MacroVoices #524 Simon White: War + Inflation = More Inflation

This is Macro Voice. Finance. Individuals, family ownership. and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is. Bullish or bearish. No holds barred. Now here are your hosts, Eric Townsend and Patrick Serezna.

Macro Voices episode five twenty four was produced on March nineteenth, twenty twenty six. I'm Eric Townsend. It was a sea of red in markets on Wednesday as the Iran conflict has dragged on longer than most analysts expected, and the Fed standing pat with no rate cut accelerated the selling. The S and P, gold, copper, and just about everything else other than the dollar index and crude oil were down and down hard, closing on or near their lows of the day.

and then selling off even more in futures trading after the four PM cash close. These are all ominous signs that more downside is likely in coming days. absent a major bullish news event. So we've got plenty to talk about this week. Bloomberg macro strategist Simon White kicks it all off as this week's feature interview guest. Simon and I will discuss the prospects for secular inflation and why the oil price surge might be the catalyst needed to bring it about.

We'll also discuss the risk-off playbook, food price inflation, the breakdown in private credit, and much more. We had a huge positive response to doctor Anasal Haji's cameo appearance. updating us on the oil market disruption on last week's podcast. So this week, Commodity Context founder Rory Johnston will join us for another perspective on what the Iran conflict means to energy markets. That's coming up right after the feature interview with Simon White.

Then be sure to stay tuned for our postgame segment, when Patrick's trade of the week will take a look at the inflation surge event that hasn't happened yet. Not the one in crude oil where the price has already spiked, but the one in food prices, which as Simon White will explain in the feature interview, could come next.

And oh by the way, Rory Johnson is going to reinforce that view in the upcoming oil market update. And then we'll have our usual coverage on all the markets and Patrick's chart deck as of Wednesday's close.

And I'm Patrick Serezna with the Macro Scoreboard week over week as of the close of Wednesday, March 18th, 2026. The SP 500 index down 221 basis points, trading at 6625. Markets now trading at multi-month lows. We'll take a closer look at that chart and the key technical levels to watch in the postgame segment. The US dollar index up ninety-seven basis points, trading at 100 spot twenty-one, attempting to bullishly break out of a 10-month trade range.

The April WTI crude oil contract up nine hundred and forty one basis points to ninety-five forty six. The war premium remains as the uncertainty continues. The May Arbob gasoline contract up twelve hundred and four basis points to three oh seven. Gasoline now trading at three-year highs. The April gold contract down 546 basis points, trading at 4896. remains in consolidation after putting in the January highs.

The May copper contract down 509 basis points, trading at 559. The March uranium contract down 111 basis points, trading at 8475. The US ten year treasurer yield up three basis points, trading at four twenty six. Upticking at the end of the day in the post FOMC window. The key news to watch this week is the Friday OpEx and next week we have the Euro and the US Flash Manufacturing and Services PMIs. This week's feature interview guest is Bloomberg macro strategist Simon White.

Eric and Simon discuss the risk of a renewed inflation cycle, why markets may be underpricing second order effects of the Iran conflict, the parallels to the 1970s style stagflation, and how shifts in commodities, credit, and the yield curve could reshape the macro outlook. Eric's interview with Simon White is coming up as Macro Voices continues right here at macrovoices.com. Eric Townsend. Joining me now is Bloomberg macro strategist Simon White.

Simon prepared a slide deck to accompany this week's interview. Registered users will find the download link in your research roundup email. If you don't have a research roundup email, it means you haven't yet registered at macrovoices.com. Just go to our homepage, macrovoices.com, look for the red button above Simon's picture that says looking for the downloads.

Simon, it's great to get you back on the show. It's been too long. I want to dive right into your slide deck'cause there's so much to cover today. Let's start on page two. You say inflation is a three act play, that we really need to be thinking about a return to secular inflation.

And a lot of people said there was no catalyst. Well, I think we got our catalyst, didn't we? Uh yeah, in spades. That's uh I think that's uh that's absolutely right, um Eric. I think this is um playing out in a way that's very analogous. to the seventies, which is why I preferred to a three act play there. And I certainly could make sense to start here. I think insulation is probably the most mispriced thing um at the moment. I think it was mispriced before

this war with Iran started and I think it's even more mispriced now. And it certainly seems that um team transitory is back and forth. If you look at the CPI fixing swaps, for instance, they show like quite a sharp rise in inflation over the next few months expected, so maybe peaking out three and a half percent. Then very quickly it goes straight back down. And within twelve months I think we're looking at roughly two point eight percent in uh spot CPI, which is only about forty basis points.

higher than it is now. So again we're looking for quite short term shock and it's even more egregious if you look at breakevens. I mean the shorter term breakev have moved a bit more, two to five year maybe moved twenty to fifty basis points since the war started, but the ten year has fairly fast. Maybe five to ten basis points.

And I think the muscle memory is kicking back in. The inflation will always go back to target. But I think that's um you know, I think that's quite complacent and that's why it's helpful to look at the seventies and you know, no analogy is paraphite. But you know, the seventies does have an uncanny amount

of common commonalities with them today. And also the one thing that doesn't change is human nature. Human nature is immutable and inflation is as much of a a psychological thing as it is an actual, you know, financial phenomenon or an economic Phenomenon. So the chart on the left was something I first used uh two thousand tw two, so almost four years ago, and uh it was uncanny because I updated it and so the blue line shows the CPI in like level, not the growth.

from the late sixties into the late seventies, early eighties. And the wireline is today. And so I updated it and we're kind of bang on today at the end of Act T. So the way I thought about it is Act O was kind of when inflation first hits new highs. So this time round that was the the pandemic. Um first climb round in the seventies. It was on the back of uh we had a lot of fiscal lesion because of the Vietnam War. We've had LBGs.

Great society, Medicare, you already had quite loose fiscal policy. Inflation started to creep up much higher than expected. And then we went into Act Two, which is kinda like the premature all clear. And that's where it was. kind of taken that inflation was it was a temporary phenomenon, it wasn't going to be much of a problem, and it was going to go back in its thoughts fairly quickly. And that feels like where we've been over the last couple of years.

But you know, stubborn um inflation as we know pro been very stubborn. It's um you've not gone back to target stayed above um the target rate. So it's it's remained

elevated. And if you look actually where that Act two ends, and you match it up to the seventies, pretty much buying on October nineteen seventy three, which is the beginning of the uh Yom Kippur War. And that in itself is a comparison is worth looking at There's a lot of differences with that war, but there's actually a lot of uh commonalities that definitely makes it worth looking compared to, you know, what we're seeing today. So back then it was a surprise attack, it was the Arab State

you know, led by Syria and uh Egypt on Israel and they attacked Israel on Yom Kippur. It was uh it was a very short war. It was only three weeks, so this war is not yet three weeks. Initially it was expected to be short, but that looking less likely now. I mean I think poly market has an end of April ceasefire now down to forty percent probability from something like sixty five percent not that long ago.

And um you had obviously a a a major uh oil shock in response to this uh this this war because what happened uh after the war, after the three week war was that the um US state aid to Israel and the Arab states decided to have an embargo on oil and that created this um this huge oil shock. So oil prices managed to quadruple in a matter of uh month. That's quite a significant oil shot.

Um and then that led to the Act three, which is the comeback for the Belgians. So you had this massive rise in inflation through the end of the decade. And it really didn't end until you got Paul Volker in with this exceptionally high interest rate hikes, the Saturday night special, that really managed to break the the back out of inflation. Um and if you look at some of the further um

the commonality. So it's not just obviously what happened to the oil price, not just that this was in the Middle East, not just that it involved um Israel. Um you also we go to the the next slide in slide three, if you look at the Etsy market back then. So the Etsy market Um back then this was the time of the nifty fifty. So this was a set of stocks that everybody thought they had to own. You know, they had great earnings, there were great businesses, and pretty much everyone owned them.

Uh excuse me, and you know, similar to today. So they had very narrow leadership. In fact, it wasn't until the I mean the Bangs and the McNivas and seven

That we had such narrow leadership again as what we had back in in the early 70s. You had extremely narrow leadership as well. And that The Yom Kippur War just before uh just after it started, stocks had already started to sell off maybe ten, fifteen percent in the months before the war, but in the following year they sold off another forty five percent. And that was the largest sell off we've seen since the um since the Great Depression.

So we saw a significant uh stock sell up. Now that's not to say that uh we're gonna get the same thing playing out here. There's a lot of differences obviously today. For instance, so the US is a major oil producer. This is not the same exactly the same states that are involved. The choke point here is not an embargo, it's the straits of hormouse. And that there is still nonetheless, you know, a choke point in the supply state.

But I think it's worth bearing in mind that it you know, as a non negligible tail risk, just given we are in a sort of not dissimilar situation, and the kind of d nail in the coffin, if you like, in some ways for why you should be Apparently not no, to be attended to the risk. is that valuations, even though we had this massive decline in stocks, this huge big bear market in seventy three, seventy four, the case the cyclical case adjusted price earnings ratio was eighteen.

And uh today it's more like forty. Um and also like the you know, the allocation of uh households compared to natural assets was much lower back then, it's much, much higher back today. So really there's a number of reasons why

uh you could see things we'd have to see a a more deterioration obviously for to get anything like that. But given the some of the commonalities, I think it's worth bearing in mind. Especially when you look at the market today, it just does seem again, there is some complacency in the air. stock market but heresy to believe I think that there is some sort of tackle on the way and therefore it's not really worth market trading down too much. I mean even if you look at like the food spread.

So the bits went up initially. A lot of that was well, first of all was driven by coal spreads falling and then it was driven by food spreads rising, so people are putting on their insurance. But then they quickly monetised, I think those he monetised those edges. natural spreads start to come off and so the veg

has started to come off. So really I think the market's getting to the point where it feels like, you know what, this isn't going to be a major issue. You know, we don't have too much to worry about here. Not ready to obviously rally and make any highs again. But this is not something to get overly uh your knickers and the twists about. I'd argue again, along with inflation, that's something that is beginning to look a little bit complacent.

Simon, let's go a little bit deeper on some of the both differences and similarities between the Yom Kippur war and the present conflict. The Yom Kippur war was really a war of solidarity. As you said, the US had sided with Israel. Basically all of the Arab states together went in on the Arab oil embargo. You have a very different situation today where the US has once again sided with Israel.

in a conflict with Iran. But now Iran does not have uh solidarity of the other Gulf states. In fact it's attacking the other Gulf states that are allied with the United States. It seems to me there are still similarities, but there are some almost diametric opposites in some aspects of this. How do we sort that out and make sense of what extent the economic outcome might be the same or different?

