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Is your multi entity management creating more confusion than clarity? You need the Intuit ERP Intuit Enterprise Suite. It's the AI native ERP solution that's powerful, painless and proven. Learn more at intuit.com ERP Bloomberg Audio Studios Podcasts Radio News this is Bloomberg Businessweek daily reporting from the magazine that helps global leaders day ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg businessweek Daily podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
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Amy did the news on intel worth repeating Shares rising as much as 3.6 today this 3.6% today. This after the company said Google has committed using future generations of Xeon processors and other chips. Ian King is A Bloomberg News U.S. semiconductor reporter. He joins us from Bloomberg San Francisco bureau. Ian, I want to start with the intel news. As you write in the piece, the terms of this deal are unclear. We don't know how much money exchanged hands. Still investors like to see this. Shares of Alphabet are higher, shares of intel are higher. What is this a symbol of in Intel's turnaround?
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C
Yeah, I mean Intel's had a good week as we've seen they're up over 20% and this is another example of them saying hey remember us, we're still important. We have a role to play in this over overall AI build out. And Xeon, which was for many years the absolute cash cow for them, is going to be a part of what, you know, one of its major customers data centers going forward. So that's a nice affirmation to what extent that is, to what extent this expands or just reasserts what was already going to happen we don't know. But it's obviously positive news that you know and brings intel back into this
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A
conversation and important right in terms of the turnaround and what they're trying to do and in terms of the CEO, I mean these are the things you want to be I'm thinking about for investors. I mean the stock has had quite a run in but this is the kind of thing you want to be hearing.
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C
Yeah, I mean that they have to be part of the story. They haven't been so far and that's been obviously involved the concession of tens of billions of dollars of revenue that's gone to basically Nvidia, gone to AMD to a lesser extent that should have gone originally to intel because remember at one point they had 99% market share in datacenter processes.
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B
Ian, there's so Much we want to get to with you, but I want to shift gears a little bit and just talk because we haven't had a chance to speak to you about the Strait of Hormuz in the context of semiconductors. And we had this conversation on our, on our editorial call this morning about the role of helium and how that has been really talked about a lot in the context of one of the raw materials that has been stuck in this choke point as the Strait of Hormuz has been closed. Just big picture, before we get to the details, the Strait of Hormuz closure, often we talk about it in the context of energy and the like. But what has been the effect on semiconductors and semiconductor firms, okay, they need this gas.
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C
This gas is a byproduct of the manufacturing of liquid and natural gas. So because we've obviously seen facilities there shut down in particular in Qatar. And obviously, and even if the gas was produced, it would be more difficult to ship it out because of the closure of the straits that's created this concern that this, this key part of the manufacturing of semiconductors would be in shortage and that would result in a shortage or an increasing shortage of manufacturing capabilities.
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Yeah, it's just at a time when
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B
manufacturing these is so easy and yeah, everybody's getting the chips that they want.
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A
Well, you know, Ian, one of the questions we've been having a lot is, you know, there's, everybody's been talking about the duration of this war and the impact on everything in our world and it determines the economic outlooks for the US globally. But you know, supply chains, what happens longer term. But I am also thinking about once again, these wars, these incidents just like the pandemic reminds us of these global supply chains and where there are concentrations around the world. And I always think about TSMC right in Taiwan and just, you know, that over exposure, if you will, are we seeing global supply chains for semiconductors being more spread out? Can they spread out even more?
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C
Well, as you know, there's been a significant attempt to relocate or to recreate the chip industry in the United States. But you know, going back to helium this, helium that we're talking about, shortages of affects TSMC affects Taiwan and affects South Korea and those two areas, absolute concentrations of essential chip making, whether it's memory or whether it's made toward a production of high end AI semiconductors. So this isn't good, this is a worry. But at the same time, you can't diversify completely because specialization is absolutely necessary. So there's this kind of trade off that's happening. And times like this, when we see disruptions, that creates that sense of like, oh, are we too dependent? The chip industry would say, well, no, we're not. We're going to go where the economics make sense. We're going to go where the specialization makes sense. But if you look at it from a broader geopolitical perspective, perhaps that's the case.
