Markets React as Israel Strikes Iran
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This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. I've been anticipating this all morning. Tina Fordham is exquisite on our fractured international relations with Fordham Global Insight, her academics at Columbia, among others.

and of course her work over the years with the Eurasia Group, now Fordham Global Foresight. Tina, within your wonderful note this morning, you just cut to the chase. Nuclear states in active conflict is not business as usual. How should the White House, the State Department respond? - Thanks, Tom. I think that we've got to be very focused on the fact that we're not just looking at

a bold Israeli attack on Iran, taking out at least 20 of its senior personnel at one time, as well as some attacks on nuclear facilities. But the Ukrainian spiderweb attack, drone attack deep into Russia, which of course has nuclear capability,

And the tariff war all happening at the same time. For investors that are having flashbacks to the last round of Iran-Israel tensions in 2024, we're in a really different environment. But I didn't answer your question about what the White House and the State Department should do at the moment. It looks like

the white house is is trying to um give the impression that uh they were on board with these attacks when almost everything that we are hearing is that the white house uh was cautioning netanyahu not to go for it so both netanyahu and zelensky in ukraine um you know really not heeding washington's warnings so

what does that say about our position in the world in terms of shaping events uh that are in our best interest because as you mentioned uh in ukraine and now most recently in uh the middle east it appears that we perhaps didn't don't have the influence we once did well we don't seem able to deter um leaders who are

are willing to take advantage of an opportunistic moment. And that's where we are. There is a perceived power vacuum and both Ukraine and Israel, which of course are in very different conflicts, and I don't mean to draw equivalences between them, but part of being in a geopolitical risk super cycle is the notion that the global guardrails, which deter more dramatic escalations, are not working. And so that's where we find ourselves.

Having said that, of course, the United States has a lot of cards. In particular, if Israel wants to, you know, truly degrade Iran's nuclear facilities, that will require the involvement of U.S. forces.

Long-range bunker buster bombs, bombers. Tina Fordham with us, and we will continue here. Light economic data. Paul Sweeney will enjoy the Michigan reports that we see here at 10 a.m. this morning. Thank you so much on YouTube, a fiery live chat over these military and political moments of the nation. Tina, let me ask the question, and you're so wonderfully apolitical, I think I can get away with this.

For our audiences and their politics of, say, the left and the right, of Democrat and Republican, this question's going to come up this weekend.

Are we at this moment because of the unique policy and approach of Donald Trump in his second term? Are we going to get naval gazing into next week, into August, into 2026 that says we have this conflict, this war because of President Trump? Are we going to get there?

Tom, I love that question and you know that I'm not afraid of being bold. I mean, I think one of the tragedies of the present moment is that every single issue that the US is facing is now left-coded and right-coded in a way which is very bad for the world and for dealing with threats.

I am in this role and in this seat because I think that in order for commerce and financial markets to function, we need safety and stability. And unfortunately, it's very difficult to have those conversations.

even on Wall Street anymore, without going down some kind of rabbit hole of whether one is defending Ukraine policy or is pro or anti-Israel. When what we really need to be looking at as investors is the potential for conflicts to move from regional to systemic, to generate shocks,

to asset prices or to growth. And we're not having those conversations anymore. Tina Fordham, I've stood outside that quiet room at the White House down in the basement below the Roosevelt Room where the president will meet with the National Security Council. I assume they'll be in that closed, you know, the famous room and all that.

I would suggest we have a fractured process under NSC right now with Marco Rubio having, what is it, Paul, five jobs, six jobs? Yeah, exactly. He's mowing the lawn, whatever. What's going to go on at that 11 a.m. meeting today, Tina Fordham?

Yes, 11 a.m., no rush. You know, it will have been something like 10 hours since the bombs first dropped. I think they're going to be playing clean up, to be honest. Those warnings from the White House to Netanyahu were pretty well known in analyst and intelligence circles. Now the president has had to come out saying he'd been warning Iran all along. I think that's probably true. The prospects for diplomacy now are zero.

between Israel, Iran, and the United States. And one of the things that I think is really

And what we're waiting for, again, in terms of the scale of the response, is does Iran have anything left to respond with? The 100 or so drones that were launched seem to have been intercepted. And how much further will Israel go? I've seen some estimates, 12 days and then going further. And will the U.S. actively get involved providing that kind of support I mentioned? I don't think the White House will want to go there.

