Trump Threatens 'All Hell' as 8pm Deadline Looms

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1:50Carol Massar:Bloomberg Audio Studios, podcasts, radio, News. This is Bloomberg 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 Masser and Tim Stenevek on Bloomberg Radio. Stocks pairing losses, oil moving away from session highs as traitors weighed prospects for Iran to negotiate a deal to end the war with President Donald Trump's deadline approaching. We've talked about this a lot, Tim.

2:32Yeah, things looked a little bleaker this morning. President Trump took to social media at just after 8 a.m. Eastern time. Here's what he wrote, quote, a whole civilization will die tonight, never to be brought back again. I don't want that to happen, but it probably will. However, now that we have complete and total regime change, where different, smarter, and less radicalized minds prevail, maybe something revolutionarily wonderful can happen. Who knows? We will find out tonight one of the most important moments in the long and complex history of the world.

3:01Carol Massar:Which maybe explains in a big way the trade. We're going to get into that in just a moment. But first up, let's get an update on the president's deadline and the latest from the White House. Back with us is Bloomberg Economics Chief Geoeconomics Analyst Jennifer Welch. She is in the Bloomberg, Washington, D.C. Bureau. Jenny, we lean on you a lot. But we are still counting down to this 8 p.m. deadline, correct? Yeah, we are still in a countdown. And even though there are conflicting reports right now about whether or not negotiations are still proceeding and whether or not Trump might be contemplating punting that deadline even further, I think all eyes are still expecting that we're likely to hear further from the president before we can officially call this.

3:39You and the team have a great piece out, along with Becca Wasser, Jenny, about really the different options that are out there. Can you just give us your base case about what could actually happen? Sure. So the four categories of options for what might happen this evening could include, first, that the two sides do end up reaching a ceasefire or maybe just a partial ceasefire or something that essentially is enough pretext to delay an attack. We see that as increasingly unlikely. It was always going to be a challenge, but especially given this tight timeline and now reports that Iran isn't even talking to the United States anymore, we think it's even less likely.

4:20That leads to a second category of options, which would be for President Trump to punt the deadline further. He's already delayed it twice. It's a self-imposed deadline. He has the ability to delay it further. and obviously it's something that he is known to have done in the past although we see that as possibly less likely because he's backed himself into a corner so much around not just this particular day but a specific time and the more he punts the lower his credibility becomes that leads to a third category of options which are airstrikes and there there's sort of a spectrum of options trump could for example fully attempt to follow through on his threat of obliteration massive airstrikes on not just Iranian military targets, but he's also threatened civilian infrastructure.

5:06Or he could choose to engage in more limited strikes, so following through on his threat, but with sort of an off-ramp in place. And then the final category of options would be another major U.S. military operation that could look something like an attack on Karg Island, Iran's major export hub, or along its coastline. We see that as relatively unlikely, just given the risk to U.S. forces that those operations would pose, but probably something that is still on the table at some point for President Trump.

5:33Carol Massar:Jen, just to wrap up, you know, we've had folks come into this studio around the table and say, this could go on till the end of June. I'm just curious what you're hearing at this point, especially as we try to assess the impact U.S. economy, global economy and on global markets. Are base cases that we're likely to see a near-term escalation, including starting possibly tonight, and that the conflict will then dip into what we call a lower intensity or a protracted conflict, that it won't be resolved anytime soon. And these disruptions, particularly in the state of Hormuz, might be with us for some time.

6:06Carol Massar:Okay, that's our reality and that's our life. Of course, I will continue to track all of the headlines and we know we'll be checking in with you. Jenny Welch, she's Bloomberg Economics, Chief Geo Economics Analyst, joining us from the Bloomberg, D.C., Washington News Bureau. You promised we get to financial markets, Carol. We always do. And that is where we are going right now. As we mentioned, stocks lower, oil higher. Concern that the war in the Middle East is intensifying ahead of this deadline at 8 p.m. for Iran to agree to a ceasefire. And as Jenny mentioned, reopening that crucial Strait of Hormuz.

