What Wall Street Got Wrong About Iran

>> Welcome to Profty markets. I'm Ed Ellison. It is July 9th. Let's check in on yesterday's market vitals. The S&P and the Dow fell as military conflict fled up in Iran more on that in a second.

“Meanwhile, Chip Stocks pulled the Nasdaq into the green, Brent Crude climbed the yield on ten year treacheries rose as inflation fears returned.”

The odds of a rate hike before year and on calcium rose to 56% and finally SpaceX stock fell again, dropping below its IPO opening price of $150 a share. Okay, what's happening? The fragile ceasefire between the U.S. and Iran has collapsed. On Tuesday, Iran attacked three tankers in the straightaway moves according to U.S. officials. In response, the U.S. struck more than 80 targets along Iran's coast and revoked a sanctions waiver allowing for the sale of Iranian oil. Iran retaliated with strikes on U.S. military bases in the region.

It's been just 22 days since the memorandum of understanding was signed. Yesterday, President Trump said he believes the ceasefire is over and the U.S. launched another round of strikes. Brent Crude saw over 7% to nearly $80 a barrel. It's highest level in over two weeks. Joining us to discuss these developments in Iran, we are speaking with Brian Katulus, seeing a fellow at the Middle East Institute. Brian, thanks for joining us on the show. I'd love to start with a clip of the president. This was kind of the moment where everyone realized, okay, maybe we're back to square one.

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Within the next few weeks, within maybe like certainly won't be in the same place, I don't know several months from now. If someone said that to you, what would be your response to that? I think they were deluding themselves because some basic questions about the war.

“What's the political end state that Trump is trying to drive for on the key variables?”

Who rules Iran? Who controls the state of Hormuz? What is the status of the nuclear program that was the driver for this military action in part? Those questions actually have not been fully answered. And it's sort of like me going to somebody who analyzes markets and said, Have you been really looking at the balance sheets of these companies?

Do you really see profit on the horizon here or not? And to me, again, I want the U.S. to succeed and help stabilize the region with our partners. I just don't see a formula right now in the policy formulation. You see a lot of sort of actions and zigs and zags and then a lot of rhetoric. But the actual policy does not lend itself to stability in the region right now.

What would be your prediction for how things play out over the next several months? No one knows of course, but if you had to make an estimate, How do you think this will unfold at this point? It'll probably be this uncomfortable space we've been in essentially since April when the ceasefire was declared. Neither full-blown regional war that is a vortex that sucks a number of countries in.

But neither a full-blown piece that President Trump was talking about, I don't know, like two, three weeks ago. It'll be in this uncomfortable space. Why? Because the Iranian regime needs some economic relief. And besides these military actions, the big move I think President Trump has made

is to block Iran's ability to sell oil on the market. That was the big policy shift here. But there's pain on the US side and the global side as well.

My guess is it, it's in this sort of unclear vague, not full-blown war, not full-blown piece. And then a lot of unpredictability. The risk in all of this is that in any one of these moments, like what's happening this week in terms of tit-for-tat actions, any one of these incidents could actually spiral up into something that is much bigger than what we've even seen before.

Is there a world in which we remain in this kind of uncomfortable conflict, bordering on war area? I call it war. But we'll just call it that for now.

“Is there a world in which the straight-of-home moves is open and the oil is flowing?”

And we're in a conflict with Iran, but oil isn't a part of that equation.

Or is it always going to be kind of the linchpin of the concern and the conflict?

I think it's going to be the linchpin of the concern in the conflict for the next few years. I mean, for all of our aspirations of having renewable energies and then also, you see what Gulf states in their approach to actually adapt pretty quickly to this new environment to create new pipelines, new ways to get their product out. All of this won't fundamentally deal with the central issue,

which is the straight-of-home moves is a key choke point. On February 27th, it was pretty free and open. Now that's not been the case since February 28th since the war began. And we're not likely to see that change. So the fundamentals won't change anytime soon.

Unless there's a major shift in how the US and other countries are trying to resolve this issue. Right now, we just have a series of military operations

“with diplomatic tactics that don't add up to any clear path towards success.”

So that's the uncertainty we have to deal with, whether the market or not realises it. It's going to take a much different strategy shift on the part of US policy and then partners in the region to bring more clarity to that. All right, Brian Katulis is Senior Fellow at the Middle East Institute. Brian, we appreciate your time.

Great. Thanks for having me. After the break, has met a met its big tobacco moment. And for even more markets insights, you can subscribe to my weekly newsletter simply [email protected].

With that, with profti markets. Meta may be in the midst of its big tobacco moment. Four states are now suing the big tech giant claiming that its social media platforms harmed teenage users mental health. And they are seeking $1.4 trillion in penalties,

which is more than 90% of Meta's entire market cap. Meta said that the demands are "untethered" from reality. But momentum against the company is building. Nearly 30 states have sued Meta in federal court. And earlier this year, a court in New Mexico,

ordered the company to pay $375 million for failing to protect young users.

Meanwhile, more than 40 countries have banned or are moving to ban social media for children. So far, this year, Meta's stock is down 8%

“which begs an important question for investors.”

