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- [00:00]
Carol Massar
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Bailey Reutzel
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- [01:48]
Carol Massar
Bloomberg Audio Studios Podcasts Radio News this is Bloomberg
- [01:56]
Bloomberg Businessweek Daily Announcer
Business Week Daily reporting from the magazine that helps global leaders stay 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 Business Week Daily Podcast with Carol Massar and Tim Stenovec on Bloomberg Radio.
- [02:18]
Carol Massar
We've got the US Naval blockade of Iranian ports and coastal areas. It has gone into effect. It could further inflame some tensions amid the global energy crisis. Meantime, the US has said new neutral ships will be subject to interception, diversion and capture. Shipping through the Strait of Hormuz slumping back down again today, reversing some move up a jump that we actually saw yesterday. And then we've heard from Iran too.
- [02:43]
Bailey Reutzel
Yeah, it seems like talks are advancing, the cease fire mostly holding in. At least that's what the market is buying, with the S and P rallying after Trump spoke and then oil pulling back like we've been talking about, yeah.
- [02:52]
Carol Massar
Markets seem to be taking this all in stride. Meantime, Iran did say the US Restrictions are illegal and constitute an act of piracy and threaten the ports in the region if its own facilities are targeted. So it's like, yeah, peace. But hey, watch out. That is our world. Just around 12:40pm ET from just outside the Oval Office, President Trump spoke on the weekend peace talks in Islamabad and how it went and how his team there on the ground, which included US Special envoy to the Middle East, Steve Woodkoff, and also his son in law, Jared Kushner, as well as his vice president, J.D.
- [03:25]
Michelle Jamrisko
vance.
- [03:25]
Carol Massar
How they did?
- [03:26]
Bailey Reutzel
Well, he's done a good job. It's Steve and Jared.
- [03:29]
Mark Champion
They've all done a very good job.
- [03:31]
Bailey Reutzel
And I can tell you that we've been called by the other side. They'd like to make a deal very badly. We've been called this morning by the right people, the appropriate people, and they want to work a deal. They would like to work a deal.
- [03:45]
Carol Massar
All right. Again, that was President Trump earlier outside the Oval Office and of course, talking about US Special envoy to the Middle East, Steve Witkoff, his son in law, Jared Kush, and of course, his vice president, J.D. vance. We knew we had to check in once again with our team in Washington, D.C. as we continue to hear a momentum, a flow of commentary out of the White House or out of social media. With us once again is Michelle Jam Risko. She's Bloomberg News White House and national security editor. Again joining us from the nation's capital. Michelle, good to have you here with Bailey and myself. Good to be here. So let's recap. What did we get from the president? What's new? What's significant in your view? Markets just seem to be taking all of this in stride today.
- [04:27]
Michelle Jamrisko
Well, we're in this position again, Carol, where we're trying to decipher what each side is saying and what to believe from what each side is saying and whether that matches what's happening behind the scenes. While at the same time, we're watching basically for any sort of kinetic action, not that we're hoping for it, but you know, with the threat of a US Naval blockade that has come into effect hours ago and is now, you know, also paired with the president's threats to interdict any vessels of any country transiting from Iranian ports or to Iranian ports in the Strait of Hormuz and coastal areas, as well as any attacks on Iranian small boats that might approach the US Naval blockade, all that taking into account, we have not seen any sort of action yet. That would be a flashpoint and perhaps scare markets even further. But at the same time, we're trying to decipher what to make of the president's latest remarks on where the diplomatic talks are going after the failure in Islamabad over the weekend. Now, I will just point out in the clip that you played just now, President Trump is referring to a call that was that has happened this morning. To my knowledge, we have not gotten any confirmation from the Iranian side as to whether that in fact was the case. And of course, again, the question of who participated from the Iranian side, we know who went to the direct talks in Pakistan. We don't know if those are the people really kind of pulling the levers on what the regime might act on in the end.
- [05:52]
Bailey Reutzel
Well, Michelle, how much I'll call it static is there in terms of who's actually participating in these conversations and to your point, mixed messaging, whether these calls are actually taking place, whether the right people are involved in these conversations and what that really means? Because if the question at the end of the day is when does this conflict end? Presumably it's pretty important who's in those meetings?
