Surveillance: Lieber on the Israel-Hamas War

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Okay, my art theme here, folks, is the change and the changes the media, the immediacy of the imagery. What we see on social media, what we're seeing with all the modern technology, makes for a different conflict, a different war with wonderful perspective on this as John Lieber, head of Research Managing Director at Eurasia for the United States, has worked with a Senator from Kentucky for years on

I mean, this conflict has been raging for decades and you know the difference right now, of course, is Israel is targeting Hamas in Gaza and trying to wipe out their leadership. So it's an enemy that doesn't have tanks and doesn't have planes. It's an enemy that they're trying Toy're going to have to go into civilian areas to target, and you know, the Israeli defense forces over the years have become have been attacking these lands and it's really

Joem, we know what is for our's objective is the automate objective you alluded to it wipe out her mass. Let's talk about how difficult that is to achieve. Where is the leadership of a mass, where's the financing full ha mass come from. How do you wipe out her mask purely just by going into Gasa and having a full ground invasion.

Well, obviously you can't.

And I think what time is shown is that when going after these terrorist organizations, even when you go after the head of the head, when you successfully take out the head of these organizations, there's other leaders who will rise up. The US has been targeting Hamas financing networks for decades through money laundering efforts. They're going after their ability to conduct financial transactions in crypto.

But it's unlikely to.

Me that even if the Israelis are completely successful in this campaign, that the thread on their borders is going to go away because of the fact that there's so much history and anger here and you know, getting rid of Hamas probably means somebody else comes up.

Especially given all of the protests and anger. There's been some fiery rhetoric out of Iran over the past couple of days threatening some full scale invasion of Israel. If there is any kind of ground escalation into Gaza, how can you read between the lines to understand just how much resolved there is by Iran to get more intimately involved to order has blowed troops to come in from the north.

Yeah, that's one of the big questions in this war right now is does has Blah get involved? Does the war expand Israel's northern border. I think it's notable and interesting that the US and Israel have really gone out of their way to say, you know, we don't think Iran was directly involved in the attacks against Israel that occurred last weekend. Of course, Aaran is complicit in financing Hamas,

John and Tom earlier this morning, we're really rightly pointing out how little we actually know, how difficult it is to ascertain with any clarity the facts on the ground in a fast moving war with a lot of sort of people of varying dependency giving information. John, how much has the landscape shifted over the past twelve to eighteen hours, given all the protests, given the outrage, given the statements from Egyptian and Cutter and Saudi Arabian leaders, spawning at.

The hospital was obviously a maj your event in the course of this short war so far. But you know, there's a lot of ambiguity about who did it, how many people were killed, and it's really really difficult to ascertain the facts because there's no there's not a lot of independent media on the ground. It's not like a lot of forensic investigators can get into Gaza to figure out what actually happened. Some of the photographic evidence that came out this morning suggests the blast wasn't as large

John, Let's talk about the military aspect of this as well, and let's finish there just going through this major monster de terrance that the US has been building gap in the Eastern Mediterranean. In addition to two aircraft carriers and the ships escorting them. Had a report from the Washington Post yesterday, the US is also sending an amphibious task force aboard warships. John, How meaningful is that as a deterrance in the Eastern met.

I mean, militarily, nobody can defeat the United States, right, I mean, it's the most powerful army that's ever existed. It's got vast, seemingly limited resource, limitless resources. There's some question as the what ability they'd have to fight and to you know, support the Ukrainian effort and support the Israelis.

Hi, John, going to get your perspective. We'll catch up soon, hopefully, John.

Leave there.

If you write a group on the current situation on the ground in Israel and across the Middle East of the moment, we do have to focus.

On oil, given that we have seen that as the place that people are expressing some of their concern about the unrest percolating around some of the attacks, the explosions, the situation in the Middle East. Joining US now is Bloomberg's Will Kennedy in London, and Will, I just want to get your sense of what people in the oil market are looking at to understand how to play a fraud and very unclear story.