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B
Yeah, Look, I think we go back to this conversation that we had earlier with Edward Fishman, who wrote the book Choke Points about what he sees as choke points. And Carol brought up semiconductors and this notion of that we rely on other parts of the world for this technology. Has the US Actually gotten any better in and made any headway, especially in states such as Arizona, for example, where TSMC has a facility in actually producing this stuff without the help of other countries? Just very briefly, Yeah.
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C
I mean, that is years and years away. This is this industry, as we've spoken about previously, is the absolute poster child for globalization, for specialization. Everything comes from somewhere else. And the US Has a major role in that. It's the place where chips get designed, where all of this innovation occurs. But it has been made somewhere else. There is an attempt to bring that back. If intel can reassert itself, then obviously the picture changes because of its facilities being here. But in terms of unraveling this, in terms of siloing it again on a national or even a continental basis, you're talking absolutely, you know, perhaps decades away and multiple billions of dollars of investment that just isn't happening right now.
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A
Yeah, not an easy thing to do. Ian, thank you so much. We've missed you in King Bloomberg News US Semiconductor reporter joining us from the Bloomberg San Francisco bureau.
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D
Stay with us.
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B
More from Bloomberg businessweek Daily coming up after this.
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If your finance team spends more time finding data than using it, you if there's one entity here and one here and one here and one here. If scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite is the AI native ERP solution that's powerful, painless and proven. Learn more at intuit.com erp. You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live YouTube. All right, folks, so we've been trying to keep you up to date on our live blog, which is tracking the latest and greatest. I say that facetiously or obnoxiously about the US War in Iran, but Israel has said it will hold direct talks with Lebanon. The president, President Trump, said US Military to remain in place around Iran until the ceasefire is firm. And there are no reports of strikes on Arab Gulf nations since Wednesday. Okay, so that's going on.
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D
Okay.
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And the Strait of Hormuz remains largely closed.
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B
That's, that's the thing.
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A
Yeah. And Iran's saying any ships need army approval. And we have talked over and over again how important the Strait has been. Iran understands that that is their leverage.
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B
I think it's fair to say it's an economic weapon that's been wielded in this war.
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A
Yep, it absolutely is. And on that, in a recent New York Times op Ed, former U.S. state Department and Pentagon official Edward Fishman argues that, quote, by closing the Strait of Hormuz for weeks, Iran has secured sanctions relief that in some respects surpasses what it achieved via the 2015 nuclear deal. And while the United States has long weaponized the financial system to advance its geopolitical aims, Iran has now learned to do the same with the world's most vital energy choke point. And it has done so by barring a playbook developed by the United States.
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B
We want to talk about this. Back with us, Edward Fishman, senior fellow and director at the Maurice R. Greenberg center for Geoeconomics at the Council on Foreign Relations, also the author of the New York Times bestselling book, Choke American Power in the Age of Economic Warfare. You're a lot more. I'm not going to read it all because we would have no time for an interview, but it's good to have you back with us. I want you to remind everybody because you wrote this book, Choke Points before this latest crisis. Just remind everybody about the premise of the book and this idea of economic warfare.
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D
Yeah. So the premise of the book is that we are living in a new age of economic warfare in which these economic and geographic choke points. So an economic choke point would be the dollar, where 90% of all foreign exchange transactions go through the single currency. Or Chinese rare earth minerals, where 90% of the global supply is refined by a single country. Or a geographic choke point like the Strait of Hormuz, where 20% of global oil and gas goes through every single day before this war. Those have provided countries with unprecedented ability to disrupt the global economy. We thought, I think, or most people thought, that these were weapons that only great powers could deploy, like the United States and China. What we've seen in the last month is even a smaller country like Iran can hold the world economy hostage by weaponizing one of these choke points.
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A
What are the impacts of such. Of that, of something like that, that kind of switch?