- [06:14]
Michelle Jamrisko
Yeah. Well, Bailey, very fair question and one that we've had for many weeks now in some form. But what came out of the weekend at least, was this assurance that we knew who from the Iranian side participated, the Iranian speaker of Parliament as well as the foreign minister getting involved. And we know obviously who on the US Side was involved in those direct talks. So at least there was some transparency over the weekend on these, you know, unprecedented really, for many decades, direct talks between the two countries. But now what we see in the aftermath is kind of similar rhetoric that we've heard from both sides, really US And Iran, on where these talks are headed and what the disagreements are. There is a clear divergence of opinion and view on what broke down those talks over the weekend. We've heard, and we heard it again today from President Trump that Iran's nuclear ambitions were the main reason that the talks broke down, that they would not concede on that point. And that's a deal breaker for the U.S. however, on the Iranian side, they have said that, you know, the distrust of U.S. negotiators, us coming to the table to dictate rather than negotiate, and of course, some differences of opinion on things like war reparations and actually seizing the fighting and seizing attacks on Iran were among other disagreements that have remained for some time. So we don't know where talks are going. And I think you're seeing investors and others act on these kind of incremental developments, but not with the sort of confidence that, you know, action will follow in line with what they've said.
- [07:43]
Carol Massar
Michelle, does it come down to one or two main points? Is it about the enriched uranium? Is it about like, I don't know, I've kind of lost track ofand maybe this gets to the mission of what this war really is about. And so what is the main sticking point? Does it come down to one or two things here?
- [08:02]
Michelle Jamrisko
Well, I think in broad strokes, Carol, you can say it comes down to nuclear ambitions and control of the Strait of Hormuz. But there are many things that the two countries have openly disagreed on, including, you know, the list of demands that the Iranians have released, you know, some weeks ago, maybe a week and a half or two ago that did not match what the 10 and 15 point plans that the US side has put forward. So it's, there are a lot of smaller points that I think would not be agreed. But the big idea being the nuclear ambitions, there has not been a way forward on exactly how to play that. And of course, a long time distrust on either side about whether or not Iran would be pursuing purely for scientific purposes and whether or not that would put the US at ease, which it won't. So that is one big thing. But obviously caught up in all of this and what is really feeding the global energy, energy crisis is the control of the Strait of Hormuz, which at times the US has said would be something that could be worked out for the profit of everyone. Trump has kind of alluded to a sort of toll system that both the US And Iran could benefit from. But at times he has said that is unacceptable, full stop. And so now we're at a blockade of a blockade essentially that really has, you know, the markets and the this whirlwind trying to decipher what comes next and whether things will escalate before they de escalate again.
- [09:28]
Bailey Reutzel
And Michelle, we only about 30 seconds here. One of the touch points we've talked about on the markets desk is kind of this notion of a Trump put at some point he will walk back what he's pushing for with midterms on the horizon and with energy still far higher and more expensive than many people would have expected, Is there a time crunch or a limit where the White House is going to have to consider potential weakness going into the midterms just given rates are not lower and the cost of living has only gone up in the last few weeks?
- [09:55]
Carol Massar
Michelle, we've only got about 25 seconds.
- [09:57]
Michelle Jamrisko
Yeah, it's a great question, Bailey. And I think a lot of the political actors within the administration are looking toward the midterm deadline as a hard stop, but really would like things resolved much sooner than that to kind of alleviate Americans concerns. But we've seen gas prices get worse and the Iranians try to exploit that as well, warning that they would get much worse before the critical midterms if the Strait of Hormuz blockade continues.
- [10:19]
Carol Massar
Yeah, right. It just makes you ask so many questions if you think about the midterms coming up. Michelle, thank you so much as always. Michelle Jam Risk of Bloomberg News White House and National Security Editor, Stay with us.
- [10:30]
Bailey Reutzel
More from Bloomberg businessweek Daily coming up after this.
- [10:37]
Carol Massar
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- [11:00]
Bloomberg Businessweek Daily Announcer
You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch US live on YouTube.
- [11:14]
Carol Massar
President Trump did say that the US would attack any Iranian vessels that approach US ships in the Strait of Hormuz as that new naval blockade of the vital waterway took effect today. Here's what the president posted on social and there's a lot here. But I'm going to get to what I think is the big warning, and that is he talks about Iran's Navy laying at the bottom of the sea completely obliterated 158 ships. What we have not hit are their small number of what they call fast attack ships because we did not consider them much of a threat. Warning, if any of these ships have come anywhere close to our blockade, they will be immediately eliminated using the same system of kill that we used against the drug dealers on boats at sea. So yeah, here's that warning from the President. Meantime, we also heard from John Bolton over the weekend. Bailey.