Yeah, I think I think uh that's a hundred percent, you know, it alluded to that there is a number of differences. And so that puts you in a point where, you know, no analogue is going to be paralyzed. But I think when you combine it as I say with with the overall inflationary backdrop where we are in terms of this pre actually in the seventies, you know, you could argue that what happened in the seventies were a series of kind of quote unquote bad luck.

that led to inflation rising. So, you know, you you had the kind of ex ante conditions for inflation, as I mentioned. We had uh already the Vietnam War, we had the physical expansion on the back of the Greek society stuff. And then you had nineteen seventy one was Nixon closing the gold window. Then you had the uh the Arab oil embargo, the Occupy War

Um you had uh at the end of the decade, you know, you had the Iranian revolution. You could argue all these things were bad luck, but they're also hitting a situation where inflation was already in a different regime. So I think I think that's the thing to to note the differences that when you're an inflationary A G Lots of things can happen, right? Things will always happen. But if they hit when you're already an inflationary regime, you're much more likely to have bigger inflationary impact.

You know, that that's where we are today. It's it's very uncanny if we happen to look compare the two analogies, that almost in the month when you get this sort of premature all clear ending um is almost in the month when the Yom War started as when the attacks on Iran started. Yeah, I wouldn't want to overlay the point.

uh in terms of the analyses. But the um there there there's there's so many precedents that makes it worthwhile looking a little bit deeper into. For instance, another one that's uh very interesting is it's an underappreciated fact. that in the seventies the food shock was actually much bigger than the energy shock in terms of on and its effect on CPI. So if you look at the weighted contribution uh from food and from energy in the nineteen seventies, it was much bigger

than it was for energy. Um in fact food inf food inflation was already writhing before the the energy shock. This time around we have the disruption to the Strait of our moves that obviously doesn't just affect energy prices, it affects energy products. and for instance a lot of stuff that goes in fertilizer is either produced in that region or has to travel through that region. So Iran itself produces a lot of urea, pneumonia

there's a huge amount of sulfur uh flows through the streaks. All these things go into fertilizer. And in fact if we if we go a little bit further into the um presentation, if we go to let me just find this slide. If we go to slide uh eight. we can see there actually, you can see the two shots. So the blue line shows the good shot. um after OPEC one, the Yom Kippur shock. And you can see again after OPEC two, the Iranian Revolution, both times the food shock was would work.

And today already we have if you look at the contribution to CPI, US CPI that is, from food, it's uh it's higher than than energy already. So if you have this effect feeding into you know fertiliser prices and that's what I've tried to show in the chart on the right on slide eight.

you can see this fertilizer proxy which includes some of these inputs I mentioned, along with things like Fortash, you know, when that starts to rise, it's a very reliable leak by the six months that food CPI will start to rise. So I don't think that uh is also being fully priced in. And especially I think if you take account of the fact that you have energy and food both providing, I think it's very unlikely you're not going to get some second round effect.

that it's gonna feed into to core inflation and you get the sticky inflation that we saw in the nineteen seventies and that

a lot more troublesome for the Fed. In one sense, it should make its life easier because the Fed can then go right. If we see sticky inflation, that's something we think we can do something about. Well maybe high rates, but with the muted, uh muted sorry, uh, next uh tuner, Kevin Wars coming in. You know, whether he's gonna lean towards the dovish or the hawkers spectrum, uh, you know, I certainly think he's more likely to be more like an Arthur Burns.

who was in the in the early seventies and a at the time of the Yom Kippur War, than he's likely to be a Paul Volker who was in charge after the OPEC two shot. in uh after the Iranian Revolution in nineteen seventy nine. So I think that further complicates the the matter uh in terms of what the Fed's uh reaction function is gonna be. Well it seems like the analogy that's most relevant is the Yom Kippur War only lasted a few days.

But the Arab oil embargo lasted quite a lot longer than that. So th the question is, you know, once the direct kinetic conflict is over,

How long can Iran continue to disrupt the flow of traffic through the Strait of Hormuz? Is that the right thing to focus on? And if so, what's the answer? Yeah, I think I think that that's that's correct, Sarek, in the the The key message I think from that period was the the war itself was very short, I did say it's it was about a few weeks, but the impact was felt way through all through the decade.

and it had a a a number of uh consequences. So again, no analogy was perfect, but the the human side of things uh doesn't change how humans responds, human nature responds, uh doesn't really change. In fact, I can see that this uh to two nature of the two different shocks. If we go to slide um six So we've got two more charts there. And th this this brings me to another point which I think needs to be made is that I don't think the yield curve

is pricing in what's looking to be uh a a much larger inflationary shock than for instance has been picked up in the Brainheaven market. So the left chart we can see there is uh what Braid Havens did. in the nineteen seventies, so OPEC one and OPEC two, both cases they ended up did rising, did rise quite considerably. But they a long after, if you like CPI had already started rising. So they were kind of late party. But both times they they did rise.

And if you look at the chart on the right there you can see the two the nature the different nature of the two shots. So OPEC one was definitely more of a a permanent shock to oil prices. So really oil prices never really revisited. uh their pre OPEC one or pre war, pre Yomkukur war levels again. They just kept rallying through till OPEC two hit, uh the Iranian Revolution in nineteen seventy nine.

they rose sharply again, but nowhere near as much in um percentage terms as they did in OPEC one. And then they sort of gradually start decaying fairly soon after the Iranian Revolution. So the OPEC two was more transient,'cause a more transient shop. But in both cases, if you look at the bottom panel of that chart, you can see core and then the interim periods in OPE one and OPEC two, um, both made a a higher low. before rising again in the early eight easy and again it wasn't until

Oh, Volker got his hands on monetary policy that he was really able to put an end to this uh this huge inflation that we've had through that decade. One of the theories of secular inflation is that it's a self reinforcing vicious cycle. So

As you begin to see inflation it changes consumer behavior. People start stocking up on things because They want to buy it while the price is still cheap before the price goes up more. That causes more consumption. That is inflationary and it all feeds on itself and uh you know, you you it's kind of like a fire that once you've started it you can't put it out.

Are we already at that point in terms of this coming inflation cycle where the fire has been started and can't be put out, or are we still in the need to look at this and see what happens stage? We we are in we're already in that. It's it's in my view it's quite clear that what began in twenty twenty with the pandemic, with the the large spike in inflation, was the beginning

of, if you like, that that cycle uh starting. And really what's happening underneath is that why two percent inflation for whatever reason is an arbitrary number, but two percent and or around two percent Inflation overall, like over the whole economy tends to be fairly stable. And I think that's because all the different um actors that are taking price signals off one another, when inflation is not moving around uh that much, they they tend not to go out signal.

But once the cast out of the bag if you like, once you have this large rise in inflation, which we saw in the early twenty twenty. they go all out of sync and it takes a huge amount for them to get back in sync and you end up with inflation remaining elevated. So you can split CPI up, for instance, into components.

So you can look at the sensory sticky versus the non sticky components. And what you notice in twenty twenty is both uh cyclical and structural inflation rose, but cyclical start to fall. and but the structural one remained more sticky and by the time the structural inflation had started to fall, cyclical inflation, because you can tell by its name, it's cyclical has started to rise again and started to reinforce

structural inflation that was already elevated. And we're we're right in that period again now, where structural had started to fall. uh at a higher low, but the cyclical part of it is already rising again. And this award is just gonna make it worse because obviously the the immediate effect is on headline inflation and so straightway you're gonna see that feedback into the cyclical side of things.

And and once again, what was well two point four percent s where we are now in and C C I maybe three percent of PC. you know, they're gonna look like again equivalent to what we saw in the mid seventies after the younger war. This is the point where we start to see a rise again. Now I don't know how far it goes. Again, the U U S is much more insulated um than it was back then. But I think you do see a weight acceleration. Um and the real kind of if you like the real kind of tinder on this

is that, as I say, going back to Kevin Ward, you've got someone that's coming in that nobody's really sure is going to be an inflation fighter. In fact it's quite the opposite, quite possibly. Which is kind of actually a bit a bit odd, just the slight deviation bit connected, is it's kinda strange if you look at um rail yields have been rising. So rail yields have been rising since the war and that's be driven by higher rate expectations.

And so that's part of the the rise in uh nominal yields. So breath even's have moved a bit, as I mentioned, but really the bulk of the moves so far have been real yields and that's on the back of, as to say, rate expectations have gone higher. But that kind of this seems a little bit incongruous. um, you know, given um and the conditions uh well not conditions but the circumstances under his nomination.

And a president who still makes no bones about being absolutely determined to get lower rates immediately. I mean he was saying so only uh a couple of days ago and yesterday.

So I I feel that that is also adding to the structural kind of impediment for inflation to to keep rising. And then go go back to the the yield point I was mentioned, so I think yields as I say are not priced for inflation shop. And I think one one thing we'll see is the yield curve will steepen. So if we go to slide seven on the tech. I looked at basically how RafEdens and Real Yields behaved in the seventies now y there was no real yield.

in the seventies because tits didn't start uh start trading until nineteen ninety seven. Um but you can s synthesize a real yields. So you basically look at how real yields have traded laterally versus a whole bunch of different economic and market indicators, and then you can back it out and look at how uh and build basically a synthesized series of rail yields in the seventies. So

Chart on the left there we can see again the difference between OPEC one and OPEC two and how the uh yields behave. So in both cases uh breakeven's rose. But in the OPEC one what happened is that uh you sort of the shock to break evens, but then we had uh an equal and opposite shock to rail yields. That's textbook stagflation. uh what happened in pick two is the price even rose, but real yields um stayed largely static. And I think that was

Basically for two main reasons. One, the US response to OPEC one. So the US became uh less energy intensive and more energy efficient. and a lot of non OPEC production came on street from places like Alaska and the North Sea. And on top of that, you had or very soon after the Iranian Revolution, you had Paul Volker at the Fed and that really put a kind of cushion under how far uh rail yields could fall.

So in OPEC one the uh tailure yield maybe didn't move a huge amount because the real yield and brake equipment cancelled one another, whereas the normal yield rose a little bit in OPEC two. But the difference being in OPEC one and OPE two, so the OPEC one the curve steepened because we had Arthur Burn.

Um and he, as I uh mentioned earlier, you know, was notorious for not believing that a central bank could do much for polything, let alone a supply shock in Fleeting. He was kind of of the view that by and large, most inflation shocks couldn't be solved by a central bank. And in fact he was the guy when he was at the Fed, uh, he got stackers working on some of the first measures of core inflation.

