty well in that seat in terms of former Representative Margor Taylor Green seat, so they you know, I think the signals are that people want something different. They want people to pay attention to inflation and housing and

I think voters are fed up with government.

They feel like it does not work anymore, and Democrats have to be careful not to fall into that as well.

I got time for One more question is Wendy Schiller goes off to a serious day job at Brown University. Let's go to your civics textbook, Wendy Schilder, which you own the Democratic Party Andrew Jackson eighteen twenty eight, and then FDR shows up, and there's a new you know, after the Depression nineteen thirty two and all that, and then there's civil rights post Kennedy nineteen sixty four, LBJ

The next Democrat Party is back towards the middle. I mean, I really think these are cyclical things.

We have this.

You know, you can go McGovern all the way.

Through Docaccus, right, and then you see Bill Clinton. So I think there are a lot of candidates positioning themselves that are actually, by any standard, quite liberal, just not super liberal.

And I think the same thing goes for the Republican Party.

I think the split in the conservative wing of the Republican Party is going to give rise to someone who's quite conservative, but maybe not as conservative as prior candidates.

So I think independent voters are key.

They're growing as a group, and they keep switching back and forth in elections, which really still pushes these party candidates a little bit back towards the center.

Congratulations on your new responsibilities of Brown University. It's a really serious position. As deputy provost. It is the lynchpin between the president, the faculty, and so many of the institutions of any given school. Wendy Schiller leaving us because of these new duties, and just for all of us, I'm gonna get emotionally here think I found Lexus is here. I'd be in tears. Wendy Sheller, thank you so much, greatly appreciate it.

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