- [11:59]
Bailey Reutzel
Yeah, really interesting conversation with your normal co host.
- [12:03]
Carol Massar
Nothing's normal right now. He did. He talked about President Trump's blockade making sense. He did join the weekend team of Tiglon Stanweck and Christina Raffini. He talked about the US War in Iran.
- [12:15]
Bailey Reutzel
The only way to get true peace and security in the Middle east is to have regime change in Iran. You can negotiate all you want with these People, it's not going to change anything. And I think the failure of the Islamabad negotiations just makes the point as clearly as one can. I think the cease fire was a mistake. Part of the problem here was caused by Donald Trump a few weeks ago lifting American sanctions on the shipment of Iranian oil. And I think he was motivated by fear of rising international oil prices and he thought a few tankers might get the price down. I don't think that's correct. And he should, he should reimpose the sanctions.
- [12:55]
That was former National Security Adviser John Bolton with Bloomberg's Tim Sandback and Christina Ruffini on Bloomberg this weekend. Carol, obviously a lot going on. An interesting column out today about how the Hormuz blockade is a, quote, throwdown the US can't win. That's written by none other than Mark Champion. He is Bloomberg opinion columnist covering Europe, Russia and the Middle East. Joining us from London, Mark, President Trump saying the US Will eliminate Iranian fast attack ships if they come close to our blockade in the Strait of Hormuz. Why do you believe this is a game of chicken between the US And Iran when it comes to the blockades of the straight or Hormuzz? And how is that one that the US can't win?
- [13:36]
Mark Champion
Well, you know, in essence what you have is the US Saying, okay, we're going to block in order to get you back to the table and we're going to block in order to force you to reopen the Strait. And you get into a question there where the Iranians have said, clearly, you know, we are not going to respond to that except that we will start hitting, you know, Gulf ally ports, you know, the ports of the Gulf allies. And in response, if we need to, and the question then becomes, okay, so the US has, has cut off, you know, the Iranians are stopping the supply from the Gulf states, the Americans are stopping the supply of oil from ir. What happens? Well, you know, not so much today, you know, because the markets are listening to Trump saying that, you know, the American, the Iranians have already come to us and are asking for a deal. We'll see if that's true. I have my suspicions that it's not. But you know, what happens then is that the, at some point the oil replaced oil will go up because supply is, is shrinking. And then it's a question of who can last longer. You know, the Iranians will be suffering. They've had a windfall for the last month or so through their ability to, to, to sell oil. And, you know, sanctions, as John Bolton said, were Lifted, they were eased so that they were able to sell. They didn't have to sell at a discount anymore. So they've been earning a big windfall, and they have a cushion now. So they can, they can sit on that cushion for several weeks, you know, or more. And even then after that cushion expires, you know, it's a question of, you know, are they willing to endure more economic pain, to inflict more economic pain on their own people than is, you know, the US and other countries around the world that will be suffering inflation and potential recessions as a result of, you know, US Actions in the Gulf. And I just, you know, can't really see knowing that, you know, who the Islamic Republic are and you know, how their leaders kind of have almost been looking for this kind of showdown with the US for decades, that they will fold.
- [16:14]
Carol Massar
And you write in your column, mark, make no mistake, the Iranian regime is monstrous and should not be allowed to have a nuclear weapon. And you're not alone in folks that have come in and say, this has not been a friend at all of the United States in particular, for many decades here. Having said that, we keep saying that for Iran, this is existential. And their willingness to fight kind of to the bitter end, regime change is not easy. We keep hearing that over and over. And that is kind of different from where the US Is coming from. I mean, they could back off. The president reminds us we don't need the strait of war moves. So I'm just, you know, wondering, is that part of, too, why the US can't really win using this tactic?
- [16:55]
Mark Champion
I think it's tough. I mean, there's a lot that I don't agree with John Bolton on. But one thing that he said which is correct is that this war only made sense to begin if it was going to end with regime change. Otherwise, you're simply trying to massage through force, you know, the behavior of the Islamic Republic. And that's an incredibly difficult thing to do. It's hard enough through negotiation, but to do it by force, to kind of calibrate that and to get the right kind of reactions, it's almost impossible to do. So what you really want, you know, to happen is regime change so that you just have a different bunch of people in charge of what, whatever nuclear stuff that they have in charge of their ballistic missiles. This is a nation of 92 million. They are not going to completely disarm. What you want is to have a regime there that has an army and it has an armed force, it has an air force Whatever it has and it simply isn't going to threaten its neighbors in the way that Iran has. Regime change so far has failed.
