00:00I want to start with the war, Jason, and the optimism that we're seeing in today's trade.
00:05As we just heard from Tyler, a lot of the devil is in the details, but it sort of seems
00:10like,
00:10and it seemed like this since, really, since the end of March. Markets are looking past this
00:14conflict. That was, you know, since the end of March, and then kind of got an extra boost around
00:19Memorial Day when there was forced reports that there could be a deal. It's obviously taken a
00:22few weeks to get to this point where both countries sort of acknowledge it. I think the markets and
00:26investors were already kind of ready to move past the story. You know, the details certainly
00:30matter for the geopolitical element, but for the markets, what matters is how many ships are going
00:34through the Strait of Hormones. Like, that's the bottom line. And if those are going to start
00:37flowing later this week and sort of normalize and say by the end of summer, that's what the
00:41markets care about. Yeah. So they just want to see it open, right, and things moving around again.
00:46Energy markets, though, will still take some time to get back to where they were pre-war, right? I mean,
00:50we've talked about this. We look at futures contracts when it comes to oil, and prices still have stayed,
00:54you know, elevated. It will take some while, a while to build up reserves, get back to where
01:00we were, though. And so we'll still feel that higher energy price impact? We'll still feel it,
01:05but you think about in terms of inflation, you know, the impulse for inflation, and somebody,
01:09you know, the main data we got last week for CPI, that might be the peak year-over-year measure.
01:13And so if oil just stays where it is, or even goes a little bit lower, gas prices go lower,
01:17that inflation shock has a one-off level, and then it starts to sort of dissipate.
01:20So is that why you think the Fed, the next move will be a cut? You think they're going to
01:23cut
01:24next, not next week? No. On Wednesday? No, no, no. So we're calling for two cuts
01:29in 2027, March and June. Okay. I want to go back to what you said about oil, because I think
01:37from what Tyler just told us, there's a chance that even after 60 days, there is no sort of back
01:43to
01:43normal with the Strait of Hormuz, or the back to normal is some sort of tolling feature. And Tyler
01:51shared with us the details that are known now, we obviously don't know what will happen in the
01:54future. Is there always going to be, from this day forward, some sort of risk premium on oil as a
02:00result of this? I mean, there's likely to be some geopolitical risk premium, like how much is that
02:04going to be? All else equals, suppose it's not ever happened. Is it incremental $5 more? I mean,
02:08that's, you know, the markets will determine that over time. From an economic perspective,
02:13if you think about their risk markets, you know, fixed income markets, I think a key point to
02:17distinguish is that oil right now, this is a spot market. And so there could be a lack of supply
02:21and
02:21demand. Equity markets are priced in a future cash flows, even bonds. And so even if it takes
02:2660 days to sort of normalize, I think the key thing is that the upside tail risk of oil going
02:30much
02:31higher, that's been truncated, it already was, and this kind of further takes it down. It also means
02:35then, well, then the risk for inflation, you know, further rising or getting stuck, that also goes down,
02:40which also means like, that's why you see the market expectations for the Fed shift.
02:43That's the key thing. You know, maybe if it's a month, two months, six months, but if it doesn't
02:48get worse, and the general path is getting gradually better, I think that's the key thing for equity
02:52markets. And the difference between ultimately for the US economy, between say, let's say it's $70
02:56a barrel for Brent or WTI versus 75, that's not going to be the key thing that's going to drive
03:02the
03:02equity markets. So I think that's, if it's an extra $5, you know, not great, but that's not a game
03:06changer for the overall outlook. What about Israel? Is it still, though, the possibility
03:13I'm just looking at some of our stories from earlier, you know, President Trump telling Israel
03:16to stop as Lebanon attacks risk the Iranian deal. We've just seen a lot of reporting. And just when
03:24we thought we were making some progress, Israel's certainly on its own path. And we understand
03:28everybody's got its own mission and its own goals, but is that still a risk here?