And and then to the decades he kept on taking out more and more core inflation in a frantic hope that something would be going down, which he discovered wasn't the case. Uh so you know, w we have this um very kind of um dovish banker who doesn't really believe central banker who doesn't really believe that inflation is uh something he can do much about. So short yields kind of fell, so they fell steep into OPEC one.

in OPEC two. Yes, ten years were riding a little bit, but you had Paul Volker who was massively raiding him at the front and so the curve um the curve flattened. But this time I think in some ways it the curve response function could be more like uh op pick one'cause I think that longer days and break even will rise. So I think that move thus far that we see this muted move, I don't think that'll last.

and that they should rise more from you know the relative status. And we're more likely to see as the stated warf you're gonna see lower rates. So I think lean toward the curve seeking this time and as we saw in OPEC one, but not Just for reasons that OPEC one is

uh as similar to what's happening today. There are as we covered there's some similarities, but there's a lot of differences as well. Well if this was nineteen seventy three all over again and clearly you've said that it's not exactly a perfect analogy, but to the extent that there's a lot of overlap

Uh nineteen seventy three was not a good time to have a l a long term bullish outlook on uh buying and holding stocks for the long haul. What does this mean for equity markets for the rest of the decade? Well, I I uh it's interesting now. I mean it depends who you speak to. Um so I've got like a lot of stuff you know, some friends and people I know that speak to commodity people. And they're overall a lot more bearish than Epstein race people who seem to be uh overall less pessimistic.

I think again, going back to what I said earlier, I think that there's still the sort of belief that there's some sort of an attack go on the way. But e even more than that, I think the big difference is is that it ultimately there's a backstop and if things get really bad the Fed can step in. I'm not saying that's what's going to happen right now, but you're always going to have that kind of tail cover. So the commodity markets could really price in an extremely kind of negative outcomes.

Um but they don't have a lesser lender of last resort, right? So th there's nowhere to go. If you you i if your commodity market sees up for whatever reason, there's nothing really can be done. There's no backstop in the same way that you have for financial assets. Um so I think that sort of explains why we have that today. And you know, nineteen seventy three I don't think we we had that to the same extent. It wasn't this belief that the Fed was always gonna protect equity return.

So that's why he probably had that situation where he had this huge shop, much bigger than the energy shop could got today, combined with um I bet it was um yes, it was overall more dubbish, but it this is the decade to remember of gold stock.

monetary policy where, you know, loosened policy, play sheet came back and then they tightened it and then they were like, Oh right, better loosen policy again. Back and forward, back and forward. So, you know, there's a huge amount of volatility underlying there, which obviously makes it more likely or or or yeah, increases the chance that you can have deeper steeper falls in the market.

And so you don't really have some of that today, but it does seem, as I say earlier, that it feels like the market's overall being more complacent. Even with that in mind that there is a backstop, that there is still a potential for some sort of ashle, there still seems to be some sort of complacency. And it's hey, what what threw me, what draws me to that especially, it's just looking at what's happened to Putzkey.

Um, you know, th initially there was the response to like let's hedge some downside, but very quickly that reversed. It was almost as if like the market went, Oh, maybe I don't need such deep out of the money boots here, maybe I maybe the market's not gonna sell that sell off that much. in which case I d I don't need these this insurance right now. And so again that that sort of smacks to me just

of complaincy just because the distribution of outcomes are are still very wide. Right? There's still a lot of moving parts here. Um most uh unpredictable the lot is of course Trump himself. And, you know, back in the seventies we had a lot of volatility, political volatility. Again, I don't think you had anyone

quite as volatile and he was able to obviously voice his volatility in such a real time manner than we've got today. So that really puts a lot of people in a sort of frozen moment. Like they they want him with money um but they're also kind of fearful that You can't really put much risk on because so much could change.

Simon on page eleven you say gold is a hedge against both tails. Uh elaborate on that please, but also I think it's it's relevant to point out if we're looking at the analog as being the nineteen seventies. Private ownership of gold wasn't re-legalized until nineteen seventy-four. So there was a a very big transition catalyst there where it became legal. once again to own gold bullion, which probably s disrupts the data. How should we think about this in the twenty twenties?

Yeah, that that's a good point. I think I think there's also another disruption at the other side as well, um,'cause that uh the data on this chart goes back to the um Dirka, late twenties. Um and back in the thirties was where the essentially the US confiscated private uh gold uh ownership. So they confiscated gold. I think they paid twenty dollars and then revowed it at thirty five dollars an ounce. So quite possibly gold could have went up a lot more.

um in that inflationary period of the thirds. I think I think that's why Gold's misunderstood though, was that i it i it is to some extent an inflation hedge. It's not a perfect inflation hedge. It's not path dependent. And but in extremes, when inflation goes very, very high and you're in that sort of environment, um, it does a good job because you've got the debasement angle of things and just a general kind of insurance against the financial system.

But it's not appreciated that it's also a a downside uh tailhead. as well. And I think what has been driving a lot of the rally recently in Go is this is the lack of alternatives. If if you start thinking about I don't know what's gonna happen, I don't know whether we're gonna be in a basement world where there's a lot of inflation or I don't know whether there's gonna be a massive credit event.

Um and that's going to be deflation grade. These are potential threats to the financial system. What can I own that has um you know proven record? of protecting a portfolio in such an environment. And there's really not much else other than gold. I think people sort of ran through all the options. They're like, right, that would work. That would work. Bitcoin. that hasn't been tested and they landed upon gold. And you know a lot of people that

have generally like openly admitted, they've never ever really tapered gold, they've never been a fan of gold, they've never understood it, are now nevertheless starting to add or have started to add some exposure to their portfolios. So I think as an unimpeachable form of collateral really is what's driving driving this move. And although, you know, it's struggled a little bit over the last few weeks.

Um I think it's premature to say that that's the end of the primary goal trend'cause kind of a lot of the main reasons that were driving it are still valid today. I mean, there's still a need for diversification from the dollar system. I still think obviously a a lot of geopolitical volatility that hasn't changed.

you know, central banks, I don't think are suddenly like emerging market central banks. They were the ones that initially kicked off the rally a few years ago. I don't think they're gonna turn tail uh and start selling in any great size. You know, they they bought some in

uh they may stop buying it, but I I don't see why they would suddenly turn tail, start selling it en masse. There was a story that Poland uh was mooting selling some of its holdings. There was the reason why they were thinking of selling them was for defence. And that doesn't really strike me as a great sort of uh a gold bearish kind of reason for selling your gold overall.

So I I think yeah, the general environment's still very conducive to gold still still generally keeping to its primary bull trend. And it's struggling right now, perhaps because we see some marking up of short term rates. Um the dollars had a little bit of a rally, things like that. But uh overall I I I don't see why, you know, it'll take a big seller to come around to really force into massive bear market. Um I just don't see where that's gonna come from.

As you said, unfortunately what has not gone away is geopolitical uh excitement. For lack of a better word. The thing that's I've noticed just in the last few weeks is there was a very strong positive correlation. You know, the next time a bomb drops, gold spikes upward. And what we've seen just in the last few weeks is a breakdown where when oil is up hard because of geopolitical, you know, bombs are dropping

Gold's actually moving down. What's going on there? Yeah, I as I say, I think I think actually it's because of the real yields in prison. That could be partly behind it is the little bit of the rally in in the dollar. It could also be in times of if there's any capital repatriation going on, maybe in the Middle East, I don't I know I don't know for sure.

But, you know, gold can often get hit in the shorter term. People need to liquidate. That's unfortunately the problem with having uh an insurance asset that's also can sometimes be a very liquid asset is it's often the one that's um first to go and so it can give kind of uh counterintuitive signal.

Uh but o overall I I just as I say, I I I don't know what the narrative or the the argument would be to say that this is anything more than just you know, obviously we've got to remember the market has rallied strongly much. uh in recent months. So it's perfectly respectable for it to have uh you know, the kind of uh pause that it's having right now. Like it can't continue in that sort of trend uh indefinitely. But I don't think that means that the trend is over.

So uh yeah, I mean I I think silver is a far more uh obviously volatile but a far a far more questionable kind of um uh uh you know, response to that kind of overall idea and trade. And but gold to me seems certainly more more secure just because as I say, the the reasons underpinning its rally all seem to be mostly intact still now.

Simon, we've been jumping around in the slide deck. Uh let's go back to page four because you've basically said you're you're rewriting the Risk Off playbook. Uh it seems like an important book to read. Tell us more about it. Uh, well I I I'm certainly not uh gonna rewrite it myself, but my point here is really that uh, you know, we talked about some historical analogues, they're useful guides. But I think you have to keep it up in mind as the the rules can change.

So I think it's standard, you know, risk off uh playbook'cause you can see the dollar rally and treasuries rally and risk assets sell off. And that might not be the case to the same extent as things. So for instance take the dollar. So the kind of quintessential risk got moment really was the G S C and in the G S C the dollar rallied. So I think that's for a lot of people it's like, well, you know what, that that was the big one and the dollar rallied. The dollar's there for a safe haven.

But really if you look at what drove that, um, and then you compare it to today, I don't think you can necessarily say that the dollar's gonna be in a position to rally quite as hard as it did back then. So the chart on the left there, you can see that the blue line shows um the uh bond flows, inflows from foreigners. So they they slowed. Equities were tiny back then. Equities are much bigger today as far as foreigners are concerned. They all actually drove the dollar.

The rally was repatriation deforts. So the US is a mutual fund and banks have led to various European entities and it was these guys uh repatriating that led to the dollar rally. So it wasn't the case of foreigners channeling money in or needing dollars to cover like structural short.

it was really just US entities repatriating and that led to the dollar rally. Now, this time around the cash flows are or or the structure of this is different. And so bond flows are um much smaller now because we've had uh because The US is now not seeing treasuries are not seeing as much of the sea even. And equity tools are no massive.

and the US outflows are not as large as they were back in two thousand and eight. So the net impact means the US is much more exposed to uh FC outflows, so in a sort of risk off environment that we're in right now. it's conceivable that more capital is repatriated and some of that is equities uh in the US, equity flows as I say tend to be unhedged. That is a a dollar negative and you don't have that cushion of or the same cushion of dollar repatriation.

So um yeah, y y you wouldn't expect to see the dollar necessarily rallying as much and that could be seen even more if you look at the chart on the right. So after the you know, Mar Lago Accord, you know, all the talk of the dollar disruption, the tariffs, you know, that that didn't lead to sell America trade, but I certainly think it made people think twice about their exposure to dollars.

And that can be seen as I say in this chart, which is kinda like the dog who didn't bark. So the white line shows the the dollar. And what you tend to see is the blue line which is uh reserved and denominated in dollars. So when the the dollar weakens, i.e. see the white lines rise. the reserve managers are tended to buy dollars. Tend to use the weakness in the dollar to you to add to the dollar reserve.

And that signally hasn't happened this time round. So we've seen a big weakening of the dollar and but there's been no response yet from dollar reserves. So I think that shows like a general change in attitude. to um to global demand for dollars. So I don't necessarily say as I think the dollar rally will be as big. The Simon thus far the DXY I think is up about one and a half, two percent since the war started.

We go to to slide five looking at say uh commodities. So commodities as a as a kind of risky asset is sort of see as well, it should certainly sell off in a recession, I think is the general interpretation. that isn't isn't always the case either. If you have a commodity induced recession

And and if we are going to get recession, there's there's very little chance of it in the next few months that that could change if the war continues and and the negative effects spiral. What often happens then is that commodities start to sell off before the uh slump and grow. But the that that sort of sell up and body prices kind of eases the growth shock and actually that allows commodities to rally through the rest of the recession.