- [18:00]
Carol Massar
Hey, one last question before we go. And this is something else that I know you've written. You understand Europe so well. The Viktor Orbach election outcome. We're hearing his daughter and son in law have left allies have disappeared from airwaves and social media pages. There's unconfirmed reports of the movement of assets abroad and make calls for the Orban connected elite to be brought to justice. Just got about 30, 40 seconds here. What's the significance of this loss to the region, to Russian President Vladimir Putin, to even a President Trump?
- [18:34]
Mark Champion
It's really big. I mean, essentially, you know, here was the model conservative, you know, from sort of MAGA type conservative in Europe. He was in power for 16 years this time, you know, four years on a previous term. And you know, he completely changed the fabric of, of Hungary primarily because of a kind of quirk in the, in the sort of institutional makeup that allowed him to change the constitution at will and to change laws at will. That is now reversed. The, you know, it's not just that he lost, he lost the opposition, one with a constitutional majority. So they are now, now able to undo a lot of that stuff. And you, you know, I think that's why you see, you know, a lot of his allies, you know, fleeing because they know that the boots now on the other foot.
- [19:22]
Carol Massar
All right, great stuff as always and we always appreciate you staying up late there. In London, Mark Champion, Bloomberg opinion columnist covering Europe, Russia and the Middle East. Highly recommend you check out his columns on the bloomberg and@bloomberg.com this is the
- [19:36]
Bloomberg Businessweek Daily Announcer
Bloomberg Business Week daily podcast. Listen live each weekday starting at 2pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg 11:30 Investment
- [19:54]
Bailey Reutzel
bankers are talking about it hitting the road to raise more than 15 billion potentially hopefully over the next few weeks. Though all eyes are on the fragile cease fire in Iran. Though this week alone, Carol, we could have five companies raise as much as $4.6 billion by Friday. And a critical test for the spring window of deals.
- [20:13]
Carol Massar
I think it's interesting and I think, you know, you don't bring a company to market if you don't feel good about the environment or the macro. So I think it's really telling. I think it's another indicator that's an important read on where we are, an
- [20:23]
Bailey Reutzel
important read on where we are. And no one better to break that down then Michael Ventura. He is the co head of US Equity Capital Markets at RBC here in the Bloomberg Interactive Brokers studio. Michael, thanks so much for joining us.
- [20:34]
Michael Ventura
Thanks for having me. Great seeing you.
- [20:35]
Bailey Reutzel
All right, so big week. A lot of companies looking to price billions potentially on the line. How important is it that these handful of deals price well and trade well, given as Carol mentioned it, all the uncertainty from a macro perspective, incredibly important
- [20:50]
Michael Ventura
that we have a constructive pricing backdrop. We've had an incredibly robust issuance backdrop this year, but with very binary outcomes. Deals that are up 30% countered with deals that are down 30%. And so I think to keep this window open through the spring and summer pricing season, some constructive outcomes are sort
- [21:09]
Carol Massar
of must have that binary outcome. Is it just because some are really smart deals and price 12, some weren't priced like what's. Is there anything that you can say as to why you've seen those two different pathways?
- [21:18]
Michael Ventura
So many of the outcomes are deal specific. I think what has been instructive and what will be interesting to watch in this next cohort of deals is obviously aftermarket support for each of these transactions. We have a number of transactions that are for, as you mentioned, sort of multibillion dollar assets that are coming to market, a lot of them private equity backed. There will be more to come in terms of supply on a lot of these transactions. And I think what's been very encouraging on top of the resilience of the market, given the volatility that we're seeing, is the resilience of risk appetite from the buy side, which again, as we look for green shoots to keep this window open longer. Those are all sort of very positive barometers for us as equity capital markets professionals.
- [22:00]
Bailey Reutzel
Well, take us behind the scenes. We're living in a market that moves on every headline and every potential attack or conversations around a ceasefire with D.C. and Iran at the front of everyone's mind. Going into earnings season, what are the conversations like, like among your banking peers when you're talking to a management team about, okay, now is the time for us to look, to make a deal?