Fort and unclear, I think is exactly right. And I think that the old market feels out of something, and I think the word I would use is twitchy. As things stand, there is no particular reason that oil flow should be disrupted or the oil should go a lot higher than here, although there were scenarios where things become a lot more drastic, and that's what is making people

Will the map about in nineteen sixty seven and nineteen seventy three is something like one hundred and forty miles from the southern edge of Gaza into Egypt, spilled into Egypt down to the Suez Canal. In any of this is the Suez Canal at risk.

I don't think that's a fundamental concern for oil traders, but I think that shipping is a concern in more extreme and so the place, so the place that people worry about, the straits of all moves the gap of the the place at which the Persian Gulf joins the Indian Ocean, through which all the a exports from southern Iraq, from Iran, from Q eight, from Saudi Arabia, from the Oe. They all go through this pinch point, over which Iran

Interesting to see, Will Kennedy, If I look then at oil, here are you it's Jave Blast and your entire team, particularly the team and the trenches here of hydrocarbons? Are you framing out a path to one hundred? Are you even able to do that with this geopolitical uncertainty?

I think it's quite binary. I think the main scenario is that we stay in the sort of eighty to ninety five range. There's a sort of five dollars risk premium in the market. Now, that's what a senior oil trader described to me in a conversation yesterday, that this whole crisis has probably added five bucks. But in most scenarios, there's not significant disruption to oil flows and things carry on pretty much as they are, and there's concerned about

Well, Kennedy, stay where this is, Lisa. The emotion of the President of the United States speaking to people first responders and people who are directly associated with the horror in the Eastern Mediterranean, in Israel and in Gossom.

This comes after a reported meeting between President Biden and the war cabinet, including but you mean Natanyahu. A big question around what the focus was given. A diplomacy has really been at least put on pause, if not shattered due to some of the reactions overnight. Now President Biden going around and meeting with some of those in Israel in the show of support that he is that he is demonstrated.

It's a diplomatic issue here. But what I find so fundamental is the immediacy of this new war or the immediacy you know, to take it away from more of conflict, and that the film is in real time and it adjusts the diploma see and the optionality in real time.

There's a question also about any kind of escalation, which is what people in the market have been watching. I am curious, will Kennedy with us still here and I am curious from your vantage point. How you interpreted some of the Iranian rhetorics saying that they were going to call for an Israeli embargo on oil, talking about the potential for escalation. How are people in your industry reading through this to understand what's real, what's potentially disruptive, and what's not.

I think the comments from Iran today were rhetoric. I don't think they will have much real world impact. As I said, Iran sorry, Israel imports just over two hundred thousand dollars a day. That's minuscule in the context of the global market. It gets that oil mostly from countries in the form of Soviet Union. But the rhetoric matters here, the background matters here, and as the situation deteriorates, as

Well, Kennedy, thank you for the oil brief from you and your team, particularly in Europe and in Dubai. Joining us now with decades of perspective on the shifts in Global Wall Street. Gerard Cassidy to say he's large bank analyst at Canada's RBC Capital Markets, barely describes a perspective.

Gerard to rephrase.

My question to Shanali where she beat me down and said, Tom, you don't know what you're talking about. Let me go to you, Gerard, to save the day. And that is I'm sensing a new Global Wall Street. They really want persistent cares. Is James Gorman showing the future to the other banks.

Tommy, I think you're really onto something. And you've got to give James Gorman credit. He's really changed Morgan Stanley from where it was back in two thousand and nine when it was heavily reliant on trading and investment banking, and diversified into the wealth management or retail brokerage business if you want, as well as asset management.

And it really comes down to consistency.

Of earnings or consistency of cash flow, as you point out, and that's what Golman tried to do with their expansion into the consumer banking business, which has failed miserably, of course, and they're exiting that now. They want the model like a JP Morgan, which is diverse fight revenue or Morgan Stanley, which is less diverse fight than JP Morgan, but it's still more diverse fight than where it was back in O.

Nine, Jodas you know, banks have been a pretty lousy investment in the stock market this year. Is JP Morgan versus everyone else? JP Morgan up here today by ten percent? Everybody asked down the down hard, Jeff. What separates what's happened at JP Morgan from the rest. Is it just First Republic?

John, That's part of it.