So that might may well happen again. We get a commodity induced recession, say later this year or next year. That's not a prediction, but if we were to get one I it wouldn't automatically assume that commodities are gonna sell off through that.

Simon, let's move on to page nine. The title of that slide is It Takes a War to Bring Down an Economy This Strong. Let's start with how strong the economy is, but then later you say uh it would take a protracted war. So I guess the question is how protracted does it need to be in order to take down the strength of economy that we already have and uh where is this thing headed?

is actually remarkably strong given I think the length time of the cycle. Um and that really surprised me when I was looking at this. And it's also a little bit ironic, uh, I guess that coming into this war the US was firing on all cylinders. And, you know, as he mentioned, as I mentioned, the facts of war is perhaps just what it would take to to derail it.

And you have number of cycles for the the US economy that everyone knows about the business cycle. There's also the liquidity cycle, there's the housing cycle, there's the inventory cycle, there's a credit cycle, and all of them are actually in in pretty good shape. And so the business cycle, if you look at leading indicators, has been turning up.

the liquidity cycle, so that's the chart on the left there. And I look at excess liquidity, which is the difference between uh real money growth and economic growth. So that really gives you a measure of what impact this liquidity is gonna have on markets. So the bigger the gap between liquidity and uh economic growth, that means the economy needs less, but not more to go into risk assets.

That has been vacillating around as you can see in the chart, but it turned back up again. And even even taken it as a kind of we've seen some tightening in financial conditions since the war, but overall they've not been massive. Uh as I alluded to earlier, the dollars rally hasn't been huge either um thus far. So the quidity is in in pretty good shape.

And uh bus you know, the general business cycle is in pretty good shape. Even taking into account that the job market slowed down, I think it's possible to have a a jobless group. And some of the th things that I would look at to see if there was a slowdown in growth coming, such as temporary help.

is actually rising, not falling. Uh average hours worked is kind of static. You would normally expect to see that fall as people cut hours before they start sacking people. I think I think it's you've got to remember that we have companies still got very strong margins. The uh you know, the the balance sheets are generally in pretty good shape.

And then you've got this massive amount of government money still filtering through the system. And so there's maybe not the same acute needs in the shorter term at least for a heavy layout. And that that global the global economy is also in a good shape as well. So that's the chart on the right there.

you can see that we're in the midst of this global cyclical upswing. If you look at OECD leading indicators for different countries around the world, almost all of them are turning up on six month basis. And then if you look at uh the inventory cycle, um that looks like to be turning up as well, leading indicators are poding in it to continue to rise, sales to inventory ratios have started to rise.

The housing cycle is not as in good shape, but you know, it's okay okay, housing growth, the sales growth has slowed down and things like that. But one of the best seeding indicators for uh housing that is building permit. building power star are doing okay and they're actually led by mortgage spreads. So we'll see quite a significant compression in mortgage spread spreads for various reasons, such as falling bond volatility.

And so you can't see that the the housing cycle is in particularly bad shape. either and then we have the the credit cycle. So we go to slide ten. Uh the listed credit market from a fundamental perspective, my my leading indicator there on the chart on the left shows that on neck and fundamentals are still pointing to uh tighter spreads. So things like back

lending conditions are particularly uh tightening in a particularly rapid way right now. Uh personal savings is still quite low, which means there's more money to be spent, which goes into um yeah, back to corporates to their to their profits.

So you've got this general kind of listed credit mark of stuff. The weakest length though is private credit. And private credit, I think, is the one you do probably have to be most aware of. Uh obviously it's very pay, unlike the listed market. Um I've seen a number of cockroaches. uh seem to be uh popping up with a little bit more frequency than probably most people would like. We had uh well uh redemptions, uh redemption big redemptions in one of Clickwaters

uh funds, JP Morgan loans and uh was limiting the amount of lending it was doing to to private funds. And really what kind of triggered this latest uh little bout or weakness of was the uh concentration of uh software companies that uh private credit companies probably have exposure to. And that was on the back of this massive kind of like constant leak in the performance of AI coding agents.

which leads uh a lot of software companies, business models. May maybe not are it's not existential for a lot of them, but it certainly means that they may not be able to charge as high or get as high margins on their businesses um than they have before. So we're seeing this markdown invalidations in their stocks and obviously that's been reflected in the loans as well. And we're getting it's visible, we can't see the loans themselves obviously because they're they're okay.

kind of a selling point, the USB of the market. But we kind of see the shares of BBCs that uh business development companies and they've obviously been falling because the market isn't obviously wide to the fact

then that perhaps what they have underneath uh or or the loans that they have aren't in particularly uh good shape. And the veteran gear of your life, because there used to be I remember there used to be an argument that it's like, Well it's private credit, something bad happens that can be contained because these guys are kinda insulating the rest of the financial system.

But that's just not the case. Uh if you look at the uh banks have been lending to private funds and if you look at lending to non bank financial institutions, that has uh mushroom in uh over the last couple of years. You're really seeing huge number of loans has been you know extended from the banking system to a lot of private credit funds. So there's your kind of vector of risk right there. And you know, if if there is something more serious happens in private credit, it you quickly transmit

uh into into the listed credit markets and then it's feasible of course that that that's bad for the rest of the economy. We've obviously been here before. Credit markets are big enough that they can do a lot of damage and if they turn down very rapidly. So that's where we are in terms of the overall economy is strong. The credit market, again, fundamental, look okay.

But the weakest link is private credit. Um and that's obviously the one to watch or watch as much as you can because of its capacity. It's kind of difficult other than just watching red batter headlines. coming up telling me which fund is doing what with the redemptions. Otherwise it's very difficult to really get a a proper handle unless you're in that particular space yourself of really what's going on. But certainly that's um that's one of the biggest risks. But take that away.

And it's the US economy's in a pretty good spot. And the one thing I think that could really derail it would be uh a protracted war. I mean, you'd ask how long it's protracted, I I don't know, but the longer that we have um straight up or moves block. the more the uh longer it takes to switch things back on. So the longer things are off stream, the longer it takes to switch back on. So whether that's if you power down refineries or refineries of damage,

or thing that smelters if you t uh switch them off six months to bring them back on. Um so there's many of these uh hysteresis that that will start to kick in. I think that's also one of the reasons why a lot of people in the quality space are more bearish because they're seeing this. And they they they can't see any upside. They're they're looking at disruptions going way out, probably well into next year. And that's on the basis that even if the war stopped in the quite short term.

And so I think I think that does help to colour your your view and uh a protracted war would definitely do a lot of damage to to the economy. Simon, as you talked about private credit, it was kind of concerning to me because frankly i it echoes in my mind to about nineteen years ago, the summer of two thousand seven, when we were also talking

about an opaque, not well understood in the broader finance community, small little piece of the credit market that couldn't possibly disturb anything else. And the reassurance of the time was Don't worry. It's contained to subprime. There's nothing to worry about. Is this another setup like that? It looks very much like it. I think that was Ben Bernanke himself, who said uh the housing is contained I think.

Um look, I I go back to my kind of axiom that um the one thing that doesn't change is is human nature. I think we're sort of seeing that even within the private credit space in terms of when people have opportunities to make money and they're more kind of uh off group they are, uh away from regulation. The standard kind of emotions of greed and fear will kick in, greed initially.

to assess the earn money now and what our risks later, hopefully they can not be around when the um proverbial hits the fan. And so I I don't s see why why it wouldn't be any different. I mean there's even a a story today that one of the the credit funds, if you look in the private credit fund, there's yeah it's a black box, but within it there's even more black boxes. I mean that straight away reminded me of C D O Square.

So here we had CDOs which are already kind of niche derived products, but people started making up these CDOs of CDOs themselves. And you know, I'm sure a lot of people at Simon were thinking this probably can't end well. And you know, here we are again. There's nothing new in finance.

Simon, I can't thank you enough for a terrific interview. Before I let you go, I'm sure a lot of listeners are gonna want to follow your work. You kinda have to be somebody special and have a Bloomberg terminal in order to access most of it. Tell'em for those who are lucky enough to have that access where they can find your writings. Sure, and and thanks again for for having me on the show, Eric. Uh so on the terminals I have a column called Macroscope.

comes out uh twice a week, Tuesday and Thursdays. And I also write for the Market Slide blog, which is a a kind of twenty four hour five days a week. market scroll and that you can follow all the latest market development. Patrick Serezna and I will be back as Macro Voices continues right here at macrovoices.com. It was great to have Simon White back on the show. Rory Johnson is next on deck for a special second interview on a developing Iran conflict and what it means for the oil market.

Then Eric and I will be back for our usual post-game chart deck and trade of the week. Since the extra coverage format seems to be a hit with our listeners, we will do our best to continue it as long as the situation in the Middle East warrants. Now let's go right to Eric's interview with energy markets expert Rory Johnson.

Joining me now is Commodity Context founder Rory Johnston. Rory, uh you, Dr. Anasalhaji, uh really all of the most credible experts. felt the same way, which was look, the the strand of horror moves getting shut down is probably not that realistic of a scenario. And I'm going back to previous interviews, you know, months or years ago.

Boy, everybody got thrown a curveball. So what happened? How come all the experts, including yourself, who thought this really couldn't be shut down, is it just about insurance? Is it about minefields? Is it about something else? Uh how come the traffic is not flowing through the strait, first of all? And we'll then we'll get into what does it mean? Thanks for having me back on, Eric. As you note, I've been relatively kind of Pollyanna ish about this for a long time. That

And the reason for it, the reason I didn't think this would happen. And to be clear, I never thought this would happen in my career. And the reason for that is because it is such a big shock. Like it's, you know, it make it'll make the if this continues, it'll make the nineteen seventies look like child's play. And that is my concern here. And I think part of the reason that

It is happening now. And the reason I didn't think it would happen is not that I didn't think that Iran could close the strait, although I had my doubts because we had never seen it realized. And again, the consequences are so intense. But I never thought a US president would and engage in a war with Iran. without a plan, without something in his pocket, kind of ready for this moment.

And what we've seen so far is that at least here's my my read of what's happening and w how the Trump administration got into this. I do not think that the Trump administration expected to be in its third week of the Iran. I do not think. They did not do any of the things you would do if you had planned to be in this engagement for weeks and potentially months now.

you we saw, for instance, the IEA's coordinated uh strategic petroleum release uh last week. That was good. Uh that's a absolutely what we should be doing in this in this situation, but it was two weeks after the war started. Like if you were go if you were planning this, you would have an IEA release lined up. You know, we saw that ahead of the Gulf Wars and you would have had things like the marine insurance facility that that best sent and now said treasury. You would have had that lined up.

