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And as always, on the Bloomberg Terminal and the Bloomberg Business App. We begin this out with tech earnings helping to offset cyclical threats building in the energy market as U.S. Iran tensions continue to simmer. Peter Chee of Academy Securities writing, my best case is that the chatter from last week of an impending and very strong deal for the U.S. comes to fruition. Pete joins us now for more. Pete, good morning. Morning. That's your best case. What's your base case? Base case, I think, is that this continues to struggle and it starts weighing a little bit more on the economy. As you just pointed out, we've been looking longer-dated futures contracts and you're out to $80 in WTI out to November now. So that's different. And you're starting in those longer months, September, October, November, you're actually at the highs of the whole cycle. So unlike the front contract, which we're still below kind of those spikes, we're seeing this kind of push out. And it's really hard to figure out who's in charge in Iran. So I think that's a big issue. And it's really hard to figure out who's willing to make that first move. I think when we talk to our geopolitical intelligence group, you know, the consensus view is that we will probably, to end this war, have to escalate once more to actually win, that we will have to go in, that we will have to fight, and we will have to put pressure on Iran. Trump seems reluctant to do that right now, but we don't really see winning any other way right now. Right now, we're not trading the economy. We're trading the market. And they're slightly different things. The economy's not great in Asia. In Europe, there's a real threat. In the U.S., things are okay. But they're better than good if you look at the U.S. tech story and the earnings profile of some of the chip makers at the moment. What's your best bet in the market? How are you allocating capital? What are you advocating for? Well, as you know, we've been talking about this production for security, so we love that. And Intel was actually one of our names, because we did think that the U.S. had to grow chip business organically, domestically. I think now that's almost, you know, I've got to admit, I started selling a little bit ahead of earnings. I'm probably going to be close a bit more. it's better lucky than smart sometimes. But we've had that great play. I think you have to start really looking to and out of Europe and thinking that Europe is finally going to get the joke that you have to invest in heavy industry. You have to invest in your own electricity production. You have to let BP, Shell, Total do what they're good at and don't worry as much about carbon and one degree temperature changes five years from now when the reality is you need electricity, you need energy. I think they start unleashing some of this. They're getting a little bit more creative. I think they're getting a little bit more organized, partly because they're getting a little bit more desperate. You know, it kind of takes them years to figure anything out. They got kicked by Russia. Now they're getting kicked by Iran. I think that's going to be really interesting. So I want to own the energy plays. I want to own kind of that production for security, not just now in the U.S., but really heavily into Europe. Lisa, we mentioned it briefly. You see the pressure on the Europeans and the economy and the PMI data. You see it in the markets, too. I think the euro stocks 50 so far this week is down some 3 percent. They are hit in both ways. Number one, they're energy importers, but they also don't have the tech story. And the tech story seems to be supporting the market in two ways. On one hand, you've got, of course, just the idea that there's upside surprise in the equities, but also the investment, the CapEx, which seems to be supporting the picks and shovels that we see with the semiconductors and the energy stocks in the U.S. And that's been a huge support because that is existential spending. It isn't necessarily something that's coming from an obvious use case. It takes us to next week. So next week, next Wednesday, we get some big earnings from Microsoft, from Meta, from Alphabet. that they are the big spenders, and some of them are also cutting jobs to support that spending. To Lisa's point, when they feel like it's existential and they've got the balance sheet to carry on spending, are these trades you want to be on the wrong side of to get on the other side of at the moment? I think we're all kind of waiting to see if software can really turn around. So the Microsoft story, I think, will be really interesting, right? Can we get this turnaround in software? And, you know, I'm tempted. I don't think I'll get to the point this weekend, but I want to write the note, like, you know, your costs are someone else's customers. And I'm getting a little bit worried about the job situation, right? We kind of have this working poor situation. We have affordability that's doing nothing but getting worse, right? And I know we kind of focus so much at gas at the pump. I'm getting increasingly worried about what's going to happen to fuel costs, right? Diesel is such a big component of fuel costs. We haven't even started feeling the impact of higher fertilizer prices on food costs. I feel this affordability, like this working poor, and people who are not able to make ends meet the way they thought, that income line keeps creeping higher and higher. Now you're starting to lay off some people, you know, very nice jobs in many of these cases. is I'm a little bit worried that there is a subtext of this economy that's worse and that the one thing we're not, I'm still trying to figure out how to pick this up myself, but I feel like we are very good at identifying job loss-led recessions, right? We see the job loss, we start figuring out, we know how to deal with that. I'm not sure we've had an affordability-led recession. And despite the fact that chips and things are doing so well, I'm increasingly worried that you're seeing pressure on the consumer in ways. They're making ends meet, they're making ends meet. We got the bump from the tax relief and things Where are they two months from now So a lot of people will be nodding along and they be saying we see this in the data we see this in the sentiment that we have of course coming out through