And that is, are the worst of Meta's legal troubles, yet to come. It'll break down these lawsuits and what they mean for Meta's business was speaking with Casey Mark, seeing a policy director for the anxious generation movement. Casey, thanks so much for joining me on the show here.

So Meta is being sued. And to be clear, these lawsuits already existed. But Meta comes out and counts up how much they're suing for. And the number is $1.4 trillion, which they say is untad the to reality first.

Could you just walk us through what the lawsuits are, what they're claiming and how we got here? Thanks so much for having me, Ed. So it's hard to track because there's a lot going on in this area. So there's not only the lawsuits that you're talking about here,

with that are brought by state attorney's general, but there's also the individual plaintiffs who are suing. And we saw a verdict in one of those cases in Los Angeles in March.

And then third, there's a group of school districts that are also suing

social media companies, including Meta. Now, each of these have different legal theories behind them. Now, the attorneys general are suing on broad themes that the companies have violated sort of consumer protection laws and a federal law called COPA, which requires companies to treat children's data in a certain way.

And those verdict was about products liability and the school districts are suing on public health nuisance grounds. So when you look at what's happened here, I mean, we've been following the regulation of big tech for a while and the way that I kind of see it is don't hold your breath on anything

We have seen lawsuits against these companies before investigations into these companies, but usually it ends up that nothing actually materializes. Do you think this is different? Is this more substantial than before?

Absolutely. And a number of ways.

“I think it's a lot like the old adage about going bankrupt.”

It happens slowly and then all of a sudden. And what we've been living in is that slowly moment. So I think a few points here.

First, the companies themselves know that things are not looking good.

They are beginning to settle cases that they picked themselves to go to trial. I mentioned the school districts, for example. The first of those bell weather cases. Again, that means that the company selected it as the most optimal case for them to bring the trial was in Kentucky.

And they settled it just a few days before that trial was supposed to start. Just two weeks ago, YouTube settled another lawsuit in Florida. Again, this was one that they selected just before it went to trial. So the facts are not looking great. The fact that we have so many different whistleblowers and so many internal documents

that are so damning that not only do they know what they were doing, but they intentionally kept doing it despite the harm to kids. It's causing a huge amount of blowback with the American public. And it's not really a compelling case for jury's. When you look at that 1.4 trillion dollar number.

Which metaheset is on television. From reality, a metahespox was said that they are outlandish calculations. This is a quote that have no basis. In fact, we'll law. I would assume that's probably them kind of talking that book.

But at the same time, it's almost the value of the entire company. So I kind of see where they're coming from. Maybe what do you make of the number itself?

“Is that number going to come down almost certainly?”

Is it untethered from reality? I don't think so. And in fact, I would say that metahes own math is probably untethered from reality. One of those internal documents that we have that I alluded to before. So that metahe values a teen's life at roughly $270 per teen.

So just let that sink in for every parent out there. Metahe values your teen age or life at $270. And so, of course, the math that they do is going to be far lower than that 1.4 trillion dollar number. But I would disagree that it's untethered from reality. Do you think that ultimately we'll see settlements close to that number?

I mean, this is kind of the big question for investors. If indeed, it's 1.4 trillion, the company's toast. The market's don't seem to believe that because yes, Metahe's stock is down, but certainly not down as much as you'd think if that number actually materializes. I mean, what kind of level of settlement are we talking here?

“And is it something that should really be priced in on Wall Street, do you think?”

It should be pressed in. Is it pressed in now? I wouldn't think that it is.

I think there's two billion points here.

Number one is, for Metahe in particular, a separate court case that was the same month as the LA verdict that did not make a lot of headlines was that Metahe's insurance company was relieved by a court in Delaware from having to fin them in court because the court found that Metahe's behavior was intentional rather than accidental. So Metahe's losses are not going to be covered by insurance.

They're going to be paying that out of pocket. But second, what we're seeing happen now concurrently with these settlements outside of court to avoid a jury trial, right? To avoid setting any sort of precedent is that Metahe's work in the refs. They're going to policy makers and trying to get special exceptions beyond those that they've already benefited from

for their entire existence written into law that will actually take away these wins and courts for families. So they're doing this both in Sacramento as well as in DC. And it's telling that when the jury verdict came in in Los Angeles and March, one of the first meetings that Mark Zuckerberg took in DC was with Speaker Johnson. So Metahe is working hard on policy makers because they know that they're losing

and they're going to try to get lawmakers to cave and carve out a further exception for them. Why do you think this is all happening now? Because as you said, it's kind of been like there's the slowly but suddenly slowly and then suddenly excuse me, dynamic. And it appears that this is the suddenly moment.

Like we had that $6 million verdict where it was determined by the jury and then the judge as well

that this woman who said that Instagram and Metahe products had a role to play and how to pressure and you can argue that or not, but that was the verdict that yes Metahe had to pay $6 million. Kind of pennies for them but could be a signal of something larger that's to come. I guess my question is, why is this all happening now from a policy perspective, from a legal perspective, why are suddenly courts and judges and jury's deciding no enough is enough?