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D
Yeah, I mean, the impacts are quite substantial in that. You know, we used to think that in order to do hard hitting economic warfare, you needed broad international coalitions. Right. You think back to the 1990s when you had the sanctions on Saddam Hussein's Iraq. That was. The whole international community was the UN and that was a pretty high threshold for action. Right. Because you can only do hard hitting economic warfare if you could get everybody else to agree to it. What Iran has showed is that even a relatively small country, medium sized power like Iran, just by closing this strait, can again hold the global economy hostage. And they're doing it relatively inexpensively.
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B
Right.
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D
Just using drones that cost about 20 or $30,000 a pop.
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A
I just, let me just. You also wrote about how the US not the US But Iran, you said if either side in this war has pulled off an act of jiu jitsu, it is Iran, for the first time since 1995, Tehran can sell oil directly to the United States and use the American financial system to collect payment. I mean, this has been a major. No, no. This has been something the US Right, has restricted.
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B
Yes.
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E
That's big.
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D
Right. And I think that in some ways there's an interesting echo of the Chinese rare earth embargo last year. You think about it, China in many ways has won the trade war with the United States by virtue of cutting off our access to a choke point. They retaliated. They show that if you impose pain on the US Economy, you might get the US to back down even if they're not giving any concessions. Iran, you know, spent years negotiating over its nuclear program. They got some sanctions relief, right. In the 2015 nuclear deal, the US waived secondary sanctions. So they allowed, you know, European banks, Asian banks to go back into Iran, but they didn't allow US Financial institutions to do so. Iran, by weaponizing the Strait of Hormuz for a few weeks, did get the US to actually agree to allow them to use the financial system. So you just think about the lessons from both the Chinese embargo on rare earths and the Iranian cutoff of the Strait of Hormuz. Both showed that when you retaliate against the US when you use choke points to try to hurt the U.S. economy, you actually might get more concessions than through diplomacy.
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B
The Iran and the United States have long been at odds with, with one another. And the President likes to talk about how, you know, he's the first president to do this in 47 years, even though others have. Have wanted to. I want you to put your State Department and Pentagon hat back on. Do you think that the reason why other presidents have not gone after Iran the way that this president has, is because they knew about the economic power that Iran could have over the Strait of Hormuz?
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D
Oh, yes. Yeah.
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B
I mean, look, what motivated Iran from being attacked in the past?
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D
Yes. I mean, what motivated me to go into government, you know, 20 years ago or whatever was, was trying to come up with a way to curtail Iran's nuclear program without the use of military force. That was the goal in the Bush administration. It was the goal in the Obama administration. What we did through the nuclear deal, we got a limited deal with Iran. Right. It wasn't perfect. Right. Iran could still support proxies, they could still have missiles that didn't make us feel good, but we didn't fire a single shot. Right. We just used economic pressure. I think the reason that neither the Bush administration nor the Obama administration wanted to start a war with Iran was because you knew that it could go very wrong. Right. And they could close the Strait of Hormuz. I think the thing that is most surprising, though, is even back then when we thought about Iran closing the strait, we thought they would do so by virtue of laying hundreds, if not thousands of these sea mines. And when you lay mines, I mean, they don't discriminate whether you're carrying Saudi oil or Iranian oil. So it would actually shut in Iran's own oil exports. And so we had a little bit of comfort that Iran might not take that step because it would be economically suicidal. But what Iran has done, and what I put forward in that New York Times essay is that just by hitting a small number of commercial vessels with these cheap drones and missiles, they changed the risk calculus of the entire global shipping industry. And so they actually asymmetrically closed the strait where no one else's oil gets through, but Iran's oil is getting through, you know, in record numbers in the last few weeks.
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A
So as a former, you know, State Department Pentagon official, was our intelligence bad? Like, we're, we're.