Tina, you've recently published some work entitled Never Going Back to Normal. And that was before the last 12 hours. What do you mean by we're never going back to normal?

Well, I put this report together developing an evidence base to really try to assess whether we are indeed experiencing more geopolitical risks or not. And this speaks to Tom's earlier point, which is basically, is this the fault of the Trump administration? The answer is no. We've seen an acceleration of geopolitical risk events.

they started to pick up in the aftermath of the global financial crisis around about 2010, really accelerated, whether measured by trade in tariffs or cyber attacks or conflicts, lots of different variables that we looked at.

But again, it's that combination of more guardrails, sorry, more drivers of geopolitical risk and weaker guardrails, diplomacy, norms, even just, you know, the deterrence factor. When those things break down, we're seeing a lot of nations willing to take chances. Tina, thank you so much. Ray reviews Adena for the quality of his conversation on YouTube Live Chat. Thank you so much, gentlemen and gentle ladies, for that. Tina Fordham is with Fordham Global Insight.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

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CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Right now, we are honored to bring you, as Paul mentioned, a Marine, Mick Mulroy, co-founder of the Lobo Institute, the former Deputy Assistant Secretary of Defense for the Middle East. Mick, if I get out a map of the 40,000 to 50,000 Americans at some 19 sites in the Middle East, with a substantial presence in Kuwait, down to Bahrain, to Qatar,

over the United Arab Emirates, strapped across the Persian Gulf. What is the risk to American military personnel at this moment? - Good to be with you all again. Obviously, a big concern, Iran stated essentially that if they were attacked, that they would go after US personnel and facilities.

That would be a huge strategic mistake. That's one of the reasons why I think Secretary Rubio made it clear that this was a unilateral attack by Iran, not by the United States. So they would be drawing the United States into a conflict that they're already having with Israel. So they would be fighting a regional superpower, if you will, plus us. So I don't think they will—hopefully they will have—

better ideas and not do that. But if they did, I think we have done everything we can to mitigate that threat, to get people out that don't need to be there, and of course, bring in air and missile defense systems, which is the most likely way they would attack us to defend these positions. Mike, I don't want to go back to Eisenhower and the Shah.

or to 1979 either but the absolute memory of pros like you is the absolutely stunning war on the border of iraq and iran in the iran in the 1980s that colors everything about persia about iran they don't have that capability for a large war like they did in the middle 1980s do they

They do not. And of course, this is after multiple attacks by Israel on Iran that have been mitigating their air missile defense systems, their ability to launch cruise missiles, ballistic missiles and produce them. So this is something I think.

Israel took the opportunity to mitigate not just their nuclear facilities. Let's remember, that's what we're talking about. But they also went after their ballistic missile launch sites, manufacturing centers, air bases, military bases, and essentially eliminated their entire general staff somewhat.

Major General Bagheri on down. Essentially, their Joint Chiefs of Staff and the entire staff was eliminated, plus most of their senior nuclear scientists. They took every opportunity with this and say it might actually last up to two weeks. So this might not be over. - Mick, let's talk about timing. Why do you believe Israel acted now? - Well, there's some speculation they were concerned about the agreement that the United States and Iran look like they might be willing

to agree to, which would have been very similar, at least from what we see in reporting as the 2015 JCPOA, the one that the United States unilaterally withdrew from in 2018. It's something that I think Israel found to be unacceptable. It would have allowed some type of enrichment in Iran to continue. Some would say that that's why they did it.

There might have been intelligence. I'm not aware of it, but of course, because I don't have access to it, that they were getting closer to a nuclear weapon, and that was the trigger point.

for Israel. But certainly, I think the United States would have rather seen a nuclear agreement, a new one, that both parties could agree to, Iran and the United States, rather than see this escalate into what could be a long-term conflict that could continue to escalate. Mick, what does this say about the role of the United States in this region at this particular time? We know the Trump administration was

pushing for a diplomatic resolution and maybe a nuclear deal, and there were planned talks this weekend. And then this happened. So what does that say about the U.S. role here? So I agree. I agree with the premise that this was something the U.S. did not want to see. They wanted to see a nuclear agreement that would have been acceptable to us, perhaps slightly better for us than the 2015, so politically it would have landed well.