- [22:21]
Michael Ventura
Yeah, look, sometimes you don't know that the IPO window is open until you look down and it's definitively closed. And so for the folks who have done diligent preparation, they've tested the waters, they've engaged with institutional investors as part of their IPO prep, these valuations are generally quite well underwritten by the buy side prior to launch. You see a number of transactions that are coming to market this week that have cornerstone institutional investors or sponsors who are already sopping up some of that liquidity that will come, making sure it goes well. Exactly. And so these deals are structured to be successful at the outset.
- [22:55]
Carol Massar
Go well.
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Bailey Reutzel
No, I was just gonna ask.
- [22:57]
Carol Massar
This is your.
- [22:59]
Bailey Reutzel
But we've been talking. Right. So industrials, aerospace and defense, healthcare. Are they active because of the calendar? Are they active because investors are saying to you and your colleagues and your peers across the street, hey, we want more of these types of companies.
- [23:13]
Michael Ventura
Yeah. Not to get asset specific, but certainly some of the subsectors that you talked about are very much of the moment. Defense tech, space tech, other parts of the market that are obviously becoming very quickly sort of part of the zeitgeist, which you guys are covering quite well. Well done. Those are obviously very of the moment. Outside of that, again, you mentioned industrials, multibillion dollar ebitda, companies that have been around for decades. I think these are assets where institutional investors feel. Feel very, very comfortable. Again, there's a lot of capital rotation that's going on the set it and forget it software market of the last 10 years. A lot of that capital has been freed up and is looking to be redeployed into these new stories. New IPO entrants that are coming to market.
- [23:54]
Carol Massar
When you talk about Michael, we're talking about Michael Ventura over at RBC Capital and is it companies that have been private private equity owned for a long time. So they've got a nice duration in terms of the business. You can look at a bunch of to the balance sheets over a period of time. That's what you're talking about. They're finally coming to market.
- [24:12]
Michael Ventura
Exactly. Durability through cycles. These are investments that our private equity clients that have made have held them probably a little bit longer than the normal private equity cycle, scaled them a little more significantly than normal, and are looking out at a market backdrop where valuations are frankly exceeding expectations. So it's a perfect time, volatility aside, to be entering the market again.
- [24:31]
Bailey Reutzel
Well, you mentioned you don't really know an IPO window is open until it's closed. I feel like talking to some of your peers over the last few weeks. The sense was almost if you talk to issuers who are on file, we wish we went a few weeks ago. Is that kind of your read of
- [24:45]
Michael Ventura
where we're at timing this market? We've talked about this before. Timing this market is as much a function of luck as anything else. Luck favors the prepared and so again, it's that, that underwriting evaluation that you're doing in the private market in your final stages of IPO prep that I think will really separate winners and losers in this next open window know.
- [25:02]
Carol Massar
So something like Space X. I mean, is it just a whole other category you throw that into. And that's the anomaly.
- [25:08]
Michael Ventura
Whole other category. Obviously can't comment on any specific transactions that may or may not be preparing for market. But I think thematically you will see a number of very significant sort of seminal capital markets events potentially over the next number of months, and those will sit in a category by themselves.
- [25:25]
Carol Massar
When you mentioned defense though, and you like opportunistic, I mean, does that mean that, that it's not a good company going forward? You know, that if they're looking at the market saying with the war on and so on and so forth, the defense spending that's going on not only in the US but also overseas, it's a good time, does that mean they're just being opportunistic and it's not necessarily a longer term good play or.
- [25:45]
Michael Ventura
No, no, I think, look, I don't think you can ever fault a private company for, for sort of timing the market when the subsector in which they operate is as front and center in the day to day news flow as some of these assets that are coming to market right now are. I certainly don't think that's a barometer or a telltale sign of future market
- [26:04]
Carol Massar
performance because you know, when things are hot and you take advantage of a certain situation, you get sometimes some things that shouldn't go public.
- [26:11]
Bailey Reutzel
Well, we see, we see that play out with some of the themes, I think back even to last summer with some of the crypto deals that we saw getting totally and obviously the aftermarket performance has been, been pretty lackluster. But Michael, I just want to come back to kind of the point you made about after market performance, half of the 10 largest deals this year, a lot of numbers down more than 25%. When we look at a Horizon that has two notable deals this week in Madison Air and ARC6, I know you can't talk specifics, but how important is it that the deals that get executed in price this week and next week that kicked off earlier today, that they perform well ahead of time, what is going to be presumably a pretty busy stretch.