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D
Look, I mean, the reporting is still coming out on this and, you know, I'm, I'm excited to read the tell alls whenever they are published. From what we know so far, it seems like the intelligence actually was pretty good. That, you know, Dan Kaine, the chairman of the Joint Chiefs of Staff, who's a, he's clearly a professional, did put the risks on the table. My Assumption, if I had to sort of having been in the Situation Room and sort of how these things play out, my assumption is that Trump was a little overconfident. And by the way, you can understand it if you think about his previous two military operations, Operation Midnight Hammer last June, where this 12 day war, no American casualties, and you take out large parts of Iran's nuclear program. And then even more miraculously, earlier this year, you know, the operation in Caracas where Nicolas Maduro and his wife are picked up and brought a couple miles from here in the Metropolitan Detention center in Brooklyn. I mean, you start thinking maybe that military force is like an easy button. And so my hunch is that he did get pretty good advice from the Chairman of the Joint Chiefs, Dan Kaine. I worked for one of his predecessors, General Marty Dempsey, and those guys are very professional. I think Trump was a little overconfident.
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B
So given all of that and what we've seen thus far over the last five weeks, what we've seen out of Iran and the demands that Iran has versus the demands that the US has, is there a chance in your view that the US And Israel could exit this conflict and Iran would stop enrichment of nuclear weapons?
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D
I don't think so. I think that we're at a point right now where the choices are we either cut a deal that leaves us worse off than we were before the war started, but prevents us from, you know, potentially getting drawn into a quagmire, or we escalate militarily. I mean, just think about the math for Iran right now, right? They've established control over the Strait of Hormuz. That's something they didn't have before. Right. They're now institutionalizing that to charging up to $2 million a ship. Before this war, there was about 140 ships that went through the Strait of Hormuz every day. If you do the Math, that's about $100 billion in revenue for the Iranian government. They're not going to give that up easily. And so my assessment here is that perhaps that's okay for the US Maybe it's better to cut and run right now, allow Iran to make $100 billion a year by controlling the world's most important geographic choke point. Because the alternative might be worse, right? The alternative is a ground invasion.
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A
Well, is that possibly, you know, we talk about regime changes and a new way forward for Iran within the region. Is that possibly a way for it to have a new way forward? Or is that just a way to fund its nuclear ambitions, its weaponry and, you know, its various terrorist groups.
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F
Yeah.
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D
I do not see the new Iranian government deciding they don't want nuclear weapons. If anything, interestingly enough, it was actually Ayatollah Khamenei, the now deceased former supreme leader, who was always a little bit lukewarm on nuclear weapons. He definitely wanted to have an option to nuclearize, and that's why they had a full scale enrichment program. So they were trying to become a threshold nuclear state. But there was never an intelligence assessment that he actually decided to build weapons. Right. I mean, they've got fissile material to build 10 bombs and they never actually built them. I mean, with the younger generation in power now, and particularly with the IRGC clearly sort of at the driver's seat, I mean, all evidence suggests that they're the ones who put in Mojtaba Khamenei. Right. They're running the show. They do want nuclear weapons. And you can understand why. I mean, you look at the countries that do have nuclear weapons, like North Korea, they don't get bombed by the
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A
US or so they double down, potentially from here.
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D
I think so, yeah. And that's why I think that I'm not resting easy yet, that this war's over, because I think that the new status quo might be so bad that it actually might incentivize more attacks from the US And Israel.
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B
Well, on the reporting about what led to this and that will come out, there was that great piece in the New York Times earlier this week, and it had to do with intelligence from Israel that was presented to the President in the Situation Room. And part of that included the Iranian people rising up and potentially taking control of the government protests in Iran. Why have they been largely silent during this war?