You probably would have done more work to refill the strategic petroleum reserve ahead of this. I mean, all of these things are such that it just seems insane that we entered this without kind of, or and and by me, I mean the Trump administration entered into this without a plan. I think that what we've seen from the Trump administration and very frankly, my expectation was that we were going to see something that

clearly the largest military build up in the Middle East since the invasion of Iraq in two thousand three was going to lead to something. But right, we saw the same kind of build up off the coast of Venezuela earlier this year or late last year. And in that moment, you know, there was blockade, there was everything else. But when it finally all went down that first weekend in January when the Trump administration, you know, uh kidnapped Nicholas Maduro, uh, and his wife.

Basically that happened on a Saturday, or Saturday morning, I guess. There was all this, you know, what's happening, what's happening, what's happening, and then by Monday

You know, we had Delcy Rodriguez in as the interim president. She was making a deal with President Trump and it was kind of it was wrapped really quickly. The same thing happened last June when we last talked about the worry about the straightforward moves was that Um the Trump administration embarked on that what at that stage was a fairly stark break.

from US military policy towards Iran, which is you know, it it directly engaged in uh fourteen dropping fourteen bunker buster bombs on uh three the three main Iranian nucleosites at Fordau, Natanz and Isfahan. And again, if you remember, and I'm sure you remember this, Eric, like the Monday when that our Asian markets opened at the end of the weekend, prices spiked higher, as you would expect after this kind of event. And then by mid mid you know, by the middle of Monday, we saw this kind of

Symbolic retaliation from Iran, and then Trump saying, We've got a pe we've got a ceasefire deal. And then I think fruit ended the day down ten dollars. That was kind of my framework for what I was expecting out of this conflict.

And by that token, I expected that, you know, it was very clear that Cuba was next up on on the list of kind of regimes to roll over. And I think Trump planned to basically be rolling over on Cuba by now. And The wrinkle here is that if they were expecting some kind of Delcy Rodriguez character to emerge in Iran, someone to say, someone to give them the opportunity to declare victory. I think he would have. And I think what we've seen so far is that the Iranians

have not done that. And I think if Trump expected the political culture of Venezuela to be the same as the political culture of Iran, that I think is probably arguably the biggest miscalculation here from the White House. As for what's actually preventing this the you know passage through the strait, because again, when we look historically, the strait has never been closed. Even when we've had

acute violence, acute attacks in the strait. Back in the nineteen eighties during the Iran Iraq War, during the tanker wars, we saw hundreds of ships hit. We saw by my by the calculations I saw was four hundred and fifty ships attacked. Uh, you had two hundred and fifty tankers attacked and fifty-five of those tankers were basically either sunk or scuttled and otherwise abandoned by crews. Like we more than we've already seen now. And during that time you never had flow.

Halt through the strait. So that was our best historical parallel. And quite frankly, I expected something similar to be happening here. And what we've seen so far is that no, uh very, very few I mean the the estimates vary, but basically uh like between a ninety and ninety-five percent reduction structurally now through the Strait of Hormuz. And With things like insurance, I think there was this expectation that okay, maybe at the beginning it was a lack of insurance.

Uh we were waiting for these, you know, these tanker owners to and the insurance providers to figure out a way to say, okay, you know, we're gonna figure out a way to lift. Obviously the risk has increased, so we're canceling coverage and we're going to kind of reinstitute. But But there was just you know, that never happened. you ended up actually seeing and we've seen reports more recently that, you know, the war insurance has

skyrocketed. If it was basically 0.25% of a vessel's value kind of in the month before the war, uh, that is now by the latest estimates that I've seen published by Bloomberg, jumped to five percent. So we're talking a massive, massive increase. That's a five million dollar insurance premium on a mil on a hundred million dollar vessel just across the strait. What the issue is that?

Even at those insane levels, the arbitrage value across the strait still seems to clear that, you know, we now have effectively negative prices on the bad side of the strait, and we have, on a physical basis on Dubai, over a hundred and fifty dollars a barrel. You can very easily cover that with this insurance.

And they're not. And I think that is where something else is happening. And I think my best explanation for this, and I think it's also an explanation you're gonna hear me talk about through the financial the relatively sanguine financial impacts that we've seen so far. is that the market continues to expect. The base case expectation is that Trump backs out here, that we see another taco. And if that's the case, if there's the chance that tomorrow this ends, or at least he declares it done, um

Why spend the$5 million and risk your ship and crew if this could be over tomorrow? And I think there's this continual hope. That this is going to end. Because, as we will talk about, the consequences of it not ending are so extreme.

that it is unthinkable to me that a US president would bear the political cost of what's coming down the pile. Well let's talk about that specifically next then. I think you and I could easily agree that uh and I'll just g go to an extreme here. If this continued for a year, if there was no transit or no significant, meaningful transit of the Strait of Hormuz for a year,

that would result in probably a bigger than two thousand eight global financial crisis because it would shut down the entire global economy. There's no energy, there's no economy. That's the end of the story. Okay. Y yeah, we can't go a year, but we could go into next week. Uh okay, how long is that fuse? What's are there

Tipping points where after a certain point things are broken that can't be fixed because the backlog is too long. What does the timeline look like of how long this can continue before you get into a situation where it's not reversible? Uh, the first thing I wanna say, Eric, is I completely agree with you. I think that if this goes on for a year, and again, I cannot imagine, like the level of economic calamity, of human catastrophe that would rot is

unimaginable to me. I mean, we'll walk through it briefly here'cause I think it's important to try. and imagine it. But again, I just can't imagine the political uh any politicians kind of engage you know, bearing that political consequence. Because what we're talking about to your point, like I mean,

I'm normally not a guy that comes, you know, comes up with like big price calls. I typically I don't like them. But like my I've been saying like, yeah,$200 crude is easy in this scenario. If we're if we're talking a year. or more, like 200 is the bare minimum of what you'd expect. We need to I've been trying to parameterize what we're actually talking about. And if let's say, just for this heuristic here, we talk about

twenty million barrels a day of oil flow through the strait. Let's even just knock it down to fifteen because maybe we get, you know, the East West Pipeline and Yanbu and everything else. Everything works well with the Saudi diversion plan. Let's say fifty. That is... Ballpark, the peak of the demand destruction we experienced in March and April of twenty twenty during.

When everyone was locked in their homes, you had not an airplane in the sky, you know, major airports were effectively shuttered. That's the kind of demand destruction we would be needing to balance that market. But with no pandemic and just purely through price mechanisms.

That is an extraordinarily high price to clear that kind of demand destruction. I uh I've been basically just kind of saying that, like, you know, me, I have an extraordinarily low price sensitivity for gasoline to get my kids to school in the morning. But a lot of people, both in wealthy countries, obviously this, you know, it's going to be effectively a massive regressive tax.

But I think in wealthy economies, we will generally experience this as a debilitating, recessionary, you know, nigh depressionary price shock that will sap consumer spending, that will have all of the normal repercussions we would think. But the price spike isn't enough because you still need to shed that much demand from the global system.

And where is that going to happen? It's going to happen in poorer emerging market countries in the global south that when we see price shocks, they will see shortages. Uh we saw this in in kind of notorious fashion now in twenty twenty two when the kind of the infamous example of the tr of the committed tanker to Pakistan

that they broke their commitment, uh, they paid the breakage fee, and they shipped that gas to Europe because they could make a, you know, a king's ransom on the ARB, even factoring for the breakage fee. And that's how markets are going to clear. That's how they're supposed to clear in the system. So I'm not saying that's wrong per se.

But there is going to be an enormous human cost here. And I think when you're talking about these fuels, you're talking about electricity, you're talking about heat, you're talking about cooking, you're talking about light. And I think that's what we're going to have to try and trim back by 15 to 20% if this persists. And that is just Insane. Let's try to put some specific time frames on this, which I know is difficult and I apologize for doing this to you, but

As you said, what's going on here is most people are thinking, well, surely this is about to be over. I mean, it's it's crazy to continue it. It's about to be over. It must be about to be over. Just in case it's not. Let's imagine, say, both a three weeks more scenario and a three months more scenario. What are each of those, if you had to guess the impact of three more weeks, just like the last three weeks or however long this has been?

And then three more months. Wha what do those scenarios look like in your mind? So let's actually start with the e an even more sanguine scenario. What happens if it ends today? Because I think there's already durable damage. And I think a lot of people just assume that

We could end this tomorrow and everything goes back to normal. We're probably talking three months minimum. To nor to renormalize the system, even if it stopped today. And every tanker currently in the Gulf made a break for it and they all made it out and we just resume full flow and like nothing ever happened. Even in that case. We're talking about months.

Of supply chain recovery because these ships are going to be piled on top of each other. You've had, you've already had roughly a 400 million barrel. gap or three hundred and three hundred and forty million barrel gap that's emerged in these basically the normal flow of oil. into the out of the Middle East, largely to Asia. Right now we're still we still haven't felt the brunt of that because three weeks ago we still had tankers laden with oil leaving the Gulf. Those tankers.

will continue to their destinations. Takes three, four weeks to get where they're going. And when that air pocket finally hits land in Asia, that's when we're gonna start drawing inventories at 10, 15 plus million barrels a day, which again has never happened. We've already seen Asian refineries.

attempt to short basically front run this to extend their runways. They've reduced operating rates. They've cut product output. So we're talking we've seen$150 crude in Dubai and physical crude, but we've seen over$200 a barrel jet fuel in Asia. uh in Singapore. And I think that is that alone would take months to sort out. But let's go to that three week scenario. Okay, so let's say we're already in this for the three weeks. Let's say it's double.

Now you're looking at two-thirds of a billion barrels of Air Pocket in the system that again needs to get sorted out. By that stage, we've already seen upwards of nine million barrels a day of crude oil production capacity shut in through the gulf.

the longer that's off, the longer the the straight is closed, the more we're gonna see that cut back. And again, as anyone familiar with this industry, it's not trivial to shut in these wells. It's not trivial to get them back on without any kind of negative repercussions. And all that stuff just gets worse with time and time and time. I think, you know, in terms of price call, I think in three more weeks of this.

I think we could well I think we would already be over a hundred and fifty dollar brand. We're already obviously there at the kind of physical Dubai cash market. And I think people are like, oh well why wouldn't you know, why would anyone buy that that crude? Uh why won't you just w buy WTI? It's like fifty dollars or sixty dollars cheaper. And the answer is that it's in the wrong place at the wrong time.

You know, if you're buying the prompt WTI WTI futures, it's not for delivery until next month. Then you need to get it from Cushing to the coast. And you need to get from the coast to the Middle East to Asia. That we're talking months. People need these barrels today. And that is why I think there was still this kind of hopium, if you will, from Asian refineries saying, like, okay, this is going on, but like surely this can't last.

And what you started to see over the last couple of days, there's a Bloomberg report this morning where Asian refineries were starting to bid into the Brent Back. And they're starting to kind of try and buy these few these other barrels, which means that they're now worrying that this is going to be going on for months.