But that's unlikely to happen now. The Amman meetings that were set for Sunday are completely off, and there's literally no chance that we're going to get back to that place. In fact, Iran made it clear that if their facilities were ever attacked, that they would spend all of their effort trying to get to a nuclear weapon. So that's another concern that we have. The United States, of course, does not want to see another war start in the Middle East. That's not in anybody's interest, certainly not the countries of the Middle East.

So hopefully we can play a role that de-escalates this as quickly as possible. One way to do so, of course, is to protect Israel if they see a large amount of incoming missiles and drones like they saw back in October. We welcome all of you across the nation with us now, Mick Murray. Rebecca Patterson will be with us here in a bit. Again, our team led by Ethan Bronner in Tel Aviv monitoring Israel.

Each moment of this, we've had reports recently of continued attacks. We'll have to get more verification of that. Mick Maroy, I have a presidential tweet in front of me. It is too long to waste time with, precious time with, I should say, but to end the presidential tweet,

Iran must make a deal before there is nothing left and save what was once known as the Iranian Empire. No more death, no more destruction. All caps, just do it before it's too late. God bless you all. With great respect from the arc of Dwight David Eisenhower out to President Obama, Mick Mulroy, do we have a coherent Middle East policy at this moment?

It does not appear that we are actually running the show when it comes to this, unless one believes that this was to force Iran to the table. I think that's very unlikely that they're, I mean, this was a complete disaster for Iran. They have been shown that they have almost no ability to defend themselves. For them to then come to the table and come to an agreement with the U.S. would be the ultimate disaster.

They will have to respond to this attack and they will likely not want to have any discussions going forward. They've made it clear that they're now will try to get to a nuclear weapon. The US, of course, will always play a key and vital part of the Middle East. It is in our own interest to do so. And and I think ultimately, if we can get this back on track, it would be in our interest as well as Iran and all the countries in the region.

do have a diplomatic resolution. And if that means a new nuclear agreement, that would be good. It's very difficult to see how we can get there from here right now. Mick, within Iran, do we have a sense of, you mentioned the senior leadership was dealt a big, big blow in this attack here. How about just the leadership, the political leadership in Iran? How stable is that given this really surprising attack here?

Well, this is one of the reasons why I think Prime Minister Netanyahu came out and said this was the time. This was the time for the Iranian people to rise up against the Iranian regime, which has done nothing to help them because of their near continuous desire to be at constant war with their neighbors. Of course, they support all the proxies that continuously attack Iran.

not only Israel, but the United States. Up until 9/11, Hezbollah was the biggest killer of Americans, the biggest terrorist organization killer of Americans. So they caused this, and now they've come home to roost, so to speak. Whether they can change that in Iran, this is their opportunity. The leadership has been decimated. They are obviously in very dire economic situation.

We'll have to see. It has to be organic, I think, for it to take hold. But they are in a very bad place. And we have to see whether they have the capacity to strike Iran. That is unclear. Mick, we hope to speak to you next week with the Lobo Institute and, of course, his service to the Pentagon and the United States Marines. Mick Mulroy starts us off this morning. Futures negative 60 are the VIX out. Two big figures, as Paul mentioned, over 20, 20.15 Brent.

Accrued $74.77 per barrel. Too short a visit this morning with Rebecca Patterson with the Council on Foreign Relations, a student of the litmus paper of the system, the currency. This is an upset. This is a continued upset.

cacophony of events that we see. We clearly have a threatened dollar down 10%. How does this add to the burden of a weaker dollar?

i think what we're seeing overnight in this morning is some very modest dollar strength the dxy dollar index more modest than i expected right and you're seeing a bigger reaction in gold you're seeing a reaction in the swiss franc so other quote-unquote safe havens um some uh fall in in 10-year bond yields although not much again so i think

Even though we are getting the typical flight to safety reaction in markets that we've seen, sadly, too many times over our careers, the fact that the dollar rally is so muted, I think Tom speaks to what's happening with the dollar more broadly now. Thank you. So Global Wall Street waking up to this news. Just another issue. I'm not going to call it a headwind per se, but another issue for Global Wall Street and global investors to deal with.