But the performance for JP Morgan, even prior to them acquiring First Republic, was better than the back And I think what you have here is a flight to quality. Everybody knows JP Morgan is one of the premier US global bank. He's demonstrated that with very good results, strong leadership of course under Jamie Diamond and his senior management team.

Bank, JP Morgan. JP Morgan is owned around the world.

When we look back at this period your ard, Are we going to say that this was the year the JP Morgan consolidated its heft at the expense of a lot of smaller banks.

I always say, Lisa that what JP Morgan has done has shown that the diversity of revenue and very sharp, you know, very focused management by the Jamie Diamond and

That's what's driving it.

And JP Morgan as well on the leaders in consumer banking such as in Bank.

America, they are though the leading players at a time when they can be selective for the top rated consumers.

Right.

And this is something that we pointed out according to Shanelli Bosik or own Hinelli Bossic yesterday this morning. What we're not talking about citizens financial missing on net interest income, United Community missing on net interest income. Ally financial missing on net interest in margin and also having fewer Autoland originations, and previously thought, how much is this story dividing even further between the biggest banks and the regionals that are still in a world of hurt.

Liza, it's a good point because some of them have this she picked out amongst the big regional bank citizens it's actually the only one that has missed today when you look at mnt US Bancorp.

And others, their in line is slightly better.

But you're right about certain banks have missed and it has to do with and you touched on it in your earlier comments about the non interest bearing deposits. The banks with the non interest bearing deposits are going to do very well in this higher rate environment because those deposits don't pay any just obviously, but they don't move either.

Jared, I have to admit, whenever the comments from Brian Monahan with David Westone, I was kind of surprised job because he was talking about the consumer slow down.

Can we just finish there.

Retail sounds look great yesterday, really broad based, big upside surprise. Then the Bank for America boss comes out and says, the FED is basically achieve what it wanted to achieve. We've got a consumer slow down, jod, Is that consumer slowed down for Bank for America or is that a broader story for the economy? Which one is it?

John good point?

And the cross currents today, it's always easy to say today is more challenging than ten years ago or during the financial crisis. It's always challenging. But the cross currents today are pretty strong. And you just summed it up very well. So we're hearing from some folks the consumer is slowing down. But then you see the retail sales

Is crazy. But I would say that it's not Bank America specific, and.

I would say morning hand and response to my question on the call, actually he was pointing out that he thinks it's going to stay around this level. The higher spending a year ago was unusually strong for them, high single digits. Now it's a round four percent should drop out about these levels, but it's still positive growth.

They've been more selective about the clients they serve at LEASTA, and I've been talking about this for the last twenty four rounds actually off the back of the data that Shnadi shared with us. These credit scores of these customers, Gerard are so so high. Who are they serving in this country just a really small slice of the economy.

I think they're serving guys like you, John, and they're deserving all the you know, the higher propity credits.

So it's close to way hundred Yerrard, don't disrupt it.

Yeah, I am at two forty, very focused on it. How's your credit RNGWO? It doesn't quick but.

Quickly, John, You're bringing up a really good point, and I recommend. I know you guys are busy, but look at their slide they put in their deck Bank America where they compare themselves today to two thousand and nine, totally different company d risk and you put your thumb on it.

You're going, you know, higher score consumer as well as corporates.

Joe Cassidy John go to catch up always, says a zombie SI.

He is senior vice president of Stability at Deutsche Bank. Binkram Chada joins US now chief Global Strategist head an asset allocation as well. What an urge to go to cash right now? Or go to five and point x x percent money market fund? Describe how you tell the Deutsche Bank world don't go to kesh.

I think that you know, if you think about the equity market, you think about earnings most important, basically fundamental near and medium term. I would argue, and the story with earnings is a very simple story. They bottomed in the fourth quarter of last year. We've had solid sequential growth in the first quarter. Is the second quarter, we are pretty constructive. When we get in the third quarter so far, what we've gotten better than our constructive.

View is the way I would put it.

How did but I went back yesterday, Benkie, and I looked at World War two and I went right for you can do this on the Bloomberg folks. You look right from Pearl Harbor out the VJ Day and it was a nice vector up through the nominal GDP of a war economy and all that. Now this is not an analog to that, but the emotion is still there. How do you contain your emotion when your asset allocating with bond price down yield up.