Uh, and it also means that that kind of acute local scarcity in crude in the Middle East and products in Asia is also going to begin spreading out to all the rest of the world. And I think it's really easy. for Americans and the American president to say, Mm, who cares about tight oil markets in the Middle East? We're here and oil prices are still pretty low. It's because this shock wave kind of moving out through the system takes time.

to kind of incentivize and bid all those barrels over. And I also think back to this, why aren't ships going through? Because they, you know, may they think Trump's gonna talk. I also think that the future market are in the exact same situation. What we saw Not you know, two Mondays ago, the the m you know, the the second weekend that again, everyone thought he was gonna end on the weekend. He didn't. Prices spiked higher. You hit almost a hundred and twenty dollar barrel Brent.

But then you got the first kind of Trump said, the you know, the war's almost over. And prices cratered. You had a$35 barrel intraday spread in Brent, which I don't believe has ever happened. And a lot of traders kind of lost their shirts in that. Because again, bidding crude higher was the obvious directional call in this environment. But the kind of constant jawbone. ご視聴ありがとうございました

Got blown of their positions. Many of them lost their jobs. People are much more wary now to kind of front run, because normally we expect futures markets to front run the tightness in physical markets because markets are forward-looking. But I think now we have to wait for that physical market tightness to kind of fully and aggressively manifest in the West before those future prices are going to actually converge.

Now you said earlier that you thought the Trump administration had no idea that this outcome which has already occurred was even possible. I wanna push back slightly on that and ask you if it's possible that maybe they did see it as a possibility, but just were not as concerned by it as you and I are. I wanna read you a truth social post from President Trump on Wednesday.

where he says, I wonder what would happen if we finished off what's left of the Iranian terror state and just let the countries that use the Strait of Hormuz we don't. Let them be responsible for the so called strait. That would get some of our non responsive allies in quotes in gear and fast, signed President Donald J. Trump. It sounds to me like he doesn't think it's a big deal for the United States since he perceives the United States to be energy independent.

that if the Strait of Hormuz is closed down, it sounds like he thinks that's a problem that affects other countries but doesn't affect us. So, you know, the hell with it. Let them worry about it. I I don't I'm not gonna bother asking you. we should be concerned about it'cause I think you and I agree that we should be concerned about the straight

needs to be open uh for the sake of global commerce. Oil prices are set globally and so forth. But it does seem like there's room that the reason the president's not s so concerned about this outcome I think there's a chance of that. And I'm I think again, I didn't expect him to go this far, so I'm I can't pretend perfect knowledge of Trump's mind by any means. But I think what we've seen in those comments over the past

Two and a half weeks now is evidence of remarkable goal shifting. We had that tri we had that tweet this week. End of last week, we also had the tweet about how actually high oil prices are good for the United States, because the United States is the largest oil producer in the world. But that contrasts strongly with some of the earlier comics.

out of Trump about, you know, basically, don't be a pannikin, don't bit up the price of oil. You know, this is gonna be fine. This the war is almost over. Like it definitely felt like he was trying to keep the oil prices lower. And then as oil prices started to inevitably, based on this kind of

physical reality we've been discussing, as those prices started to grind higher, you started to find new ways to say, Oh, okay, this is actually good for us. And I actually think in some ways that's actually the most worrying development in this, because I think

at least my mental framework here has always been that the oil market would be the single, the singular thing that would end up pushing Trump back from the edge, from really going through for a prolonged period of time, months or or longer. And if we're starting to see him attempt to con to change that narrative to almost convince himself, and again, like

Donald Trump is an extremely public person. He's been for he's been against high oil prices and trying to drive them lower since the nineteen eighties. Like Low oil president is kind of like his brand. And I would say that so I don't know how much I can really buy this. I don't even know how much he can really buy this, depending how long this goes. I still think his core bias. is towards low oil prices. Again, he was elected as kind of a pocketbook cost of living president.

And I think this is just I was also elected as as a president that would get out of wars in the Middle East. But we're very we're obviously in a very, very different timeline now from that election. So again, I think there's a possibility that you're right, care you're right, Eric. But

I do think that a lot of this is him saying things after things don't go his way. For instance, the the comment of the straight came mostly after he asked.

all of the kind of allied NATO nations and and Asian nations that that consume the oil to kind of come help them. And they were kind of like, no. Because again, I think the world, a lot of the consuming world, like I think if they knew a hundred percent that this was going to go on for years, yeah, they're gonna send their navies because again, this is untenable.

But I think there's this worry. I think there I even heard this worry initially with the SPR releases that like anything you do to ameliorate the oil price consequences. to a degree short circuits Trump's own feedback mechanism that the only way he was going to back down. And this is a similar to the tariffs that when, you know, the S P was crashing, that's when he talked out. There was an expectation that this was the same mechanism that we'd be seeing now but with oil.

And I worry that is beginning to lose its sensitivity, given that I think. Now it's a question of how can Trump figure out a way to declare victory. Because again, he's not gonna stop this unless he can say he won. So I think he's trying to find ways.

trying to find something that he can declare victory on. And again, I thought at the beginning there was enough at the out this out the gate, right? We wiped out the leadership. You killed the Ayatollah, all of this stuff. I think he could have declared victory on that first Monday. And I think he's like, oh well, let's do this a little bit longer. And now we're in so deep that it feels like you need something much bigger.

And if anything, the Iranian regime seems to be f entrenching. At the beginning, you did hear, I mean, when there was a lack of centralized leadership, you had different elements that were being more negotiating or kind of conciliatory.

And that it seems is beginning to fall by the wayside. And I think even for a while there was some hope that the number of missiles and drones that were being launched every day by Iran were dwindling over time. Like, oh, is Iran running out of missiles? Are we entering the end game? And over the last two days they've shot back up.

That and again, today in particular, we we were chatting about this before we started recording, but like Brent popped above 110 following Israel's attack on the South Pars gas field, which Up until now, we hadn't been hitting upstream and kind of Iranian oil assets, oil and gas assets specifically. And that's why up until now, most of that. Production asset.

hadn't been hit. You've had you had a couple of refineries there, you had Razdinura, you had you've had attacks on Fujera, but overall, there are a lot more targets across the Middle East. that were very, very tempting targets. I mean, we all remember ab cake in twenty nineteen. Clearly the Iranians can hit it.

they have chosen not to yet, because it again, for them, I think that they still have this conception of different degrees of escalation. And what we saw already was, you know, as soon as the South Powers gas field was hit. They were like, okay, now these bunch of petrochemical facilities and upstream facilities, they're all legitimate targets.

And they also warned that if Trump bombed Carg Island, they're like, well, if you do that, then we view all other ports in the region as fair game. I think they are still trying to kind of parameterize their own escalation or retaliatory kind of spiral here. But and again, I think what we've seen so far is that in both cases where Israel and to my knowledge these were both Israeli attacks specifically on the South Pars gas field and the fuel depot in central Tehran.

that those were kind of against the wishes of the White House. That, you know, there is still some kind of freelancing here on the Israeli side about like how far they're going to go and how much they want to escalate this. Clearly they want they want more escalation, right? I think that's clear that what we've seen so far. But I do wo I do wonder whether or not that's the kind of thing that's gonna

piss off Trump very frankly. We we saw this uh he got really upset with the Netanyahu government last June when, you know, there was worry that they weren't gonna play ball with the ceasefire or whatever else. There was like that famous comment, uh, I was just trying to get on Marine One. But I do worry that that's the kind of situation we're ending up.

Normally, Rory, people who are in macro markets and you know investors who are not specialists in oil only pay attention to two benchmarks. Brent crude, which is based on North Sea oil production, is the global benchmark, and then West Texas Intermediate is the US benchmark. Uh uh y normally it's only professional oil traders who pay attention to any of the other prices in the oil market.

Let's talk though about some of the other prices'cause really Brenton and WTI only got I guess WTI was a hundred and nineteen. Neither one of them has gone above a hundred and twenty in this. That's uh you know, they've gone up a lot, but they haven't gone up that much. I think it was Oman traded above one eighty five this week. Uh as you said there was jet fuel prices above two hundred in Singapore.

Should we be thinking about these really high prices that are occurring in some localized markets as, oh well, that's just a a logistics thing, it doesn't really count or are those price signals that could portend what's coming for Brent and WTI? They're exactly what's coming for Brent and WTI because I think that I was kind of talking around this point a little earlier, but what we're talking about right now is again, the these markets.

And you will know this well, Eric, that futures and benchmarks, there is both a locational element to it and a time element. And where the current tightest market is right now is basically there's all these laden tanker or unladen tankers waiting to go back into the Gulf to fill up. And they're like, Well, I could buy some crude off the coast of Amman and just basically turn around and head back.

But those are the barrels that are at a hundred and fifty dollars or a hundred and I hadn't seen I hadn't honestly seen Oman go up to one uh one eighty. But yeah, that's basically yeah, you can you can charge a king's ransom for any barrel that's physically available. on the good side of the Gulf right now, because that's where crude is in desperate, desperate supply, because it's much faster to get to Asia from there than from the US Gulf or from the North Sea.

And I think that is what we're going to see eventually for the other benchmarks, that now that Asian buyers in particular are coming to the realization that this isn't ending tomorrow. And that they may need to cover not just today's crude slate, but tomorrow's or next month's crude slate. Now they are beginning to bid on those other contracts, which again is why we're starting to see Brent firm up so much more that we're kind of back to above a hundred and

WTI I think has some other potential weirdness going on. There's been a lot of talk about at you know, participants trying to hedge their SPR exchanges. Lots of stuff going on there as well. But I do think overall The best thing that explains WTI's relative underperformance relative to Brent and certainly relative to the Middle Eastern grades is it's the furthest grade away.

that takes the longest to get to where you're going. And I think that's going to be something that will continue to kind of leave WTI at the back of that of that bus, if you will. The other thing we haven't talked about yet, and I think we're I'm especially concerned that we could be going'cause again,

Trump says this is good, he doesn't care. But eventually pump prices are going to rise. We already have US average diesel prices over five dollars a gallon. Gasoline's coming up there too, diesel's gonna go higher, jet fuel's gonna go higher. I worry that we're going to see kind of a kind of a rediscussion, or we've already seen musings about export controls out of the United States that.

This is actually something that the Biden administration used in 2022 to be like, well, well, could we restrict or ban the export of refined products? There are a lot of issues with that. It bottles up diesel in the Gulf Coast. It it it creates issues with potential reciprocal trade restrictions if then Europe decides to ban the export of gasoline into into the East Coast.

There's a lot of problems there. But I do think that's where this could go. And I think particularly you're seeing some of that, like the framework and the kind of uh precursor to that argument being put up by Trump. And I think back to that question of he's saying we don't get any oil from the Strait. So what do we care?