- [26:49]
Michael Ventura
It's table stakes. That is what will set the stage for the health of this next open window. Now keep in mind what's going on in the background. We're moving from a macro driven environment. You guys have been talking about it over the last few segments. A micro driven environment with respect to earnings. And so I do think that's actually going to be quite a grounding mechanism for institutional investors to get back to company, specifically earnings reports and more of a micro focus of the market versus this macro environment that we've been living in.
- [27:19]
Bailey Reutzel
And obviously I enjoy talking about IPOs. It's the most exciting part about my job, but certainly keeping an eye on the sell downs from some of the companies that have recently gone public. As we get through earnings blackouts, are we expecting to see a big rush with the floodgates opening?
- [27:34]
Michael Ventura
Yeah, again, market resilience has been I thought we retired the word unprecedented in 2021. Not at all. I would not not be surprised to see our private equity clients access capital. They are by definition not hedge funds. They're not built to hold publicly traded positions. And so expect with this window opening we'll see a flood of follow on activity as well.
- [27:55]
Bailey Reutzel
And just getting back to the IPOs, we only have about 30 seconds. Tech seems challenged. Do we see tech companies come public? Do we see software companies dipping their toe in the water from an IPO perspective? Just given all of the headwinds that
- [28:07]
Michael Ventura
are going on on, I don't know that the window opens up for software again. In the near term though, my crystal ball is in the shop. I do think a lot of that capital though will be happily deployed into some of the high quality assets that are coming to market from other sectors, some of which have tech as an adjacency to what they do day to day.
- [28:24]
Carol Massar
Did the crystal ball break because of software? Great stuff. Thank you so much. What, what a treat. Michael Ventura, thanks so much. Head of U.S. equity Capital Markets over at RBC see.
- [28:35]
Bailey Reutzel
Stay with us. More from Bloomberg Businessweek Daily. Coming up after this,
- [28:43]
Bloomberg Businessweek Daily Announcer
you're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [28:57]
Carol Massar
Hey, our next guest understands the world from public, public and private perspectives and more. Let's bring in Jameel Jaffer, National Security Institute Founder and Executive Director at George Mason University Antonin Scalia Law School. His relationship with D.C. in particular, very wide in scope, including during the George W. Bush administration where he served in the White House as an Associate Counsel to the President handling Defense Department, State Department and intelligence community matters, and served as one of the White House House Counsel's primary representatives to the National Security Council Deputies Committee. He is also Paladin Capital Group venture partner and strategic advisor. That's a global investment company that is, according to the company's website, investing in technologies, products and services focused on dual use in both commercial and government markets with a strong value add culture, as we said, comes at things from so many deep perspectives. He is with us from Washington D.C. jamil, nice to have you here with Bailey and myself. Let's start macro. We've been focusing a lot at of headlines out of the White House watching the war. When you look at this environment, does it feel like a stable one?
- [30:04]
Bailey Reutzel
Well, Carol, obviously with, with a war ongoing or a cease fire temporarily in place, there's obviously some amount of instability. At the same time, we've seen markets respond positively to the idea that there might be a ceasefire or that the cease fire is in place. We saw a positive reaction over the, over the, over Friday, over the weekend. So we're in a market where things are changing obviously day to day, not just on this conflict in the Middle east, but obviously with the advent of generative AI and its impact on markets as well. So we're in a fluid environment and there are stability issues, but they relate to a number of macro conditions, not just obviously the conflict going on in the Middle East.
- [30:41]
And we had a conversation with Max Wasserman from Miramar Capital earlier and he kind of made the point that when you look at the Middle east, it only takes a little bit bit to reignite the situation and cause volatility to spike again. What's your current read on kind of the outlook for the ongoing conflict in Iran? And because when I talk to investors, everyone's even if we're putting on a happy face, we're still on tenterhooks at the end of the day.
- [31:05]
No, there's no doubt, Bailey, with, with the vice president having left Pakistan without a deal, that raises the question whether the cease fire will remain in place and whether there's a long term solution here. But what's clear is the president himself and the Iranian leadership are both committed to trying to find a deal. The question is, is there deal space to be had here? As you know, when you're trying to make a deal, there has to be a meeting of the minds as to the agreement and on the cease fire at a minimum, we know there wasn't yet a meeting of the mines and certainly not to date. Now look, it's going to take time to find a path forward to get to a final agreement between the United States and Iran. It's no surprise, frankly, that the Pakistan talks didn't end fruitfully. But the conversations are ongoing. We'll see what happens going forward. But the two sides remain far apart on key issues like uranium enrich, like Iran's support for terrorism, like the closure and reopening and nature of the reopening of the Straits of Hormuz. So the parties are far apart. Doesn't mean they can't come together. But we'll have to see what happens over the next days and weeks as these negotiations continue in various settings.