So I think actually the S and P five hundred, the market is controlling its emotions, and I think the reason is it understands pretty well what happened the last time around, which is, you know, not very long ago, a year and a half ago, when Russia Ukraine started, you know, the market sold off, we were down eight percent three weeks.

We recovered in another three.

Weeks right back to where we were, and so you know, it just tells you that, by the way, happens to be almost exactly the typical playbook for geopolitical risks and events. And so you know, given that the market saw this movie not very long ago, it is a bit hesitant basically to you know, do the same thing again.

What we had last year, as you know, was an energy shop. Sure, arguably in some ways a little bit more insulated relative to the seventies. Given where crude production is in America currently, which is at all time highs through thirteen million bars a day. The concern now it's about America's ability to support these wars. There was a headline yesterday from our team here at Bloomberg that the White House designed one hundred billion dollars of Ukraine, Israel

I think that, you know, it's still can.

I would say that the rise in interest rates and the focus on the interest cost of the US government, which is not high, but what everybody looks that is the projection going forward, and that's what you should focus. So, you know, it's become a talking point. It's a good starting point for actually discussing the fiscal sustainability of the US.

I'd say, so.

Far, when interest rates were so low, you know, nobody was really talking about the deficit and what needs to be done about it.

You talked about the conditioning of the Russian invasion of Ukraine, the conditioning of the recessionistas that were wrong and that people are saying put this time around. Does that make this market more vulnerable to an actual pullback in the face of some sort of surprise. Does that make you more concerned about your base case of an above average rally.

I think the way that you want to answer that question is by taking a look or through the lens basically of equity market positioning. And here I would focus on. I would break up the positioning. You know, there's systematic strategies, which is rules based, and then there's everybody else, which is who we call the discretionary equity investors. And you know, in July they raised their positioning for the first time in more than a year. I would say, you know,

What history would tell.

You is that you don't necessarily want to go underweight here unless you know you can time. I mean, the playbook would tell you it's really tough because it's three weeks and it's big move down, big move up.

Yeah.

How much have you changed any aspect of your view over the past, say two weeks, three weeks, as we've seen a complete change in the yield regime and we've seen a complete shift in potential geopolitical tensions.

I haven't changed my view at all. I would argue, of.

Course, you know this new negative shock, and I would argue it's probably a restraining factor on the upside because risk appetite is going to be a little bit cautious. But you know, the view is based on what's happening with the fundamentals, and I would say, so far, you know, the data actually reinforces view rather than anything else.

I'm looking at Chata the Great Alan Ruskin, Young, George Sarahvellos take the combination of all your work at Deutsche Bank, and to me, the immovable force here, which is a Lawrence McDonald idea, there's just a pile of money out there to support the bid across most if not all asse classes. Is that true that you and I have never seen the trillion dollar pile of money that's got to find a warm place to go?

Is so?

So I don't really think, you know, the equity market performance or resilience is really coming from that. I think it's actually just simply you know, the economy is playing out. I mean, you look at yesterday's data, where you know, you got this very very strong response in the bond market. But if you take a look at the data, I

Once you do that, the picture changes completely. Retail sales, real retail sales were.

Growing in a very clear trend channel prior to the pandemic. The pandemic for reasons that we all know caused you know, spending to go up, came down a little bit when sideways for a while.

But for the last nine months.

Year, including yesterday's data point, there is nothing to see there.

We are just growing in the middle of the trend channel. I think the.

Surprise is that everybody's looking for things to fall. It's a year now, and so you know, I think it's the expectations that are allowed rather than thank.

You, thank you, thank you. Chata the Deutsche Bank.

We had the same conversation I believe it was April at other institutional meetings of the concern of EM with a brief this morning with all the newsflow, including in the Eastern Mediterranean, Diana mo joins US with Kirkiswald asset Management and on desks of EM market makers for years, it's so good to talk to you, particularly off the Berry Green paper at Jackson Hall and what Joyce Chang talked about IMF, how bad is it? Mexico is stellar

Well, I think what's happening right now is actually the dollar has remaged again. There's been a huge amount of upside surprises from a US economy perspective, and that's giving a bid to the dollar. Additionally, you have geopolitics and people are buying dollars as a safe haven. So the combination of those two is taking off some of the shine in emerging market currencies that we've seen up until the summer.