And then your point, well,'cause gl our markets are global. The way to solve that is to make markets not global. And I think that is my es is my most acute worry here going into this is that I had mentioned earlier that, you know, wealthy nations largely will be able to afford the oil and the products. It'll just be debilitatingly expensive. Once you start mucking with trade.

Even the United States, which is a net petroleum exporter, we you well know that that's not the same in crude or quality, that's not the same in product slate by region. You've even seen the uh the repeal or at least temporary waiver of the Jones Act, which is a very substantial political move for the White House.

that really makes the most sense in the context of, well, what if we ended up, you know, banning exports? Well then we could use non-Jones Act tankers to move US Gulf Coast crude to different era US Gulf Coast. oil, but also diesel to other areas of the country rather than it being bottled up. Because if you have no ability to shift out from those regions, you would basically end up forcing US crude production shut-ins and US, particularly Gulf Coast refining shut-ins.

Which is the opposite of what we want. So temporarily it would lower prices. And I think that's why it would be very attractive to the White House. But in the long term, it would short circuit. wealthy markets capacity to just pass this on through price.

And then we would likely end up facing physical shortages in these advanced markets. Rory, when we hear about the Strait of Hormuz, what comes to investors' minds is of course crude oil. But tell me about how fertilizer plays into this story as well.

Yeah, so I am not a fertilizer expert, but In addition, I mean, we've all been focused on oil and maybe gas, but there's a lot of other things that come from the Gulf, whether it's fertile I think it's a third of global fertilizer supplies, the vast majority of global helium supplies. All these things are going to have their own knock on consequences to all these other markets.

I think when you think about fertilizer, and even I think this ties back into to oil products as well. If this continues. We will see crop yields decline. We will see food production decline. We will see the food that does get to your plate more expensive on the commodity based of the food itself. and being shipped there by either by truck or by plane at far more expensive rate.

So this is absolute I mean, again, this is, you know, our most recent experience here with and again I where all this goes with monetary policy as well. Our most recent kind of parallel is twenty twenty two that Central bank got acutely, I think reasonably freaked out at the time by the explosion of inflation coming out of the COVID bullwhip effect.

And for the first time in my life, central banks took a n I took a keen interest in following the price of oil, and particularly the price of gasoline. And that's when I think the way this all feeds back into the macro side is this, you know, if there's anything that is going to unmoor long-term consumer inflation expectations, it's this kind of shock.

It's, you know, this last time we experienced this would have been in the 70s. This shock, if continued, will make the 70s look like child's play. I think a lot of people still go back and think, wow, we must have lost a massive amount of supply back in 73 or 79. And there were some losses.

But the losses were relatively small. And the big thing was it was more of a logistical, like we're not shipping to you. So that's causing gaps here and everything else. But a lot of it was, you know, the supply wasn't acutely lost to the degree that we are currently seeing it lost today. And it's just sets us up for a much worse Kind of price shock.

And again, I think going back to this, like even at the end of today, we're c we're we're we're sowing the seeds of these like deep ripple effects, these deep kind of multi-industry bullwhips that are gonna be working through the system that even if you end it today.

we're still gonna have consequences trailing out for months. And if we and if this goes three weeks longer or heck, as you mentioned, three months longer, oh man, like these industries are going to break and people will need to cut back. There will be Physical losses that people will have to experience. And that's why I go back to I don't see this as tenable long term politically for anyone involved. Bye. I also thought that so far, and I've been wrong.

Rory, I can't thank you enough for a terrific interview. Before we close, I wanna add a quick point just of clarification about last week's interview with doctor Anas Al Haji. Several of you on Twitter and in email said, Hey, Anas was wrong when he said that Iran had a huge vulnerability if their desalination plants were attacked. Iran only gets three percent of their water from desalination.

I agree it was a little bit ambiguous how it was worded, but that was not Dr. Al Haji's intended point. The point that he was making Yeah. Everybody presumes that Israel has a nuclear weapon and Iran doesn't. His point was Iran effectively does have a nuclear option which is the other Gulf states, not Iran, which only needs to d rely on desalination for three percent of its own water, but the other Gulf states, including Israel, are heavily dependent

on desalination. So it is the risk of Iran striking the desalination plants of Israel and other countries that would be the equivalent of a nuclear escalation and would probably result in Israel responding with a nuclear response.

So that was the point that Dr. Ahaji was making. Rory, I want to come back to what you do at Commodity Context for anybody who's not familiar with it, terrific website. Please give us your Twitter handle and tell people what they can expect to find at CommodityContext.com. Thanks much for having me again, Eric. I always love coming on the show. You can follow me on Twitter at uh at Rory underscore Johnston.

And all of my public research is published at commoditycontext.com. We've got an the oil context weekly report every Friday that covers, I currently call it the oil, uh the oil and Iran War Context Weekly, because that's all we're talking about. But every Friday at four to five PM Eastern. Uh I publish three monthly uh data reports on OPEC global balances and North American detailed balances.

And then I also I'm doing, particularly these days, a lot of thematic work on Iran, on Venezuela and the overall insanity in this current oil market. And I encourage you to join me. Patrick Serezna and I will be back as Macro Voices continues and stay tuned folks in case you didn't connect those dots. Simon White told me earlier in this podcast that we needed to worry about food price inflation next.

That was even without considering the fertilizer angle that I just discussed with Rory. So Patrick's trade of the week is going to be about food inflation and how to hedge against it. That's coming up next right here at macrovoices dot com.

Back to your hosts, Eric Townsend and Patrick Serezna. Listeners, we're gonna keep bringing on the second guests as conditions warrant until the Iran situation eventually settles down. Now you're going to find the download link for this week's trade of the week. in your research roundup email.

If you don't have a research roundup email, it means you have not yet registered at macrovoices.com. Just go to our homepage and look for the red button over Simon's picture saying looking for the downloads. Patrick, everyone's focused on oil as the inflation driver right now, but Simon made an interesting point that food might actually be the bigger story. Then Rory Johnston echoed that from a completely different perspective, having to do with fertilizer.

How are you thinking about that and what is the trade of the week to express it? Eric, the key insights from Simon is that the real inflation risk isn't the first order energy shock. It's what comes next. In the 1970s, food inflation ultimately had the more persistent impact on CPI. And we're starting to see the early pieces of that same transmission through today's rising fertilizer costs. supply chain disruptions, and emerging weather risks.

So if this is the beginning of that second wave, I think the cleanest way to express it is in wheat. The trade of the week is to go long Chicago SRW wheat. where tightening export flows and a still net short positioning backdrop create the potential for a sharp repricing if that food inflation narrative starts to get recognized. Now for more advanced traders, this can absolutely be expressed directly in the weed futures markets where the liquidity is deeper and the execution is more precise.

But for simplicity and accessibility, I want to frame this through the Tucrium Wheat Fund ETF Ticker W E A T, which is trading around$23.15. Given that implied volatility is already elevated and the option surface is showing a clear right tail skew, this lends itself well to a call spread structure rather than outright calls. specifically looking at the october sixteenth, two thousand twenty six expiration.

you can buy the$25 call for roughly$2 and sell the$30 call for about$1, creating a$5 widespread for a net debit of$1. This means you're risking about 4% of the underlying ETF value to gain exposure for the potential of a$5 payoff. giving you roughly a four to one payoff ratio over a two hundred and twelve day window. The idea here is straightforward. Use the SKU to your advantage and define the risk while still maintaining meaningful upside if the food inflation narrative begins to reprice.

So the idea here is simple. By using the defined risk call spread, we're able to position for that upside while keeping the premium outlay relatively small in a market that is already pricing in elevated volatility. It is a straightforward way to gain exposure to a potentially underappreciated macro theme

with a payoff structure that becomes increasingly attractive if this narrative starts to gain traction in the months ahead. Patrick, every Monday at Big Picture Trading, your webinar explains how retail investors can put on our most recent trade of the week.

For those listeners that want to explore how to put on these trades in greater detail, don't miss out on a 14-day free trial at bigpictrading.com. Now let's dive into the post-game chart deck. All right, Eric, let's dive into these equity markets.

Patrick, Wednesday was a major risk off day across most markets, except of course the dollar index and crude oil. With equities, gold, copper, and several others down and down hard, closing near their lows of the day. That of course, as I said in the introduction, is an ominous sign that more downside is likely still to come. The S P five hundred was sitting below its two hundred day moving average as of Wednesday's four PM cash close. It continued to trade lower than that after the cash close.

It did trade lower than today's cash close on an intraday basis back on March 9th, but today was the lowest closing price of 2026 for the S P five hundred futures contract. So my take on this equity market is that it really depends on your geopolitical outlook and your expectations for what comes next in this Iran conflict. I'll strive to leave my own personal politics out of this and focus on yours instead.

So if you think that the Trump administration has this whole situation completely under control, it's gonna be over in another week or so, just like the President and Secretary Hegseth say it's going to be. Then in that case, if that's what you think, then this is a terrific buy the dip setup. It probably sets the stage for a rally to new all time highs.

If President Trump can really get this all under control and wrap it up and there's no lasting impact from it, and to be sure, in order for there to be no lasting impact, it really needs to get wrapped up pretty quickly here.

If you think that's what happens, then it's time to buy this dip and buy it in size because we're we're going much higher. On the other hand, if you don't think that, If you think that the Trump administration has started a fire that they won't be able to put out and that this is not under control. and that this Iran conflict might turn into a repeat of the Iraq debacle that began in two thousand three. Well, if that's what you think,'cause we're leaving my politics out of this one,

Uh that would pretend a very, very different equity market outcome. We could easily be looking at a cyclical bear market, and the worst case would be if oil transit through the Strait of Hormuz stays impaired for many months. In that scenario, without exaggeration, It could lead to an oil price surge well over two hundred and fifty dollars a barrel. That would cripple the global economy and lead to a global financial crisis on the scale of, if not bigger, than two thousand eight.

Now I strongly doubt that that would be the outcome because this is a problem that can be solved sooner than that. We're not gonna see the Straits of Hormuz closed for years or anything like that. The question is how long this goes on, how much damage it causes. and how long it takes to unwind that. In other words, how big is the backlog of global logistics that have been disrupted by the Strait of Hormuz closure? How long does it take to get things back to flowing as normal again?

That's really I think what's going to drive equity prices and frankly I don't think anybody knows for sure what's coming next in this market. So it really comes down to your geopolitical outlook. I think all of us are vulnerable to allowing our personal politics to bias our judgment as investors. So remember, this uh market reaction is not going to depend on what you think or what I think.

should happen. It's gonna depend on what actually happens. And I don't think any of us know with any real certainty exactly how this is going to play out. Eric, I'm gonna keep my analysis very simple from a technical perspective. We're remaining below the fifty day moving average. Uh we're breaking lower highs and lower lows. There is clear distribution. The bears are in control and uh in the driver's seat on the short term on that distribution side. We continue to see all rallies failing.

uh at Fibonacci zones, which is all indicating uh that generally the distribution cycle is still in play. Now, while we have seen uh substantial increases in bearishness as uh the sentiment is pivoting, we've seen huge spikes in volatility index and other things that are signs that you typically would see from oversold conditions. But right now with enough of this global uncertainty here, uh, this could be an overhang that keeps this market distributing.