Historically, how have you viewed some of these global tensions and how it informs your investment outlook? Yeah. As horrible as these events are from a humanitarian point of view, I think for financial markets, you always go back to what is going to be the global or regional economic impact. In this case, it's

It's looking at what will higher crude oil prices and natural gas prices do to the global economy? What will potentially a slowdown in international flights do? We see that in the airline stocks today. And can there be contagion? So the marker I'd be watching is an escalation in this conflict. The Strait of Hormuz would be the red line if we see any attempt to close the Strait,

that hurts Iran itself because it needs to ship its energy out of there, especially to China, but it hurts everyone. And that would be a big stagflationary step forward if it happens. I think probably a low probability, but you need to keep an eye out for it. With your work with JP Morgan and, of course, with Bridgewater back to City Road in London, I'm going to say there's a conceit

that the United States is distant from all this. There's two oceans in the way. It's inbred in our culture to say it's their problem. And their problem is continental Europe and over to the United Kingdom. With your global work that you've done over the years, Rebecca,

How does this affect Europe and London more so now? To me, they're shockingly close to the greater Persian Gulf. Absolutely. I mean, they rely on oil and energy imports a lot more than the U.S. We're self-sufficient, effectively, in energy. So they're going to be much more vulnerable to that, as well as just trade between the Middle East and Europe. But I do think the U.S. is...

more vulnerable than normal right now, because even though the hard data, so to speak, the economy in the U.S. is moderating but still solid, you do have this heightened level of uncertainty among businesses in particular. You're just adding more fuel to that fire with this. If you want business activity to pause, this is going to contribute to that. And Paul, publishing last night, Michael Ferroli at J.P. Morgan models out to Q4

Q4 of this year, JP Morgan is modeling a sub 1% GDP for that quarter. So Rebecca, given what Tom was just mentioning about slowing growth but not recessionary scenarios,

What does that suggest to you for investors where they should be maybe positioned in a slower growth world? Yeah, I mean, we've seen this trend already this year, but I think it continues that large cap stocks that are more able to weather these storms outperform small caps, which need that cyclicality, that momentum plus lower rates to really outperform. So you want to be in large caps and you probably want to keep

quote unquote, barbelling your portfolio in that both within stocks have the consumer staples, have the safe stocks, but then have some tech to play the long-term AI theme. And if there's an upturn in consumer sentiment and then globally, I'm pounding my fist on the table on this one. Gold keeps going higher. Thank you, Tom. Yeah.

I've been bullish on gold for a couple of years, and this is yet another reason, sadly, that you want to keep in that, even if it's up 30% year to date. Such a pro. Gold up $36, $34, $38. One final question. Kenneth Pollack and Ambassador Shapiro published this morning at the Council on Foreign Relations in Foreign Affairs magazine. When those fancy people in international relations talk to a market beast like you, what do they ask you?

You know, I've really enjoyed being part of the Council on Foreign Relations to try to tie the policy and economics with the financial markets because they all affect each other. In fact, we had an event yesterday on foreign direct investment to the United States and what some of the uncertainty we're living through, what some of the policies could do to foreign direct investment.

They're thinking about the policy of Commerce Secretary Lutnick's fast track proposal. I'm thinking about if we have less FDI to the US, FDI today accounts for about 8 million jobs and about a quarter of all US manufacturing jobs

if FDI slows because of global policy concerns, how does that feed through to our equity market, to household wealth, to the dollar? So I'm trying to square that circle at the Council on Foreign Relations and learning a lot from my colleagues, frankly.

Rebecca, thank you so much. Thank you so much for coming in early this morning. Ms. Patterson with the Council on Foreign Relations as a senior fellow. And of course, her years, I should say, with Bridgewater and with J.P. Morgan and Bessemer Trust as well. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. 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 1130. Too short a visit this morning with Rebecca Patterson with the Council on Foreign Relations, a student of the litmus paper of the system, the currency. This is an upset. This is a continued crisis.

of events that we see. We clearly have a threatened dollar down 10%. How does this add to the burden of a weaker dollar? I think what we're seeing overnight and this morning is some very modest dollar strength, the DXY dollar index. More modest than I expected. Right, and you're seeing a bigger reaction in gold. You're seeing a reaction in the Swiss francs or other quote-unquote safe havens. Some...

fall in 10-year bond yields, although not much again. So I think even though we are getting the typical flight to safety reaction in markets that we've seen, sadly, too many times over our careers, the fact that the dollar rally is so muted, I think Tom speaks to what's happening with the dollar more broadly now. Thank you. So...