Stan Fisher wrote that little red book everybody was forced to read. I think it was nineteen ninety nine, one year after nineteen ninety eight. Are we anywhere near the instabilities of a giving crisis in Ecuador, a crisis in Mexico for that matter, or a crisis in Southeast Asia? What's the level of instability you perceive in them?

Much less than during COVID, because I think a lot of the vulnerabilities were addressed during that period. The insolvent economies already talking to the IMF, and I'm sure you had a lot of that in Morocco the IMF.

I've don't asked the urgent you know, okay, continue?

The IMF is standing ready to support economies. So we don't necessarily think in the next one to two years we're likely to see anything. There's maybe one or two credits that look vulnerable that have maturities coming, But broadly speaking, I think em should be able to model through.

In thirty years time.

Where we have a restructuring plan for the United States, for America, is that where things are going?

Where's this headed? Where is this going?

When you speak to emerging market nations, how are they thinking about what's taking place in America for the preaching they've heard about how they should manage their finances. What are they saying about this in Washington, Well.

They've clearly lost the handle on physical In the US, it feels like whatever is happening, whether it's political impulse, the answer is let's spend some more. When it's geopolitics, says let's spend some more, and you've lost your price in sensitive buyer. We had the QE that was supporting this. Now the markets have to figure out how much premium you need to be if you expect more issuance to come forward months ago.

Lisa Damien says, are watching this, and he makes cleary agrees with Diana. He sees quality reserves at.

Em right, What does quality mean at a time where you've got a treasure yell?

That is that going up, up and away?

Diana, I do want to just sort of put a boat on that point. Are you saying that we have seen the reaction function to weakness. We have seen the reaction function amid of search for safe havens and treasuries no longer get that bid in a repliable way.

Well, they got the bid when we had the geopolitic headlines. A couple of weeks ago, you saw them move in treasuries, which rally does. People still saw them as a safe haven. But despite that ongoing, as soon as we had a bit of stability, markets were quick to unload these treasuries because what are we hearing There's another hundred billies and potentially that's going to be spent to support these economies, and markets simply don't have the appetite.

Do you think that this pain will be reserved the US government debt market or is it the kind of theory where when the US catches a cold, the rest of the developing world catches a flu.

Well, I think there's two big elephants in the room, the US and the bog where sovereign debt issues or sustainability have been a concern, but more of a slow burning concern for a while now. While these are playing out, I think they will tend to take everything with them. But it's the speed of the move that matters, and

Where can we hide? Where can we hide?

An Aya know what I'm going to say, Emergine markets, you're actually getting paid to do the walk nine am, em HI yielding north of ten percent, EMIG yielding north of six percent looks like an interesting space. That said, it's not a one size fits all. Tom mentioned Argentina. You know we still have cases like that that look

What about Turkey, fascinating leadership shift taking place in that country.

What is going on?

I mean, it's like a total we have the same outcome in the elections, but it's like a totally different leadership.

It's amazing.

Yeah, So they've embraced orthodox policies. Now they're speaking the market talk, and markets are responding well to that. We've seen aggressive rate hikes and a commitment to actually fight inflation, which is refreshing to see.

When you talk about developing markets, I have to think about what's going on right now, excuse me, in the Middle East, and just wonder how closely you're following this as a potential not only humanitarian and question around what's going to happen and how why the conflagration goes, but what this means for the ability to invest in some of these nations.

Well, it's clearly a sad ton of events, so and we're obviously following it very closely. I think what the big concern is, beyond the humanitarian cost of lives, is what does this actually mean for one, the region stability within the broader region? Are we going to see spillover effects in the Middle East? That arether countries going to

Risks coming in.

And I think broadly speaking, beyond the Middle East, it's oil prices. Obviously it's the next big one because you have this potential supply side shock and that could actually make monetary policy much trickier going forward. If you see inflation starting to pick up again.

This was great. It always says it's going to catch up.

Don't be a stranger, Dna Ramota of Kirkus World Asset Management.

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