all the surveys that indicate this fear about affordability But then stocks get rewarded for cutting staff and saying that they're gonna invest in AI instead. How awkward is that? I mean, do you think that that's gonna be the theme going forward, that if companies cut staff wholesale and say, we're gonna invest in AI, that's a buy the stock moment? I think at some point people start getting worried about the job losses and not at that individual company level, but at the national level and say, where are we? And, you know, it was just, what, two months ago we were going to have the AI took over all the jobs and that kind of narrative disappeared. I think that starts coming back, right? This is a little bit concerning. If you're going to lose these jobs, who's going to take these jobs? At the same time, you know, continue to use AI. You hear about AI slop and people having to redo work. I believe a big law firm just had to make some announcement that they'd included some hallucinations. And so this is not yet perfect, and we're treating it that way. Things you don't want to read from your law firm. And again, I keep looking at the far side, and we might be the only species that extinks ourself. It's like we're sitting there and going out of our way. And the market's encouraging it. And this is the key point. Lisa makes it. This was in Citrini Research a number of months ago, and I thought it was the most important point in that research piece, Lisa, was that you replace the operation expenses, the OPEX, with the CAPEX, and the market rewards you for it. So then you drop the OPEX again, you boost the CAPEX, and the market rewards you for it. And that's the labor market doom loop. And you end up in this really, really bad situation where the market's doing well and rewarding that kind of behavior and unemployment starts to climb. Now, I'm not saying that's the base case for you, the base case for you or the base case for me. I'm just saying that's the fear. That's the fear of what could happen in the next several years. Well, and essentially, if you start to see companies have to justify their expense in CapEx tied to AI by cutting staff for efficiencies, then what does that set us up for? I mean, is that essentially what you see going forward, Pete, that there's going to be a sense that companies have to cut somewhere in order to keep spending on AI at the speed that they have been? There's certainly some of that sense right now. And again, I think they're going to get more and more investment in the semiconductor industry. Right. I think that's just one. A, you've got these companies. B, you can start looking at places like Nokia, Ericsson. What in Europe might benefit if Europe kind of gets serious about AI? You've seen some smaller companies, you know, that BlackBerry, I think, is a company I own a small bit of. all of a sudden that's interesting because they're doing something in the space so you're seeing kind of everyone i think look to okay what else can benefit i think that's going to drive that part of the market i think it continues to do pretty well can i just get a final word in on government intervention intel talked a lot about spirit and what's going to happen there we'll save that conversation for later this morning intel i don't want to downplay the real developments taking place of this company but how many companies do you think are re-engaging with intel because of the government involvement and the halo that offers and maybe they want to please some people I think that was part of why we had the ProSac, right? And we concluded Intel because of the 10% government stake. And part of my thesis had been Trump likes to win. Trump owns this on behalf of the American people. So the American people are winning. But people are going to do business with this company because you want to be on the right side of Trump. So I think that was part of my thesis. I think that's probably played out very well, for better or for worse. I do wish that when we're making these investments, whether it's in that, there were some guidelines set up. And that we had some group that actually does this and was well organized. That's not how this administration works. And fighting how this administration works isn't a good way to make money. Figuring out how the administration works and taking advantage or following it, I think, has been a good way to make money. What's next? Defense contractors flying spirit? Is that what's going to happen next? No, I do think I'm looking for anything in the drone space. The drone space is just going to continue to take off. I think a lot of those companies are private, though I'd expect a lot of IPOs. As we were talking offline, there's going to be IPOs and everything. I think you're going to see that. And I think surface drones have not gotten enough attention. That's boats, basically. So you can look at companies again. I think the shipbuilding industry, which is allegedly why the secretary of the Navy was let go, was he was not focused enough on shipbuilding. That's an area I think is going to gain attention. I look at Brunswick, for example. They make small boats, you know, not military or anything like that. But why don't they get involved in this? I think you're going to see that this drone space explode. And I think shipbuilding really is a big focus that we need to do. So that's if I'm baiting right now, I'm shifting some money out of maybe the semis that have done so well. I'm looking for other things. Stay with us. More Bloomberg Surveillance coming up after this. When the rest of the markets slow down, the futures market keeps moving. Did you know that CME Group S&P 500 and NASDAQ 100 futures trade nearly 24 hours with great liquidity? In the ETF markets, volume and liquidity lessens after 4 p.m. until the next morning. But with futures, you get trading opportunities both day and night. Learn more at cmegroup.com slash equityfutures. trying ever so hard. To tech journalist Cara Swisher. And the tech industry is running wild. You know, they've gotten what they wanted and they've seen a huge run up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense of the world. So please join me, listen and subscribe to the Michelle Hussain Show from Bloomberg Weekend, wherever you get your podcasts. You certainly ask interesting questions. What separates good leaders from transformational ones? I'm Jessica Chen, and