- [32:04]
Carol Massar
Jamil, before we get into military and technology, which we want to talk about with you, certainly Anthropic was something we were talking about a lot over the last month or so. I want to ask you, since you were a former associate candidate, counsel to President George W. Bush and pulling together defense, state, intelligence aspects, what would have been your counsel to President Trump before this war if he had reached out to you, Would you have advised to do this in what has been a very tortured relationship between the US And Iran, to be fair?
- [32:38]
Bailey Reutzel
Well, look, Iran has been coming after Americans for the better part of, of 40, 50 years, right? We've seen a long, ongoing fight with Iran, at least since the revolution in 1979, I should say. We've seen a tense relationship with that country and its leadership, not really with its people, but it's with its leadership. And the challenge there is that they support terrorist groups like Lebanese Hezbollah, Palestine Islamic Jihad, Hamas and the like. They've been an inveterate opponent to American policy in the Middle east, whatever you might think of that. They're opposed to it. And that's been a challenge. It's going back to the days of Ronald Reagan, if you remember the tanker wars and like. And obviously the number of terrorist attacks conducted against Americans, well, those have continued even during the Iraq war. We know that Iran was supporting proxy groups in Iraq to kill Americans, providing them with explosive foreign penetrators and the like, killing American soldiers on the battlefield. So that's always been a challenge. And so the question becomes, how can you find a path forward? And what I would have said to President Trump is, look, if you're gonna get into this conflict, you have to have a plan for getting out, a plan for what victory looks like. And I think that's the challenge today. It's hard for us to determine what victory looks like. Have we won already, as the president said a number of times, or is there something more to be done? And at the end of the day, what does A post conflict Iran and a post conflict US Role in the region look like.
- [33:50]
Carol Massar
I love that. One last question. I mean, is it still up in the air whether or not we are more secure, that the United States is more secure after this war, or we just don't know yet?
- [34:00]
Bailey Reutzel
Well, look, I think from a perspective of Iran being a threat to the United States, it's certainly a reduced threat because we've taken out a significant portion of their navy. Be a significant portion of the rebuild,
- [34:08]
Carol Massar
but you can rebuild. You know, anger is a funny thing, right?
- [34:11]
Bailey Reutzel
No, you're exactly right. And of course, Iran's reaction to this may be, well, this exactly demonstrates why we need a nuclear weapon. And so what you have to do now is get to a point where either there's a new government in Iran that's more friendly to the United States or they commit in a way that's verifiable and insurable that they're not going to get a nuclear program. And that probably means not having a domestic enrichment, which was the key challenge of the prior nuclear deal that President Trump got rid of in his first term. And so that's the real challenge here year. How do you get to that committed goal without resolving these big picture issues? And not to mention Iran's support for terrorism in the Middle east, which has been a longstanding problem for the United States.
- [34:45]
All right, so to pivot just a little bit, Jamil, one of the things that obviously Carol had mentioned has been in the headlines for quite some time has been the back and forth between the administration and Anthropic. Just looking at our reporting today that Anthropic hired a Trump linked lobbying firm, Ballard Partners. Obviously this dates back to the back and forth negotiations around the Pentagon and those conversations collapsing after the agency demanded unfettered access to the startup's tools for lawful purposes. What's your read of the current backdrop? Because it does feel like this is at least skewing towards Anthropic and away from the administration.
- [35:23]
Well, Bailey, I think one of the challenges here is that you've got two very committed views on both sides. On anthropic side, they want their tool being used in only ways they permit and they're concerned about things like mass surveillance or what they call mass surveillance, and they're concerned about the autonomous use of weapons. The Department of Defense for its part says, well, look, we're buying this tool. We want to be able to use for any lawful purpose. If the law needs to be changed and restrict us, that's fine. We'll take that. But that's the negotiation between us and between the executive branch, the legislative branch, and how you, how you make laws not between us and a company. You wouldn't expect Lockheed Martin, of course, to prohibit the US from using F35s in a certain way and the US government saying the same thing on the anthropic side. Anthropic's position, however, in the current ongoing fight and the litigation is about what the US Government did after this thing developed, which is to name it a supply chain risk under federal law and thereby prohibiting it from being used by certain federal government agencies and certain federal government contractors that do business with the Department of War. And so that, I think, is the big challenge now, how that's going to play out. There are two pieces of litigation ongoing, one in D.C. one in California. In California, there's an injunction in place. The government can enforce its current procedure. The executive branch and in the D.C. circuit, they refused the injunction, but did recognize the importance of the case and now set the case for expedited briefing. So these proceedings appear to be moving pretty quickly to some sort of conclusion.