Global Wall Street waking up to this news. Just another issue. I'm not going to call it a headwind per se, but another issue for Global Wall Street and global investors to deal with. Historically, how have you kind of viewed some of these global tensions and how it

informs your investment outlook? Yeah, I mean, as horrible as these events are from a humanitarian point of view, I think for financial markets, you always go back to what is going to be the global or regional economic impact. And in this case, it's looking at what will higher crude oil prices and gas, gas, natural gas prices do to the global economy? What will a

a slowdown in international flights do? We see that in the airline stocks today. And can there be contagion? So the marker I'd be watching is an escalation in this conflict. The Strait of Hormuz would be the red line. If we see any attempt to close the Strait,

that hurts Iran itself because it needs to ship its energy out of there, especially to China, but it hurts everyone. And that would be a big stagflationary step forward if it happens. I think probably a low probability, but you need to keep an eye out for it. With your work with JP Morgan and, of course, with Bridgewater back to City Road in London, I'm going to say there's a conceit

that the United States is distant from all this. There's two oceans in the way. It's inbred in our culture to say it's their problem. And their problem is continental Europe and over to the United Kingdom. With your global work that you've done over the years, Rebecca, how does this affect Europe and London more so now? To me, they're shockingly close.

to the greater persian gulf absolutely i mean they rely on oil and energy imports a lot more than the us where we're self-sufficient effectively in energy so they're going to be much more vulnerable to that as well as just trade between the middle east and europe but i do think the us is

more vulnerable than normal right now, because even though the hard data, so to speak, the economy in the U.S. is moderating but still solid, you do have this heightened level of uncertainty among businesses in particular. You're just adding more fuel to that fire with this. If you want business activity to pause, this is going to contribute to that. And Paul, publishing last night, Michael Ferroli at J.P. Morgan models out to Q4, you're

Q4 of this year, JP Morgan is modeling a sub 1% GDP for that quarter. So Rebecca, given what Tom was just mentioning about slowing growth but not recessionary scenarios,

What does that suggest to you for investors where they should be maybe positioned in a slower growth world? Yeah, I mean, we've seen this trend already this year, but I think it continues that large cap stocks that are more able to weather these storms outperform small caps, which need that cyclicality, that momentum plus lower rates to really outperform. So you want to be in large caps and you probably want to keep

quote unquote barbelling your portfolio in that both within stocks have the consumer staples, have the safe stocks, but then have some tech to play the long-term AI theme. And if there's no turning consumer sentiment and then globally, I'm pounding my fist on the table on this one. Gold keeps going higher. Thank you, Tom. Yeah.

I've been bullish on gold for a couple of years, and this is yet another reason, sadly, that you want to keep in that, even if it's up 30% year-to-date. Such a pro. Gold up $36, $34, $38. One final question. Kenneth Pollack and Ambassador Shapiro published this morning at the Council on Foreign Relations in Foreign Affairs magazine. When those fancy people in international relations talk to a market beast like you, what do they ask you?

You know, I've really enjoyed being part of the Council on Foreign Relations to try to tie the policy and economics with the financial markets because they all affect each other. In fact, we had an event yesterday on foreign direct investment to the United States and what some of the uncertainty we're living through, what some of the policies could do to foreign direct investment.

They're thinking about the policy of Commerce Secretary Lutnick's fast track proposal. I'm thinking about if we have less FDI to the US, FDI today accounts for about 8 million jobs and about a quarter of all US manufacturing jobs

If FDI slows because of global policy concerns, how does that feed through to our equity market, to household wealth, to the dollar? So I'm trying to square that circle at the Council on Foreign Relations and learning a lot from my colleagues, frankly. Rebecca, thank you so much. Thank you so much for coming in early this morning. Ms. Patterson with the Council on Foreign Relations is a senior fellow and, of course, her daughter

years, I should say, with Bridgewater and with J.P. Morgan and Bessemer Trust as well. If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app. How can you free your team from time-consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth.