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D
Look, this is one of the more complicated aspects of analyzing this conflict because I think we need to be clear. The Iranian regime is awful. Right. I mean, just earlier this year, they killed at least 10,000 of their own people who were trying protesting peacefully in the streets. So we would all be better off, and Iranians probably most of all, if you could get rid of the Islamic Republic. I think the key miscalculation, though, that the Israelis, and I guess in turn the US made was to think that the Islamic Republic was a rather shallow state. Right. That if you just took out the top level of the government, everything would collapse. I think what they showed is that it's actually quite a bit deeper than that. And so I think that, you know, right now the prospects for regime change. Look, look poor. And just to quickly answer your question, about why you don't see more people in the streets. This is a common sort of thing that we see. When you're under bombardment, you have a rally around the flag. People don't want to go out of their homes. They just want to hunker down.
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A
Yeah. Real quickly, 25 seconds. Next potential big checkpoint, Is it China, Taiwan, semiconductors?
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D
I think the future choke point that I'm worried about right now is actually clean energy technology. I think one of the easiest bets coming out of this war is American allies in Europe and Asia are going to double down on electric vehicles, batteries, solar panels. And guess what? You know who controls all of those choke points?
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China.
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D
China.
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A
Come back soon.
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D
Anytime.
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A
This was fab Eddie Fishman, director of the center for Geoeconomics at the Council on Foreign Relations, the author of the book Choke Points. Check it out. We have. That's why we have him back.
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D
Stay with us.
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B
More from Bloomberg businessweek Daily coming up after this.
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A
You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. So lots to cover. So let's get right to first off, the White House and the latest from President Trump and his team when it comes to ending that war with Iran. As we've been talking, we do have Israel saying it will hold direct talks with Lebanon. This has been very, very important in terms of making some progress. We'll see where we go from here. But President Trump also saying that US Military, or reiterating that US Military will remain in place around Iran until cease fire is firm. So, yeah, we've got some important meetings ahead of the weekend. But but I'm curious about kind of adding it all up.
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B
Yeah. And look, meantime, just before the top of the hour, we did hear an update from Iran's supreme leader, Mo Choba Khamenei, who said that we did not seek war and that they're moving to a new stage in managing the Hormuz Strait. We don't know what that actually looks like and what the management looks like, but that's the latest out of Iran.
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A
Yeah. And we've talked about the strait as being such an important leverage point for Iranian officials. All right, let's go to the White House, the White House North Lawn and to Bloomberg News Washington and White House correspondent Jeff Mason. He joins us on this Thursday. Jeff, I am curious, does the White House feel like they're making progress? Are they frustrated? We are looking forward to these weekend meetings. So kind of where, what are you hearing about kind of where we are from the US Perspective?
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G
Well, I think the most important development today really is the one that you just referenced between Israel and Lebanon, certainly the fact that Iran, after seeing the Israeli attacks on Lebanon, shortly after the president announced the cease fire and after Iran said it had agreed to the cease fire, then calling all of that into question because of the skirmishes or the attacks between Israel and Lebanon has been a blow to the peace process. So Prime Minister Netanyahu being open to or calling now for direct talks is a pretty big development. And also interesting that President Trump said to NBC, see, that he was asking Netanyahu to scale back his, his attacks and Israel's attacks. That's a little bit of a shift from yesterday when the president emphasized that Lebanon was not part of the peace deal. So I think that's where the focus is today, heading into those really, really crucial talks over the weekend.
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B
Well, we're just hearing, Jeff, and forgive us, because you might not have seen this yet. It just crossed in the Bloomberg terminal in the last couple of minutes. Benjamin Netanyahu saying we are continuing to strike Hezbollah with force. He says that we will not stop until northern Israel is secure and there is no cease fire in Lebanon. He sends, he says he intends to reach more peace accords with Arab nations. So is there a disparity or a mismatch between the rhetoric from Benjamin Netanyahu and from the United States?
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G
Well, there have certainly been mixed signals, and that has been a characteristic of this war and the rhetoric about this war coming from the White House and now from Israel since inception more than five weeks ago. So this would seem to follow and follow along with that same pattern. And that, of course, raises more questions and raises the stakes for the talks this weekend that Vice President Vance is going to lead on behalf of the United States for a more permanent cease fire?