- [36:38]
Carol Massar
Jamil, you say this is a challenge, challenge or mistake by the government, the US Government, the Trump administration, to designate Anthropic as a supply chain risk to national security?
- [36:51]
Bailey Reutzel
Well, I think the challenge, Carol, is that the US Government really wants to use Anthropic. They, you know, when, when, when he was talking about its value, he referred to its capabilities as exquisite. And we all know, as we've seen its performance out in the, in the markets, we've seen it do well and, and make huge gains in the technology market. And like that being said, now calling the supply chain risk makes it hard not just for the Department of War to use it, but for other federal agencies and for federal government contractors who want to supply the department. And of course, the real question is, is it a supply chain risk? Does it qualify under the state?
- [37:22]
Carol Massar
That's what I'm asking you, like is do you agree with their designation and do you agree that it's a supply chain risk to national security, or is this just playing angry?
- [37:33]
Bailey Reutzel
Look, I think on the, on the text of the statute and the definitions there about adversary and supply chain risk, it's going to be a very difficult case for the government to make. That statute was designed to go after Russian companies, after Chinese companies like Huawei and zte, Russian companies like Kaspersky. It's hard to imagine how under the current Texas statute, an American like Anthropic would the government's made its put its best foot forward and tried to make that argument. We'll see how the courts treat it. At least in the case of the D.C. circuit. The D.C. circuit did say at least the balance of equities on an injunction tilted in favor of the government. They didn't speak to this question of whether, whether the US Government's likely to win. So we'll see how it plays out in court. It'll be an uphill battle for the government. No doubt they have other tools, by the way. They could have used the Defense Production act, which they didn't use. That may come next if in fact they lose this litigation.
- [38:17]
Just looking at some of our reporting. OpenAI calling out the fact that OpenAI anthropic, both have increased their federal lobbying spending last year. Such a hot button issue from an AI perspective. Is there any form of precedent for the ongoing battle between the government and Anthropic in terms of other kind of novel things like AI that have fundamentally reshaped where we are and how we live?
- [38:38]
Yeah, Bailey, great question. The most prominent example that we have from recent memory is actually the COVID situation where the Trump administration used the Defense Production act to require contractors, federal government, sorry, pardon me, pharmaceutical companies to make the COVID vaccine. And so we do have a recent sort of what you would call national security, economic security crisis, the, the COVID pandemic and then the reaction by the government to use this tool in a unique way, the Defense Production act act, and actually to make somebody deliver a product they weren't otherwise going to make. So in theory, could they use that tool to force Anthropic to deliver its product to the government and to do it in a way the government prefers? They might. It's a hard question under the existing law, but that's a more likely a fruitful, a more fruitful approach than the current approach of using the supply chain risk. But again, we have litigation in California, litigation in D.C. we'll see how these courts come out of this case will eventually probably wind its way to the Supreme Court and we'll see how it plays out on the specific statute that involves supply chain. So there's actually two of them, them two different federal laws that apply in supply chain risk here.
- [39:38]
Carol Massar
Jamil just got about 30 seconds here. You've worked on legal and policy frameworks on how the US Government procures and deploys sensitive technology, AI, generative AI. This is a whole other ball game. Do you think that it's right for a company to be a little concerned about how the government uses all of this. And forgive me, just about 25 seconds here.
- [39:57]
Bailey Reutzel
There's no doubt that a company has a right to be concerned about it. The question is, can they force the government to do it the way they want to issue? The government has its point of view. The company has its point of view. How to reconcile those two is the hard question at play here. It's going to be a question that will plague policymakers and courts for at least months, if not years to come.
- [40:12]
Carol Massar
All right. Good stuff. Interesting. Thank you so much. Jamil Jaffer, National Security Institute founder and executive director at George Mason University. Antonin Scalia Law School, as we said, formerly served in the George W. Bush administration. He was in the White House as an associate counsel to the president.
- [40:28]
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