Now, Eric, we certainly can't rule out that at some point the Bulls will reverse this and counter trend it. This is again the environment where hedges are in critical. And we've talked about them over the last couple of weeks with our listeners. And I continue to advocate that portfolio insurance here makes a whole lot of sense.

All right, Eric, let's talk about that US dollar. Now Patrick, by recording time we were back down to a high ninety nine handle, uh after surging. above a hundred and then below a hundred intraday on Friday. I think by the cash close we were back over a hundred again. So we're right on that hairy line between ninety nine and a hundred. The question to ask is whether we're topping out here at overbought resistance.

on this uh technically overbought market, or if the strength that we've seen in the dollar so far is just be the beginning of a new bullish trend. Once again, I think the answer depends on your geopolitical outlook. Sorry folks, that's gonna be the answer for most things this week. And there are plenty of strong arguments to be made in either direction.

I don't see any fundamental bullish drivers for the dollar here other than the flight to safety trades into the dollar, which are only going to intensify if the situation in Iran worsens from here. and if equity markets take a nosedive. So there's plenty of room for much, much more upside in the dollar index. But ultimately I think that upside would be driven by flight to safety trades.

in the Iran conflict. Someday when the Iran conflict wears off or or winds down, then I think it becomes a bearish it's time to sell the dollar there because I think it will be overbought and ripe for a major correction, maybe resuming the primary downtrend that was in play before this conflict arose. The question is timing. How much longer before this Iran conflict is over? Whenever it's over, that's the time I think you want to sell the dollar index.

Well, Eric, when looking under the hood of the dollar, the key thing is to observe is that the predominant weakness is coming from the Euro and the Yen, which happen to be very large weightings in the dollar index, but the story isn't uh the US dollar strength and all cross currencies weakening against it. We continue to see resilience in a lot of the commodity based currencies like the Aussie dollar and the Canadian dollar. And and that Euro is really where the drag is as

There continues to be growth concerns at a time when obviously their energy prices are under a lot of pressure, which is uh stressing uh the Euro right now on the downside. If we see Euro breaking some of these key levels, That is going to be a huge bullish tailwind for this dollar index. Now we're at a the top of a almost a 10 month trade range.

Uh and if the dollar index makes any progress above this hundred level with momentum, we've got ourselves some sort of a strong uh US dollar counter trend move. And so uh we have to watch whether or not this gains momentum from here.

All right, Eric, let's touch on crude oil. Well, as I already discussed with Rory Johnston, the Oman benchmark traded over one hundred and eighty dollars this week. Obviously logistic complications are part of that, but it's still an important price signal. I'm sorry to sound like a broken record, folks, but it's the geopolitical outcome i with Iran that's going to drive everything.

As Rory Johnston said, I think it would be foolish to assume that hey, uh it's gonna be just a couple more days and the Trump administration is going to completely end this thing. even if it ends this week. we still have probably a couple of months at minimum just to clear the system out and get things back to flowing as usual. And the longer that the conflict wears on, the more that effect is compounded and the more of a mess we're going to have to unwind.

So the longer this continues, the more it's going to affect oil prices and cause a continued increase in oil prices and the inflation signal that that drives. And eventually it becomes a self reinforcing vicious cycle of increasing inflation, driving even more uh extraction cost, price increases.

higher oil prices and so forth. Hopefully we don't get to that point where that self reinforcing cycle kicks in. All right, let's move on to gold here because we just got ourselves a little bit of a a down day here on Wednesday. Uh what's your take of what's going on? The low print on the january thirtieth correction was forty four twenty three, four four four four four four four two three. That was a near perfect test of the fifty day moving average at the time.

But that happened in the middle of the night in very thin liquidity. So something I said right here on Macro Voices just a few days later was we should watch for another test of the fifty day moving average. during regular trading hours, not extended trading hours. Well, we got that on Wednesday and it also coincided almost perfectly with the thirty eight point two percent Fibonacci retracement level of that january thirtieth correction. There was also a trend line there as well.

So three major support lines all broken at the same time. So there's a very good technical argument that could be made here, which is that that regular trading hours test of the fifty day moving average was the buy signal. The bottom could be in already. except we went right through it and we're trading considerably below it at recording time. I'm looking at forty eight twenty four as we're uh r recording right now.

selling off more in futures trading after the close. These are all ominous signs and frankly there's not a lot of obvious support until we get to the hundred day moving average at forty five ninety one four five nine one.

So I I think we're probably headed in that direction unless there's a sudden change in the fundamentals. But it's also clear that there's been a breakdown of correlations between precious metals And the usual you know, if it's uh increase in tension in Iran, more geopolitical upset that would normally be up on precious metals.

That broke down on March second. Gold is not trading up on geopolitical escalation the way it was before March second, and frankly I've yet to hear a really good explanation for why it isn't. So I don't pretend to know what comes next, but it sure looks to me like we might be headed towards a forty-five handle, if not lower. That's the next obvious support level uh below the current market.

So either we get a bounce here and the fifty day really was the the trading signal that it should have been. Or if we continue to see this uh weakness below the fifty day continue through the day on Thursday, I think we're probably headed down to forty five ninety one, maybe forty six hundred on the hundred day moving average by the time we get there. Well, Eric, my view on gold has uh remained unchanged for the last month.

After we saw that key blow off top on gold and that huge reversion, uh typically uh if if we look at the last four consolidations of gold. It took as much as two to four months of gold consolidating before it attempted to break to fresh new highs. At this stage, that analog is the one that can we continue to see here on gold as we saw some retesting of highs and this sideways consolidation continuing.

Overall, um, after this consolidation finishes, there's lots of room for gold to go higher, but uh at this stage I think it'll be deeper into the second quarter before we see a meaningful turn up. Could how low could this uh gold correction go? Well, uh the first level to watch on the support side is this 4800 level we're trading down to right now, which is a fib zone uh of this retrace.

Um, if that doesn't hold, I mean, there is always the possibility we head back down toward that forty five hundred level and forty four hundred dollar level below. But if that uh was to happen, that would probably be a compelling buy-on dip. Uh to take advantage of.

All right, Eric, what are your thoughts here on the fact that uranium continues to just consolidate sideways inactively? Well, Patrick, the fundamentals are uber bullish and they're only getting better by the day as we see more and more nuclear announcements. The nuclear renaissance is on and it's on strong. And the market for uranium and uranium miners is holding up pretty darn well considering how bad everything else is going. We didn't see as big of a downside as I was fearing we might see.

on uh the uranium stocks on Wednesday. We're still looking at forty nine spot oh five at the close on Wednesday on the URA ETF, which is the one that's most followed. That's uh still well above its two hundred day moving average, whereas uh the indexes have moved below their two hundred day moving averages. But frankly, I think it's headed for its two hundred day moving average, which is at forty six. Spot O three.

So we'll see what happens next. Uh broad market uh risk off event is obviously gonna take everything else down with it, including the uranium miners. I think it just sets up better and better buy the dip opportunities. The question is how big is the dip before it's time to buy uranium? Uh I I think the next obvious target is forty six oh three.

on the URA ETF, but let's see what happens with the broader risk markets because if we get an outright market crash here, as could happen if uh the oil prices continue to rise. Particularly if they spike over a hundred and fifty dollars, setting new all time highs, at least on the major indices. We're already there.

with some of the uh the other markets around the world. But if we get there on Brent and WTI above one hundred fifty, that probably brings on an outright crash in equity markets and anything could happen. Well structurally the chart remains bullish. Uh old consolidations are are being held, higher highs and higher lows, but it's just been a quiet period. Maybe the the lack of liquidity in the broader asset markets

uh could be uh just uh uh keeping this all contained. But overall, uh the charts are still on the bull trend and uh at major support lines.

Now Eric, I wanna just quickly touch on copper here. Copper Futures very decisively took out their hundred day moving average to the downside on Wednesday, closing near the print of the day, and they continued to trade substantially lower even uh after the cash close. as I'm recording. So we're looking uh actually already we're halfway down from the hundred day, which was the uh hopeful support line today.

The next support is all the way down at the two hundred day moving average at five spot thirty-eight. We're halfway there as of recording time. So uh it looks like that maybe where we're headed next on copper, unless we get a sudden resolution to the Iran conflict and a real resolution here. Lots and lots of signs across the board. from equities to precious metals to Doctor Copper, all closing down hard on Wednesday, near or at their low prints of the day.

uh and continuing to trade even lower on after hours future trading. Those are all ominous signals. that uh these markets are still headed lower. Now of course they can all turn on a dime on news flow. If there is a sudden resolution to the Iran conflict and the Strait of Hormuz is flowing freely and oil prices are

rapidly correcting back down into the sixties, then uh obviously this is all gonna reverse. But until they do, all of the markets, including Dr. Copper, are telling us we've got a serious problem on our hands. Now Eric, I want to focus in on some bizarre price action that we've seen in copper when it's overlaid on gold. Now typically precious metals trade in correlation and a lot of times these industrial metals

uh tend to uh march to their beat of their own drum independently. But when I uh here show an overlay of the gold and copper charts, For some odd reason, copper almost day by day, tick by tick, has actually been correlating with gold. Now why, I really actually don't have an explanation. Uh it's and I and I certainly don't know whether this will continue, but certainly as of this moment, when we're looking at this chart,

Uh it's undeniable that right now copper uh is just uh trading tick by tick with gold. I'm very curious to see whether or not this trend continues in the weeks and month to come.

Patrick, before we wrap up this week's podcast, let's hit that 10-year treasury note chart. What we've seen here is that it's uh trading right up toward the two thirty level. Uh, we had the FOMC meeting and the first reaction After the post FOMC was uh yields rising up to their uh one month ranges or multi month ranges.

It'll be very interesting to see whether this has started a new follow through and we see yields push higher from here or whether this was gonna just a fake out retest of the highs. Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of Big Picture Trading. The details are on the last pages of the slide deck or just go to bigpictrading.com.

Patrick, tell them what they can expect to find in this week's research roundup. Well in this week's research roundup, you're going to find the transcript for today's interview. You're going to find the slide deck that was put together by Simon White. And you'll find the trade of the week chart book we just discussed here in the postgame, including a number of links to articles that we found interesting. You're going to find this link and so much more in this week's research roundup.

That does it for this week's episode. We appreciate all the feedback and support we get from our listeners. And we're always looking for suggestions on how we can make the program even better. Now for those of our listeners that write or blog about the markets and would like to share that content with our listeners. Send us an email at researchroundup at macrovoices.com and we will consider it for our weekly distributions.

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