6:36Carol Massar:Let's get to it. Jim Caron's in the house, chief investment officer of Portfolio Solutions over at Morgan Stanley Investment Management, their Portfolio Solutions Group. And he joins us, as we said, in studio. Welcome. Welcome. Good afternoon. We kidded when you walked in. It's a shame there's nothing going on. Jenny just laid out a lot of different scenarios. How are you guys thinking about it in your group? Look, I mean, the first thing that we're doing is taking a healthy dose of reality and recognize that we're managing a lot of noise right now. So we're jumping headline to headline. This person's having a conversation with this person, and that person denies it.

7:06It's very, very noisy. So what we're trying to do is take a step back and look at some of, trying to look at what some of the fundamentals are. The first place that we start is the initial conditions in the markets going into this war, which is that, you know, the economy was relatively strong, a lot of fiscal stimulus, inflation was on the way down. The fiscal stimulus has put a lot of money in consumers' pockets just due to tax refunds. That means that the consumer can probably absorb some of the shock of higher energy prices for the near term. The question that you asked, Jenny, and the right question is, so how long does this last, right?

7:39What's the duration? What's the tipping point where this becomes something worse? We don't know what the answer to that is. But I do believe, though, that we are in a period here of negotiated escalation where there's going to likely be an escalation before we get to what Trump highlighted as a deadline somewhere between April 11th and April 18th. And there'll be a campaign of maximum pressure until hopefully a deal comes to the table. Now, what I think, Like Iran believes in what the U.S. believes is that the longer we wait, the better deal that we're going to get. There's going to be a breaking point someplace.

8:17I don't think that's today. So I would fully expect there to be an amplification of some of the bombings and everything else that may go on. But the escalation is part of the negotiated endgame settlement process. So I think the markets are seeing this escalation the exact same way that Jenny laid it out. is part of the endgame settlement process. A lot to go with here. I want to start with what markets you think are pricing in right now. Because if the president is correct in saying that at 8 p.m. tonight is the final deadline and the U.S. could attack civilian infrastructure and essentially put Iran back to the Stone Age as he's threatened in recent days, it doesn't seem like the market is taking that threat seriously.

9:05Is that fair? So market pricing is, if you think of this as like a distribution, like a normal distribution, there's definitely a left tail where things can go really, really badly. And the markets may not be fully accounting for that. However, there's also a right tail where things could go a lot better and oil prices could come down and then we could resume those initial conditions. What the market does is it finds the midpoint. So what we're really saying is that, yes, things could get materially worse, But there's also another tail out there where things could get a little bit better. So it's a good question that you're asking, does the market fully anticipate this on a probability distribution, on a weighted probability distribution, depending on how you think of these events and how much you weigh these events?

9:50Yes, it is. It just means that the tails are pretty far. What that also tells me is that there could be a lot more volatility, because depending on which way it goes, it could be volatility to the downside, it could be volatility to the upside. So that's what the markets are effectively pricing in right now.

10:07Carol Massar:What's the longer-term impact of all of this? And I guess I keep thinking about increased defense spending around the world. So then what isn't there money for? Are there growing deficits, Jim? I also think about every nation seems to be thinking about their national security and whether that means water, energy, technology. And there's a cost of doing this on our home front. What's the cost of that and what's the impact of that? So that's a great question. And this is exactly what our team is trying to think through is a second and third order effects. The first order effect is oil prices are high and that hurts the consumer.

10:40Second, third, fourth order effects go much further down the line. So the cost ultimately is it's not obviously just in the U.S. It's also in Europe as well. It's raw materials. It's agriculture. It's fertilizer. It's food. It's PVC pipes. It's all these shortages. I mean, I just saw today that used car prices are going back up again and they've reached highest level since 2023, like during the COVID pandemic, right? Because of chips and all of these various things. So when we start -

11:09Carol Massar:We're going to have a conversation later about inflation and they're saying it's more like 2022 versus some other inflation spikes. Yeah, no, no, no, no, that's exactly right. So the way that we're thinking through this as an investment team, because that's what we're qualified to do, is we're starting to find out and trying to identify where those shortage, those choke points might actually be that could have a positive impact on asset prices and also where there could be a negative impact on asset prices. What does it do to the consumer? The consumer gets hurt. So if you had an expectation for GDP to grow at, say, 2.5 % this year, it's got to be a lower number than that.