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A
Yeah, we do have another one. Benjamin Netanyahu intending to reach more peace accords with Arab nation. So, again, just kind of building on this, you know, Jeff, it makes me wonder, like, how many fronts are there? I mean, I feel like, of course, there's US versus Iran, there's Israel versus Iran, there's Israel and Lebanon. Like, I just wonder, you know, is everybody getting closer to being on the same page with this?
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G
Well, it's hard to, it's hard to say that they are if those attacks are continuing. But some of the rhetoric indicates that that's their aim. And certainly the fact that the president is sending the vice president for talks with Iran this weekend suggests that the United States is very eager to have a longer term solution. But you're not wrong to bring that up if the rest of the region, or at least some of the countries in the region, including the one country that went to war with the United States against Iran, is not fully on board or is not supporting that because of their separate strikes in Lebanon. That's, that's going to be a sticking point.
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A
Jeff, one quick question. 30 seconds. Where's Marco Rubio in all of this? Is he not involved in these talks?
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G
He's not going to be physically present for the talks, but certainly that entire national security inner circle is, is playing a role. But the people who they've said, who the President has said is going to lead the talks this weekend are Vice President Vance and envoys Steve Witkoff and son in law Jared Kushner.
- [24:44]
A
All right, sounds like a busy weekend. A lot of them have been busy. Jeff, great stuff as always. Jeff Mason, he's Bloomberg News Washington and White House correspondent. All right, that's the latest on the war, at least from the US Perspective. Let's get to the latest on the US Economic backdrop.
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B
Yeah, let's talk a little bit about data on personal income and spending, inflation, weekly jobless claims and more with what you need to know, What Matters, Bloomberg TV and Radio International economics and policy correspondent Michael McKee. He joins us from Augusta, Georgia. Mike, a slew of data. Any surprises that you found in there?
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F
Probably the biggest surprise was the one that maybe matters the least in the sense that it's oldest, the oldest news. Fourth quarter GDP falls to just half a percent from the initially reported 1.7, which was then revised down to 0.7. Now we're at 0.5. As consumer spending trailed off in December and did not pick up in January, we see the February personal spending numbers now come in just up half a percent, a little bit slower than anticipated. And the three month moving average has moved down. So what we're seeing basically in all these numbers is that consumers are starting to weaken. The inflation adjusted spending was up just a tenth of a percent. They've been keeping the economy going. So going into the war, we were maybe in a little bit worse position as an economy than we thought we were.
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A
All right. So we got those Fed minutes, right? We talked about that with you yesterday. You were in D.C. mike, you've been a busy guy moving around. But having said that, so the Fed is on this. I mean, this is old data, but it also shows you where the economy was before the war. And consumers weakening is certainly something to be concerned about. Yeah.
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F
The interesting thing is that we did have such a strong jobs report for the month of March. And while we saw a little bit of an increase in jobless claims last week, it's not all that that much and it's still within the range it's been in. So the labor market doesn't seem to be weakening all that quickly. We did see in personal income that wages only rose 2. 10 of a percent after rising a half percent the last time. But it was really drop in dividend payments that pushed down personal income to a negative 1/10 this past month in February. So right now it looks like the economy is hanging in there. But some of the things that that have been driving it are beginning to look a little worrisome. Maybe like you've driven your car and the gas gauge is getting down towards E and you're not exactly sure how much farther you have to go.
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B
It's a good metaphor right now given gas prices. Hey, just before we let you go, CPI tomorrow, University of Michigan sentiment just set us up for what to expect there very briefly.
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F
Well, basically, welcome to the war. We're going to see the CPI headline rise quite a bit. Economists leak by about a full percentage point and go from 2.4% to about 3.4%. It's going to be basically petroleum and some of the byproducts of that. Still early for it to feed into the rest of cpi, but it will get people's attention and one has to assume that the University of Michigan sentiment numbers are going to go down. We saw a jump in inflation expectations from Michigan last time and we could see another one as people internalize the idea of having to pay a lot more for gasoline.
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A
90 bucks to fill my tank. All right, Got it. Totally, Mike. Thank you.