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This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. We continue our coverage here of the attacks by Israel.

across Iran and hugely qualified this morning to speak as Gautam Mukunda, Professor Yill, a School of Management in the study of the presidency as well. We got a four-hour conversation coming in here, Gautam, and we're going to squeeze it in rather quickly as well. Secretary of State Rubio follows on from Hamilton, I'm going to say Quincy Adams and other worthies of the 19th century,

to Dean Rusk and others. Do we have an operative Secretary of State with an operative American foreign policy right now? It certainly doesn't look that way. The conflict between Rubio's statement, which disassociated ourselves from the U.S. from the attacks. From what I just read. It's really noticeable. I mean, the Trump administration kind of takes, you know, like,

Everybody running in different directions as it's operating principle, but that's really not a great idea when bombs are going off. And so this might be a time where message discipline and actual strategic thinking would be well rewarded. Got him. I think it seems like President Trump and his administration are moving towards a peace negotiation in this part of the world. Yet in Israel...

It wasn't on the same page, and they went and they acted officially here. What does that do for U.S. policy now? Where is our position in that part of the world now? Really bad. Certainly much worse than it could be. So let's split this out in two things. One is this is just a dramatic statement of the complete collapse of American influence under the Trump administration, not just in the Middle East, but particularly in the Middle East. If there is any country that the United States should be able to influence, it is Israel. And Trump was very clear he did not want this to happen, and the Israelis said, hey, we're doing this anyways.

So it just says that people do not take Trump seriously. But the broader thing is, with any operation like this, you want to differentiate between strategic, operational, tactical. So at the operational and the tactical level, this was done with the normal extraordinary skill we expect from the IDF and Israeli intelligence. They're really good at this, and they show this over and over again. Early returns are impressive in terms of that. But this is a strategic catastrophe. The

The Trump administration's policy, joined with the Netanyahu policy, of pulling out of the Iranian nuclear agreement left Trump frantically negotiating to try to get an agreement with Iran that was considerably inferior to the one that he exited, right?

And the deadline that people aren't talking about yet is in four months are the snapback authority. That is the authority to reimpose the sanctions that the Obama administration had coordinated to keep Iran from doing, right? That snapback authority goes away.

So the ability to get everyone, essentially everyone in the world who had all agreed that we were going to stop the Iranians from doing this, in four months that goes away. Does anyone think that any of the remaining signatories are going to authorize snapback after this? I'm going to take a risk that everyone got them except your class at Yale.

Everyone has their head spinning. They can't keep straight what Secretary of State John Kerry did. They can't keep straight what happened under Bush the younger, Bush the older. It's a cacophony of diplomacy. And I'm just going to bring it back to Sadat 1967. You had the nonproliferation treaty of 1968. Ken Pollock instructs me, you go to a 2015 agreement.

Is all this multi-decade diplomacy just blown to smithereens this morning? It's been unraveling for a long time. This is just one more blow to that. And the great fear I think that everybody has is that Iran will at this point withdraw from the NPT. And make their own chemicals, their own yellow cake. Right, and what should they be doing? And let's be very clear, right? When they were under the Iran nuclear agreement, which there were no accusations they had violated, they were enriching up to a very low threshold.

Since we pulled out of the agreement, they've been enriching up to a threshold that you only do if you're trying to make nuclear weapons. There is no reason to take, make, enrich uranium as much as they're doing. It's the mathematics here, folks, on uranium-235 is 20% is like being sure my teeth are done correctly with nuclear energy. But if you go over 20% and then you get up to 80%, that's where we get into trouble. And so they're very close. They're essentially in a scenario that we call breakout.

where it would not take them very long at all to go from the uranium they have to uranium that is actually usable in a nuclear weapon. And from there, you then have to go and you have to deploy it, right? So there's still lots of steps between having the uranium and the bomb, but that is the key step. And so...

the sort of orientation of policy that we're going to bluster and threaten and not work with anyone else has just been a strategic failure of unbelievable proportions. And now, like, so when we withdrew from the Iran nuclear deal, in 2019, Secretary Pompeo tried to invoke snapback and said the Iranians are in violation and we need to have the sanctions again. And our

And our own allies, the British and French, were sort of, you pulled out of the deal. You don't get to do that anymore. You do not have that authority. And they just ignored us. So we have lost all of our leverage for no reason other than Donald Trump wanted to bluster about how he could make a better deal than Barack Obama did, and he couldn't. So, okay, where do we go from here? If I'm the United States diplomatic community,

Where do we go from here? Does Marco Rubio fly over to Israel? I mean, how do we perhaps... Is it even... Maybe Donald Trump got elected by saying, hey, that's not our problem. Let them fix it. And I would argue at least half the country agrees with him. So is this his policy playing out? Yeah, I mean, the Middle East, it's like...