11:43How much lower? How much damage have we incurred and what's the cost of that repair and can it be repaired and over what timeframe? What the markets are saying is that it's going to be tough in 2026, but if you look at the forward earnings forecasts going into 2027, they're still high. Analysts are always high. They will come down, but does it come down to the point where earnings growth rates go to the low single digits or do we stay around low double digits like 8, 9, 10, 11, 12 %? We don't know yet though, do we? We don't fully know yet, but what the market's trying to discount is it probably stays somewhere around like 10, 11 % on average.

12:20Could be wrong. Yeah. But so far, we're going to get first quarter data for earnings coming up. It's not, the month of March was bad, but January and February were good. Right. So it's going to be a mixed message right now. Yeah, JP Morgan, one week from today, we'll hear from JP Morgan. And then the other banks as well. Hey, okay, so this in the context of politics, because everything you're saying right now about affordability and questions about American consumers, I think, is front and center when it comes to midterms. How do you think about that in the context of markets? So the affordability is obviously, it's a major issue, right?

12:56Gasoline price is moving higher. The consumer is going to feel that every single day, every time they fill up their car with gas. Look, the midterms are going to be tough. I mean, I'm hearing a lot of different people, you know, very upset about what's going on. Who wouldn't be? Right. But I think ultimately we have to see how this all ends, because there's another contingent of people that are saying, well, is it better to have a nuclear armed Iran or is this the right? You know, we had a date with this destiny at some point. We didn't know when that date was. The date's now. And so do you want to take this on right now, or is it a can-kicking exercise where you just kick the can down the road and deal with it later?

13:37So I think the American people, once they get past the shock of higher gas prices and the dust settles on this, so to speak, ultimately it's going to be the choice was a nuclear-powered Iran or nuclear-armed Iran with nuclear missiles or something else. which one would you have picked and how much damage or how much pain did you have to take in the meantime? So it's a complicated question. So we'll see how it shakes out in the midterms.

14:06Carol Massar:Yeah, it's interesting. We've had a lot of folks say, listen, this was a war long overdue. This has been tension, stress, dislike between the US and Iran for a long time, as we all know. Does the US come out stronger on the other side as a result of this? It's an interesting time in our history. Here we are a quarter of a century, not a quarter of a century, 250 years old, but I just wonder how you think the role of the U.S. You know, I think we're going to have to wait five or six years to answer that question with accuracy. Right now, it seems pretty chaotic. Right now, it seems like the rules-based order is not being, we're not following the rules in the rules-based order.

14:44We can make the argument that that rules-based order really wouldn't tell us to do nothing right now? And is that the right solution too? So I honestly don't know the answer to that. And I think it'll be debated for decades going forward. And I don't know that we're going to have an answer anytime soon. I certainly don't.

15:02Carol Massar:So do you have an answer in 40 seconds of what an investor should do in this environment? I know you like the US over Europe just quickly. We've been remiss not to ask. Listen, I think that there were some great value opportunities in the value sector. Dividend, dividends, quality and defensive sectors are pretty good. Healthcare. Healthcare has been one of our biggest sectors. We think that benefits the most from AI over the long run. Love the healthcare sector, particularly in the managed care areas. That's really good. Technology, AI and defense related. That's another area that I think is going to see exceptional growth.

15:33That's how we're positioning portfolios. Interesting. Interesting.

15:36Carol Massar:Come back soon? Absolutely. We would love it. We would love it. Great to have Jim Caron with us. He's chief investment officer of Portfolio Solutions over at Morgan Stanley Investment Management Portfolio Solutions Group joining us right here in studio. Stay with us. More from Bloomberg Businessweek Daily coming up after this. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite is the AI-native ERP solution that's powerful, painless, and proven.

16:15Carol Massar:Learn more at Intuit.com slash ERP. Hello, I'm Michelle Hussain, and for more than 20 years, I was at the BBC. But all the time I was delivering the headlines, I wanted to go further than the news of the day, to spend more time with the people shaping our world. And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage, to tech journalist Kara 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.