Well, we suddenly have a confluence of different lines of evidence that we didn't really have

So there's the whistleblower evidence that is becoming more of a steady drip drip drip than just like one every few years or so.

You know, every three or four months, there's some amazing testimony in the U.S.

Congress that reveals some new tidbit about these companies internal practices. We also have young people speaking out and understanding how these products are impacting them because they can feel it happening to themselves. And then we finally have parents as well leading the charge. Like it started with phone free school laws changing and parents not only realizing that these technologies

are having a negative impact on their kids education and mental health, but also importantly that they have agency in having a say in like a different world for their kids. You know, the success of phone free school policies sweeping the nation.

“And I think is really taught a lot of people that who were maybe cynical before that nothing could be done in the face”

of these trillion dollar companies that actually, if they worked together, we can reverse the tide. I mean, it all reminds me and I'm sure reminds everyone of Big Tobacco. And what happened to a lot of the large tobacco companies where they were selling their products and advertising their products to young people in a lot of cases. And then you saw the largest civil settlement in American history in 1998,

286 billion dollars which was paid for by or paid by for tobacco companies every 25 years.

It seems like this is that if we play this out and you know, try to model out where this is headed, seems like matters are going to be paying huge settlements due to its impacts on teenagers, mostly in teenage mental health. Is that the right comparison? Is this what we're about to see, do you think? I think you're absolutely right.

And what's funny is that the companies themselves see the comparison. Some of the documents that came out in trial that were internal documents had company employees likeening themselves to drug pushers and to Big Tobacco. So the companies themselves see the resemblance. And this is some of the most damning evidence that came out of trial.

“Now, I think, you know, one thing to note though,”

is that to the extent that settlements are happening with attorneys general, these are political figures. And so again, this is where work in the refs comes into play. The companies are almost certainly going to lobby attorneys general for more of a slap on the rest, which is why that $1.4 trillion amount is so significant. That means that that lobbying is yet to have an effect.

Now, you know, investors may say that money usually wins in politics and these companies have a lot of it. Meta in particular, I believe, by one calculation has one lobbyist for every six members of Congress. And, you know, you typically wouldn't want to bet on the underdog there, the underdog being the American people. But I think that elected officials, whether it's attorneys general or governors, see that, you know, this is an issue that pulls at at least 80, 20 across every demographic. Could the issue being holding these companies accountable?

It doesn't matter if you were richer poor white, black, brown, gay, straight, whatever. This is an issue that's impacting every family in America, every kitchen table. And as a policymaker, as an elected official who has to run for office, you would be dumb to not take American family side of this issue. So if I were an investor in a long term, I would bet on that rather than on the money. All right, Casey Mark, senior policy director for the anxious generation movement.

Casey, really appreciate your time. Thank you. Thanks for having me up. As we end this episode, some quick reflections on what has happened in Iran. The news is that the deal is off.

“And that's why oil prices are surging once again.”

But if you've been following this show, well, then you know that we don't even really think of this as news.

Because in our view, then never actually was a deal.

The terms were never properly agreed upon. The language was so vague as to be meaningless. And of course, the strikes continued right after they said they were stopping the strike. So for Trump to say that this deal, this thing that never existed no longer exists. Well, that is, of course, a redundant statement.

It doesn't really make any sense. Nevertheless, it was meaningful enough to move markets. Why? Because the markets decided to believe that we had a deal in the first place. And as we've said before, and repeatedly, that was a mistake.

So now we're back to square one. We're still in a conflict with Iran. The straight of Hormuz still remains blocked. And this war that was supposed to last four to five weeks, per the president's own comments is now entering weight for it week 20.

And what does this mean for the economy? What does this mean for inflation? Nothing good, according to the IMF.

And that's actually lower than their previous projection from April when things looked really bad in Iran.

“Meanwhile, global inflation is now projected to rise to 4.7%.”

Having said that America is more insulated from the wreckage that we cause overseas, but still not totally insulated.

And as a result, prices will continue to rise.

The Federal Reserve Bank of New York just released their inflation expectation survey, which showed prices rising another 3.7% over the next 12 months. That's the highest reading in several years.

Do I think that will actually happen?

“Do I think inflation will continue to get worse?”

Yes, I do. One of the only things working in our favor, when it comes to inflation right now, is the fact that oil traders continue to be incredibly optimistic about the situation in Iran. They're very quick to price in the good news and very slow to price in the bad news.

“But as soon as they start to reckon with just how unstable the situation in Iran really is”

and just how far from ending this thing we really are, I'm not sure there'll be any room left for optimism. This was and continues to be a catastrophic failure on multiple dimensions. And it's going to take something really meaningful, not a press release, not a memorandum to change my mind on that until then, prices keep rising.

Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss and the engineered by Benjamin Spencer. The video editor is Brad Williams, on research team is Dashalon, Kristen O'Donay, Hugh and her Mia Solvario, and our social producer is Jake McPherson. Thank you for listening to "Proftion Markets" from "Proftion Media".

If you like what you heard, give us a follow. I'm Alison Tune in tomorrow for our conversation with Sebastian Maliby.