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G
Drive.
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B
It's that old Hummer, you know, those old Hummers that they had in the early 2000s.
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A
Not a Hummer. Anyway, moving on, Moving on. All right, Michael McKee, thank you so much. Safe travels. You Bloomberg TV and Radio International economics and policy correspondent Michael McKee. All right, war update, check U.S. economic data. Check. Let's get to the markets. Joining us is Sarah Hunt. She's chief market strategist, portfolio manager at the asset management firm Alpine Sachs and Woods. They've got about 825 million in assets under management. She's here in studio. Welcome, welcome. So nice to have you.
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E
I love coming in the studio. Thank you.
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A
Thank you. We love having you in studio. Come as much as you would like. The US war in Iran, has it impacted how you think about portfolio management and investing yet?
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E
Well, it's. I mean, we were starting off this year with some concerns about volatility anyway. It certainly exacerbated that for obvious reasons. And depending on how much of an energy shock this continues to be, it's going to have an impact, I think, on earnings and it's going to have an impact on people's ability to spend and everything else. From a longer term perspective, things, any kind of conflagration is problematic for a million humanitarian reasons. Markets tend to look a little bit through it, depending on how badly that makes a difference. I think that because the Strait of Hormuz is such a bottleneck for so many things, not soil and gas, but fertilizer, helium, there's a number of other things there. All of those things come into play. We talked about helium on our call
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A
this morning because we're going to talk about semiconductors all the time.
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E
All of those things come into play. And I think that's part of the problem of how to figure out how to look at this, because you don't know how long this lasts. You unbottleneck that and things start to get better. They should hopefully rather quickly.
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B
How quickly, though? That's the question.
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E
And I think that that's a question that I'm not even sure everybody who's on the ground saying how long it's going to take actually knows. Because until you can get in there and look at everything and see, I'm not sure.
- [30:06]
B
Well, the reason I ask is because it has been almost 48 hours since the president announced just before his 8pm deadline on Tuesday, that there would be some sort of fragile ceasefire reached. And we're still not seeing the free flow of traffic through the strait.
- [30:20]
E
I think the traffic through the strait is. I mean, this is going to sound crass, but more important than the the political ramifications of a ceasefire, you need to get things moving. They're not moving yet. The argument now is that maybe it's because of the Lebanon issue, maybe not, I don't know. The point is, until things start to get moving, it's hard to say how long it will take for them to get moving in a regular way. Obviously in the beginning, like a traffic jam, you're still going to be jammed up for a while. So how long is that while? And what kind of substitutions are people making now? What kind of substitutions can they make? Well, I don't think anyone's completely sure
- [30:48]
A
yet and there has to be some certainty, like it's not a case of okay, let's start opening it up and all of a sudden we start seeing some, you know, random firings back and forth. That just puts everybody on ease and nervous again.
- [30:57]
E
There needs to be commercial traffic moving through in a regular way and that needs to mean that there's insurance capabilities and everything else. A lot of those things are all tied together and right now I don't think we have the answer to that yet.
- [31:07]
A
You know, we are waiting for an answer. Is earnings and valuations and the combination earnings season about to get underway? We've got the big bank starting it off kind of officially, unofficially. What are you expecting re earnings and are you anticipating? Anticipating that CEOs are going to be comfortable giving outlooks in terms of forecast. Delta was a Delta that basically confirmed it but didn't change its forecast, which
- [31:28]
B
was good news for investors.
- [31:30]
A
Right.
- [31:30]
B
They were happy about that, but we're
- [31:32]
A
seeing some of that. So are we going to get multiple scenarios or do you feel like the C suite feels confident and knows what's happening next?
- [31:39]
E
I think it's going to be sector by sector. Right. Because for some sectors this uncertainty on energy prices is going to weigh much more heavily than on other sectors sectors. And I think that you've obviously seen a lot of major capex announcements and all sorts of things going on in the tech sector, which is why that those earnings kept climbing up even in the face of some of the other things that are going on. The question is going to be is the negative impact to an energy and other supply shock going to start being a detriment to earnings. And so far right now I don't think people are baking it in. It makes it difficult to believe this
- [32:09]
A
geopolitical or just a general supply shock shocks.