17:02Carol Massar: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. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Well, every day, highs and lows when it comes to the world of private markets and in particular private credit. Just today, we reported out how Blackstone raised$10 billion for its latest opportunistic credit fund, signaling sustained appetite from institutional investors to capitalize on the upheaval that we've been seeing in the private debt market.

17:48Carol Massar:It's the firm's largest ever haul for opportunistic credit. Meantime, a swelling wave of redemptions has driven Moody's ratings. This is an interesting one to revise its outlook for private credit investment vehicles to negative after holding the line at stable for the last two years. And they're talking about BDCs here. Hey, our next guest was recently featured on the Bloomberg Intelligence Credit Edge podcast hosted by James Crombie, Bloomberg News Senior Editor for Credit. Great to have with us here in studio is Michael Gross. He's co-founder of SLR Capital Partners. It's an independent asset manager.

18:19Carol Massar:It's all about dealing with the U.S.-based middle market businesses and delivering really debt capital solutions to it. He's also one of the co-founders of Apollo Management, now Apollo Global Management. Welcome, welcome, welcome. Thank you for having me. Much appreciated. Good to be here. Yeah, great to have you here. I want to ask you, long kind of view here. When you guys started Apollo back in 1990, here we are 36 years later. What's changed when it comes to the private markets other than just size? Size, complexity, the solutions that private capital providers can provide. Back in 1990, all the commercial banks were providing senior debt financing, which is where the BDCs and private credit have picked up the slack since the GFC.

19:08So back in 1990, none of us were doing senior secured financing. We were all doing junior-type capital, whether it's equity or mezzanine or sub-debt. Today, the private credit world has evolved to the point where it's kind of taken over the senior secured market because banks have been forced to exit because of increased regulation.

19:27Carol Massar:Good or bad? Was that a good thing? Great for the growth of an industry, but what's your take? Kind of depends who you are. Yeah. It's interesting. Well, explain that. So if you think about the explosion that's taken place in private credit, over the last five years, there's been$250 billion raised for these non-traded BDCs. Question, is that a good thing or a bad thing? And as I think about private credit, there's kind of three very important constituents. There's the borrowers who are borrowing from people ourselves. There's the asset managers like ourselves who are raising this money and investing it.

19:58And then there's the investors. So is this increased scale good for certain people? It's certainly good for the borrowers because they've had increased leverage with all the capital to raise to kind of get very advantaged terms. It's certainly been very powerful for the asset managers, the public asset managers in particular, because it's fee generating. But arguably, is it good for investors? Is this increased scale good? Is it improving returns? I would argue that it's not. that the need to put out all this capital in a relatively short period of time has put pressure on returns. And so yields have come down over the last several years, not because of interest coming down, because spreads compress and because of all the increased competition.

20:42Are these just growing pains? Look, I think our industry is here to stay. So the answer is yes, it's growing pains. But it's also a question of kind of where the right incentives are. You know, our job as an investment manager is to find the best risk reward for investors and not just grow for growth's sake. You made an interesting comment moments ago where you talked about the type of lending that has gone to private credit in recent years as a result of banks not being able to do it because of the regulatory environment. I think for a lot of people hearing that on itself might be a reason for concern.

21:15It's an asset class or an area of the market that doesn't have the same transparency, the same regulation as a traditional quote-unquote big bank. Does it need to be regulated in a different way? I personally don't think so, because if you think about where people are concerned about risk, it's systemic risk. It's too much leverage in the system. Private BDCs, private credit funds, public BDCs are not levered more than one to one and a half to one. Banks are levered 10 to one. CLOs are levered nine to one. So there's not a bunch of systemic risk in the system where a series of defaults is going to create a downfall.

21:53So I personally don't think there needs to be increased regulation.

21:56Carol Massar:Michael, is it just as simple, like playing off of what Tim said about growing pains, is it just a case that it became too big and too much money chasing deals? And so it leads to maybe deals that maybe shouldn't be done and that kind of thing. It's too much money raised too fast having to get invested. And what that's created is significant competition such that the private equity sponsors who are the primary issuers of this debt on behalf of their portfolio companies have increased leverage over the debt capital providers. So they can go to them and say, if I'm going to give you my loan or let you finance my company, you're going to have to accept a lower rate, a higher leverage ratio, and less covenants.