It's like the Godfather, right? Like every time we think we're out, they pull us back in. And this is just that over and over again. I do think that there's going to be some of that. A lot of this is going to be driven basically by how smart the Iranians are. If I were the Iranians, I would be like, I'm going to launch some drones, I'll launch some missiles, and then I'll play the victim here, right? I got to ride this out for four months. And I get to trade with the rest of the world on much better terms. Four months is not that long. And if the Iranians are smart enough to say, we'll take the hit.

I'm out of time. You got to come back next week. I really, I think our audience really wants to hear this. You know, folks on international relations, we're trying to look at the market with futures negative 54, but these are extraordinary times for all of you, whatever your political presentation. We welcome all of you on YouTube. Subscribe to Bloomberg podcast. Professor Mukunda, thank you so much. Gautam Mukunda, Professor at Yale University in writing for Bloomberg Opinion.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. 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 1130.

Joining us at this moment will be Matt Lozetti and Eric Stein. Matt Lozetti with Deutsche Bank now, their chief economist, thrilled that he could be with us this morning. I think the worst job on Wall Street this morning is Brett Ryan, because you're going to turn to your colleague, Brett Ryan, and say, we have to blow up the weekend research report around the cacophony of our domestic relations.

You are a soul of Los Angeles. What we see within our politics, I believe we have a parade this weekend. And now we have a true war without question in the Levant. What's the Deutsche Bank thrust within your conference call this morning to publish for Monday? Yeah, you know, I think, you know, as we think about the Fed and we think about the economy, what we are seeing now is overlaying another meaningful supply shock.

on the economy at a time where, you know, I think policymakers, the Fed, you know, certainly would not like to see another supply shock hitting any of the economies. Does that embed inflation higher? Is that the summary of it? It does. I mean, it's another one that I think, you know, the Fed would kind of quote unquote like to look through.

But at the same time, we know, especially inflation expectations are very sensitive to oil prices and gas prices. It's at the forefront of consumers. So we'll see what the University of Michigan says today, but I think more important will be what it says at the end of the month and then next month, because

the Fed is quite sensitive to inflation expectations, not just University of Michigan, but these other measures, and they are all highly sensitive to oil and gas prices. I think that's the key consideration for the Fed. Just over the past couple of days, the CPI and the PPI data suggest, at least for now, maybe even looking back,

a month, inflation's not there, at least maybe to the level some people thought. Was that helpful the last couple of days, that data? I think it is helpful, but I also kind of want to take a step back, right? I think we get focused on very short-term trends, the last one or two data points, and certainly the last three data points for Core CPI and Core PC, I think, are going to look pretty subdued. But the first two months of the year were very strong. So if you annualize over the first five months of the year for Core PC, we're basically printing 2.9%.

There's a lot of residual seasonality in the data. And so I think the Fed is probably not going to emphasize one or two data points. I think they're going to look at stronger inflation to start the year. They're going to look at still anticipated rise in inflation driven by tariffs and oil prices ahead. And I would anticipate that their messaging doesn't really change all that much next week.

So what are the key data points here, do you think, for this economy that you're focusing on? Again, now we have to kind of think about higher energy prices, perhaps for a longer period than maybe we had initially thought. What are the key drivers for you that you're looking at to kind of get a sense of this economy here?

I think for the market and for us, it's two things. One, it's the labor market. And is that really weakening materially or not? I think you got a jobs report last week that was resilient in many ways. It was not overly robust. But when you look at measures of labor market slack, they're basically stable over the past six to nine months. The unemployment rate, quits rate, U6, everything that you would look at.