in Season 2 of Leading by Example, we'll sit down with executives like Grace Chen of Birdie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact, on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. So here's the latest this morning. A U.S. soldier facing charges for allegedly using classified intel to rake in over 400 on Polymarket betting on the timing of the capture of Venezuela then Nicolas Maduro with the latest in Washington Anne has more Morning Anne Good morning John And it not just what happening in terms of this criminal investigation but also the CFTC is lodging its very own in parallel civil investigation into this soldier. And this marks the first time we see that regular take that step when it comes to prediction markets. It also comes this own White House sent out a memo to staff a few weeks ago to make sure that they are not making these kinds of bets, especially given they have access to information. And we've seen a number of sizable trades, not just when it comes to trading platforms online like Calci and Polymarket, but also in our own financial markets, especially when it comes to massive oil positions put on in a timely fashion before the president comes out with a truth social post. And for more on this, I'm very glad to be joined by John Lieber of Eurasia Group, a friend of the show. John, thank you so much for joining me. So the CFTC is also joining in on this in a parallel suit. Are we going to see more of these kinds of lawsuits? I hope so. I mean, I think this is actually a pretty major issue where you've got government officials who are using their position to profit. And the proliferation of new markets that allow that to happen with very little oversight and very little regulation means we're going to see more of it. So I'm actually surprised the CFTC has gotten in on this. The oil investigation that they're launching about Trump's Iran attacks, who knows where that thing leads. I mean, these could be some very politically sensitive investigations. And I think that as these things proliferate, you're going to see more of this. Rep Luna yesterday took to Twitter and said, unless the DOJ plans on going after all the crooks in Congress currently inside or trading, this is simply skewed justice. Will there be more pressure on Congress to also make sure that congressional lawmakers, senators, staffers cannot trade? Yeah, there's been pressure on Congress to stop getting rich off of inside information for decades now. And it seems like members of Congress somehow find a way to keep getting wealthier. So I doubt there will be any serious enforcement. The Stock Act was passed over a decade ago, and there haven't been that many prosecutions, meaningful prosecutions brought under it. I think that probably congressional staff are certainly scared about this. But members of Congress are right now more or less above the law here. When it comes to Congress and the war on Iran, there's an important deadline coming up when it comes to the War Powers Act. Does it matter to this White House? No, I don't think so. I think the War Powers Act, which was passed decades ago in order to be a check on the president's power to do exactly what Trump is doing in Iran right now, is more or less defunct, as long as Congress is not willing to enforce it. And unfortunately, the only enforcement mechanism they have is impeachment. And we know they're not going to impeach Trump. So what are they going to do here? Does this change, though, potentially after the midterm elections, if we do see a changing of power, whether that's in the House or the Senate? It could. I mean, the Democrats would certainly control the House and maybe the Senate, but you still have the enforcement here, which is, you know, doesn't, isn't really, there's no real enforcement channel. And I think President Trump, who in his first term disputed the legality of the War Powers Act as an unconstitutional check on his ability to conduct foreign affairs, I think probably continues to just ignore this. Well, Obama sort of ignored it as well when it comes to Libya. So we've seen this on both sides of the aisle. It's a circumstantial legality, right? Circumstantial rule of law, where you care about it when it's your side and you don't care about it when it's preventing you from doing what you want. When it comes to the war in Iran, where is Eurasia right now in terms of this potential off-ramp talks that are happening? There was a ceasefire announced yesterday by the president when it comes to Israel and Lebanon. Does that help the United States when it comes to trying to get the Iranians back at the table? So if you look at where the two sides are right now, the Iranians look pretty dug in. They've got a flow of oil moving out. They've got oil revenues that are much higher than what they originally budgeted for this year, with two million barrels a day on average going out over the last month or so. That probably drops significantly under the U.S. barricade that's happening. But the U.S. is quickly backpedaling off of its position. We don't think Trump is able to go back in in any meaningful way because of the political constraints that are on him in the United States. And the Iranians know this. So I think the negotiations that are happening right now eventually do lead to some kind of a deal that reopens the strait, let's say, by the end of May. And I think this weekend is going to be a key time as the two sides are exchanging ideas about what exactly the Iranians are going to do. Probably they stop, are forced to stop enriching uranium. They probably get some pause over some period of time. And the U.S. probably ends up lifting some of these sanctions, which looks a lot like the JCPOA that President Obama did. As you're saying this, I'm like, OK, I've seen this deal before that the president then ripped up and Trump won. Is Trump willing to take a deal that he, in his prior term, would say that is not efficient? So if I were betting on Polymarket, I would have lost a lot of money betting on Trump right now. So who knows what he's going to do? But right now, the signals that the White House are sending are that they are backing off of their key demands and they want to get a deal to make this thing go away. And that's at least the direction of travel right now. Trump, of course, can change his mind at any time for any reason. But that's what it looks like right