03:32Look, it's certainly a risk, you know, and I'm not going to, you know, trying to put a probability
03:35on how things could escalate. When I think of, you know, like the US and Iran, you know, for certainly
03:39for a while, the thought was the Iranians would be willing to kind of wait longer, they have greater
03:43incentive, the Trump administration would maybe have more incentive to reach a deal sooner. Just
03:47from a political perspective, domestically, it's not as popular. But the fact that there is a deal
03:51in sort of, you know, geopolitical experts that I will talk to, they say the Iranian regime also,
03:55you know, is under some stress. So both sides, those parts, I think, do want to reach some sort
04:00of deal. The fact that the details have not been worked out, but they're willing to publicly acknowledge
04:03it to me says they're both trying to get there. How they deal with Israel, that's a different
04:07matter. I think also how they deal with the nuclear material is the really challenging part
04:12of this. And we're going to spend a good portion of our three o'clock and four o'clock hours
04:15talking
04:16about this, Jason. But just from your view, I mean, something that has to come essentially has
04:20to be better than the JCPOA, because that's the agreement that the president at this point
04:25walked away from. How do you get better than that? Well, that's a political question. I think
04:29from the market's perspective, I'm not sure it has to be better or worse. I mean, like, not necessarily
04:34materially. If this leads to lingering ongoing uncertainty, if again, if the risk is that
04:38at any point in time, Iran has demonstrated they can shut down the strait, if that is something
04:42they're willing to, you know, to have in the back of their pocket, then that is certainly a kind of
04:47an ongoing lingering risk. But unless that happens, like the markets are oftentimes priced on a base
04:51case, not the risk case. And so it's extra risk, it's extra downside risk, you know, but the details
04:56of that, I'm not sure that specifically would matter for the markets in great detail.
04:59So are we really safe to say and smart to say it's going to be a different Iran going forward?
05:05I mean, Iran, of course, has been, you know, the catalyst for so many different terrorist groups
05:11or supporter, if you will, right? I mean, do we truly think that this is now a different way forward
05:18for the region and for Iran specifically?
05:21I think the only thing I would say with any sort of confidence is that there's clearly
05:24there's a change in leadership, you know, given what's happened over the past few months.
05:27Anytime there's any change in leadership in any country, you often see some sort of policy shifts.
05:31Now, whether this is incremental change, or does it lead to some sort of more fundamental shift
05:35within Iran, that is, again, your time will tell. But the fact that, again, there's negotiations,
05:40what I hear from sort of, you know, more experts in the space is that there's a little bit more
05:44pragmatism, you know, among the Iranian leadership, maybe less ideologically driven.
05:49But, you know, again, you know, time will tell how this plays out.
05:51Well, let me just throw you, there's a great story in the Bloomberg. I loved it. I kind of freaked
05:54out
05:54when I read in this morning, Wall Street gets access to catastrophe models for the age of war.
05:58The number of countries engaged in external conflicts has nearly doubled since 2008.
06:02The economic impact of violence now stands at almost $22 trillion. And that risk
06:06experts are adapting methodologies used to predict natural catastrophes and other threats to help
06:11investors, blah, blah, blah, blah, blah. We know that this is a part of what any financial entity
06:16does, but it does seem like it's amped up. Do you guys talk about war and more war potentially than
06:23you
06:23ever did, maybe in the last five, 10 years? And forgive me, just about 30 seconds.
06:26I would say, generally speaking, like, we're in a world that's gone from sort of unipolar,
06:30U.S.-led to multipolar, where there's, you know, geopolitical conflicts, there's, you know,
06:35conflicts and tensions regarding trade, access to resources. There'll be tension points regardless.
06:39I think that's the reality. So politics and geopolitics have to factor into how we think about it,
06:44because it's not just sort of purely economic decisions. In the 2010s for the last 20 years,
06:47it's been central banks sort of driven markets.
06:49Now I think it's much more policy-driven markets.
06:52Yeah, it does feel that way.
Comments