- [32:12]
E
The general supply shocks that are going on in both energy and as we said, helium and fertilizer and things that have become more expensive. Those things haven't filtered through yet. I don't think you're going to see them in the first quarter. I think you're going to see people maybe talking about them. I think if this is still ongoing in another two, three weeks, it's going to be hard for people to give guidance and give it specifically, especially depending on your industry, if you're dependent on that consumer spend.
- [32:34]
B
Yeah, I know we say it every quarter, Carol, but we always look forward to earnings season. It gives you a good idea of who the consumer I mean some of the banks next week. So looking forward to That I think that also raises the question of what the Fed does and what the Fed does for the remainder of the year. If we do indeed see higher prices for a while when it comes to commodities, when it comes to what we're paying for things in the next couple of quarters, what does it mean for the Fed's rate path?
- [32:56]
E
Well, I think that Chairman Powell was pretty clear the other day on saying we're looking at this as a temporary shock because you had started to see people bake in potential rate rises. And I think that that was something that, given all the other uncertainties, was not something that markets or investors needed. It's really going to depend again on what happens here because this is not a price rise because there's not enough stuff. There's not enough stuff that can get places. So you can argue that on the oil front you could see, I mean, you saw a $20 drop in the price of oil when they thought that you were going to start seeing transiting again. That just tells you how much is being baked into that price. The problem is that the longer things take the, to get to someplace, the higher those prices stay for a longer period of time. Right. They're always immediately up and very sticky down.
- [33:37]
B
And how sticky down still see higher prices at the, you know, six months out on the futures curve, which is
- [33:42]
A
what we've been looking at.
- [33:43]
E
And you'll see it at the gas pump too, because if I'm, if I'm a refiner, I'm buying oil today. It's got to be refined to get to someplace. So I'm not going to cut those prices the minute oil drops. I still got to get it through my system. And I paid for the input prices a lot higher. So that is very difficult. And that's not a situation that even people in the energy patch love. They don't like that kind of.
- [34:00]
A
So do you think we're at bigger risk of a growth slowdown or inflation ramp up or maybe both?
- [34:06]
E
I think check. I think, I think the problem is that you could be seeing a little bit of both. And that's not what anybody wants to see because everybody was banking on the fact that this year you were going to see growth. And so if it was, if inflation hadn't come down to the point where people want it, it was okay. And then you throw this Iranian conflict in and it completely changed, changes the math in terms of that inflation trajectory.
- [34:26]
A
So how do I win in this environment?
- [34:28]
E
You go back to looking for companies that are throwing off cash that have dividends that have good balance sheets that don't have to worry about some of the things that we're talking about here because they have the staying power. And, you know, we tend to look a lot at cash flow and capital return. Can you pay a dividend? Can you buy your stock back? Can you do some of the things that shows that you are in a good spot regardless? And it's going to be sector by sector. There's some in every sector that can do that. There are some that aren't. But there are some places that are going to be more challenged and the lower end consumers can be really challenged with higher gas prices.
- [34:56]
A
Are you optimistic or not?
- [34:58]
E
Sometimes. There are some days that I'm very optimistic that this is actually going to end up in a better place and some days where I don't know what, where this goes and what that means for the longer term. And I think that's sort of everyone's, I mean, you watch the market be, you know, up and down and up and down. It has the same optimism, pessimism, swings and it's different difficult because it is a psychological reflection in many cases.
- [35:19]
A
I do this a lot.
- [35:20]
E
I do.
- [35:21]
A
I do. Sarah Hunt, thank you. Come back anytime. You are so welcome. Chief market strategist, portfolio manager at Alpine, Sachs and Woods. This is the Bloomberg businessweek daily podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm Eastern on bloomberg. Com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.