now. I spoke to the former CENTCOM commander, Votel, yesterday, as well as a six-time CIA station chief. And they said nine to 12 months. Until the strait is open again? Until things are back to normal and potentially have a deal. Yeah. Well, I mean, I think there's going to be two levels of a deal. There's the memorandum of understanding that allows the blockades to go away and the Iranians can open the strait once again. And then there's a deal, which is, you know, you move uranium out of the country. We get inspectors in. Here's some cash. So I think that the deal part of it might take a little longer. But right now, we think they are headed towards some kind of memorandum of understanding that would sketch out the parameters of a deal without even if something's not written. But I do agree that the disruptions we're living with right now are going to be with us for a while. And the straits not going to be fully open until at least the middle of the summer, if not beyond that. Right. Actually, I said yesterday that they were laying more mines. Doesn't the Iranians want to make this as complicated for the president before the midterm election? Certainly, that's what it looks like right now. There's been a lot of reporting about how Trump's tweeting is disrupting the negotiations. And the Iranians, I think, think they're playing a stronger hand. And I think they're playing a stronger hand, too. So I think that puts the Americans in a very difficult position in the negotiation here. Well, if they think they're winning, then why would they back off? I think everyone wants this to be over for life to return to normal. Stay with us. More Bloomberg Surveillance coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. On April 4th, 2023, around 2 in the morning, A man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, The Killing of Bob Lee, beginning April 16. What separates good leaders from transformational ones? I'm Jessica Chen, and in Season 2 of Leading by Example, we'll sit down with executives like Grace Chen of Birdie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact, on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Veronica Clunk of Citi writing this on the Fed's next move. We expect a combination of soft decor inflation and loosening labour markets to help Walsh convince the majority of the FOMC to cut rates before the end of the year. Veronica joins us now for more. Veronica, good morning. Good morning. Good to see you. Kevin Walsh did not really articulate a good argument to cut interest rates this week. Is that because there isn't one or because he didn't want to? Yeah, I think he just repeated this, you know, productivity enhancements, gains from AI, things like that. That can be disinflationary. We can cut and not stand in the way of stronger growth. That's the argument the administration's been making, though. I don't think that's one that other Fed officials are going to buy until we see it in softer inflation data itself. So, yeah, he was not terribly convincing, at least, in terms of the near-term. Has your timing for cuts changed? Has it been pushed out because of the shock of the Middle East? Yeah, we did. We pushed it out to September. But I think what we'll see, and obviously it will depend, of course, on what happens in the Middle East with oil prices. But the focus the next couple months will absolutely still be inflation data. We'll get some uncomfortably strong readings even in April and May, I think. But as we get into the summer, I do think we won't see the substantial pass-through of higher energy prices to core inflation. And what has happened in the summer of the last few years is that that's when the labor market starts to look weaker. And I think that will repeat. And then the pattern has been that then the Fed cuts in September. How many scenarios do you have right now on your desk and potential outcomes for employment and inflation? Too many. Yeah, there's too many. Even if you weren't even if we weren't dealing with the oil shock, you know, this is a labor market that's very unlike any that we've seen before. And so it's really hard to forecast when you don't have historical comparisons to base those forecasts on. So all we're really doing is for the labor market, at least looking at this is a very low hire, low fire dynamic. It's happened this way for a while. What that has meant the last few years is, you know, starting within the next couple weeks, jobless claims start to rise in the summer. And that, you know, precedes a rise in the unemployment rate by the end of the year, just three to four tenths. It's gradual. But yeah, a lot of ways this is an economy that is very unfamiliar to us. Is there anything about the earnings that gives you pause, given the fact that we're seeing very strong earnings, consumer discretionary companies coming out and saying that demand remains strong, even amid some higher prices? and you have credit card companies coming out and saying people are still spending. I mean, at a certain point, do you say, if prices remain where they are right now in the energy complex, we can maintain this level of activity, and frankly, that becomes more inflationary than it does but suppressive of growth. Yeah, the earnings and the survey data and these anecdotes, they're interesting, but it's always kind of hard to translate those to macro forecasts, you know, aggregate data. I mean, if anything, in some cases, it seems like earnings are stronger because of job losses and cutting costs that way. What we've seen in the actual spending data the last few months or so is, yes, consumption is very resilient. That's been the story for the last few years. But we were slowing as we were getting into this year. Of course, we had a very strong retail sales print this week. A lot of that is nominal higher gas prices. There is a bit of a cushion right now for some consumers, you know, getting higher tax refunds than they did last year. But the primary driver of if people are spending or not, I think, is aggregate take-home labor income. And that is slowing this year. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6 a.m. to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App. Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen, and in Season 2 of Leading by Example, we'll sit down with executives like Grace Chen of Birdie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.