But you do see some creep higher in continuing jobless claims, and that can be a worry. So whether or not that continues is the first data point. And then the second one is, over the next several months, do we get clear evidence of the tariff effects and inflation? I think that'll be a very important driver of the markets. Matt Lozetti with Deutsche Bank. And we continue here with conversation linking in economics, finance, investment into, as I said earlier, fractured international relations. In the last five minutes, the tape turns around.

Bit goes the other way with the VIX again over 20, futures negative 57, Dow futures negative 425. The VIX now extends out, rounded down negative 1.2%. Brent crude, the global oil price, 7.4% move. American oil, 8% move. And Brent, $74.50. Paul? Matt, given all the tariff-related uncertainty that's been in the market,

The consumer seems to be hanging in there in terms of spending and so on. How do you view the consumer these days? I think from an aggregate perspective, it makes a lot of sense that they're hanging in there. If you look at aggregate income growth from last week's jobs report, it's up 5% in nominal terms year on year.

With that kind of income growth, it would be surprising to see the consumer softening materially. The saving rate earlier this year had actually creeped up to 5%, which is relatively high compared to where we've been over the past several months. We got the flow of funds data yesterday about net worth to income. That remains near record high levels. If you look at kind of liabilities or debt relative to income,

taking out the pandemic. We're at the lowest level since the 1990s. Really? Those are all metrics which from an aggregate perspective would tell you, yes, there's uncertainty and there's concerns, but the aggregates that kind of go into the U.S. consumer are all pretty resilient at the moment. But this is the heart of the matter and really harkens back, folks, it seems, ages ago.

I think it was four or five days ago. I'll give the FT credit. Somebody had the non-aggregated consumer spending of America, where the upper fancy people like Lisa Mateo, they're spending over 50% of our income

That's shocking. It used to be 20 something percent. We're not aggregate America. How do you pull off that exercise on your Excel spreadsheets? Look, you're absolutely right. You know, the aggregate picture does not give you the distributional picture. And I think one of the clearest data points that I see from that is the Fed has this shed survey and they go on and they ask, you know, if you were to have to finance a four or five hundred dollar expense, how would you be able to do it?

And it's roughly half of the population would have to borrow in order to finance that. And so I think that is a data point which tells you that there is clear distributional issues.

From the Fed's perspective, they are worried about the aggregate picture, the labor market and inflation, because they can't really impact the distributional items. Fiscal policy can. And as we looked forward to this one big, beautiful bill, the distributional assessment of that is that you actually hurt the bottom part of the income distribution, given what's happened with Medicaid and SNAP and those items. I've got to squeeze this in here. Ken Rogoff, in my book of the summer, two-thirds of the way through, the book comes to a complete halt.

is he goes over the Deutsche Bank researcher David Folkerts Landau, Garber, and Dooley. So I've been reading that book in anticipation that this question would come up. Oh, did you? I did, yes. Look at that, Lisa. I mean, he's scaled up here. Explain to our audience what David Folkerts Landau did in economics that Ken Rogoff thinks is so important. Look, Tom, I have to be honest.

I've come on this program a lot over the past several years, and you often bring this up. And I don't think I fully realized how influential that paper was until kind of reading through Ken Rogoff's book. So you're giving me a citation on Deutsche Bank research? I'm going to cite you. I need to move the euro. It's got to go on my resume. Continue here. What did DFL do? Look, it's what they were calling the Brenton Woods program, Brenton Woods II. And it was a focus on global capital flows.

as being a really critical driver for bond markets and interest rates and FX. And it was a precursor to Ben Bernanke's global savings discussions in the mid-2000s. And the idea was the U.S. was running these very large trade deficits and current account deficits.

And that was leading to a recycling of funds back into the U.S. economy, particularly in bond markets, keeping term premia low. Right. And, you know, I think that was I really grew to appreciate how influential that research was. Just because of time, slam it forward to your colleague, George Cervellos. Are you guys modeling a further 10 percent decline in U.S. dollar?

We are. And I think if you just kind of bring that forward, the discussion now is if we are really going to be bringing down trade deficits over time, there is going to be less global funds to flow back into the U.S. Eric Stein is behind you now. That's good.

And so that'll mean higher term premium, higher risk premium across U.S. assets, including bonds. Thank you. You get an A-plus for studying Rogoff. Thank you, Tom. Matt Lozetti, thank you so much. Greatly appreciate it. Dr. Lozetti is with Deutsche Bank. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.

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