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younger Americ Americans. That's the future of America are 1,000% against this. And and this war is is going out of control. And you know, it's really insulting to watch America's position in the world where the president just bullies and name calls and and basically harasses uh foreign leaders all over the world and many of our allies to the point now where he's calling them in to help uh open the strait so that so that these very important oil ships can get through.

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Marjorie Taylor Green, etc. So that coalition is done. The Republican Party as currently constituted will not continue because it doesn't represent its voters. It doesn't even try to represent its voters. In fact it shows open hostility to its voters. So nothing like that can continue for very long because it doesn't make any sense. It's a bicycle with square wheels. It just it's ludicrous.

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So the question is what comes next so the voices you just heard there were one time stalwarts of the Trump campaign. You had Marjorie Taylor Green or as Donald Trump recently referred to as Marjorie Traitor Green and Tucker Carlson. These were die-in-the-wolf Trump supporters but recently they have become completely disillusioned with Trump's antics in Iran. He has gone against all the America first bombast at these large rallies. So Marjorie Taylor Green gave that interview on CNN of all places and Tucker Carlson was being interviewed by Pierce Morgan earlier this week I think and their comments are really striking insofar as Trump's biggest risk now is that he has alienated his his own base and I think Marjorie Taylor Greene in fairness to her it's not often that you would agree with her given her extremist views in the past but she hit the proverbial nail on the head talking about younger American voters being completely disillusioned with Trump. Another mad week in financial markets and one of the most interesting things that I've been looking at is some work from former head of Goldman Sachs commodity research Jeff Curry. Jeff Curry was giving an interview and he described the current situation in the Middle East with ballooning energy prices as COVID in reverse. So we all remember COVID and 2022 there was a demand shock a demand shock driven by governments mandating their citizens to stay at home. So when you got a demand shock the oil prices collapsed and the oil price had to adjust negatively and that became so extreme that when you remember oil price went negative. So Curry explained today's situation as the inverse in terms of a supply shock not a demand shock but a supply shock and again oil has to price adjust and what we get is huge volatility in the price of oil and his view is that there is no policy solution here. Trump has in a sense made his bed and he's going to have to lie in it. According to Curry the damage is done and it's hard to disagree with him when you look at the recent escalation with Iran now attacking Qatari gas infrastructure that huge LNG facility in Qatar? So the main questions coming out today for me are why are oil prices not at$1500 a barrel? Why is the energy market so complacent and is that about to change? Why are equity markets so sanguine is that about to change? Do equity markets need to sell off violently in order for Trump to pull back and capitulate? Remember the main thing Trump worries about is the stock market. Why do US politics still matter? And why is this demand destruction argument so important? And is that eventually how this thing ends? So I think I've covered the first question and I agree with Jeff Curry's view that energy prices are not reflecting oil prices particularly are not currently reflecting perhaps the truth in terms of this is a serious major event insofar as Iran gone completely rogue and that was not on the cards and the first three weeks of the war ships in the in the Strait of Hormuz were attacked shipping was attacked you had even attacks on airports in in United Arab Emirates but now you have oil and natural gas infrastructure oil production being attacked and whereas if the Strait of Hormuz closes it might take three four six months to get oil moving again when you completely devastate or destroy the largest natural gas infrastructure refinery in Qatar Qatar Energy has said that 17% has been damaged and it may take five years to replenish and this is permanent damage really to the natural gas infrastructure. Looking at the second question in terms of why are equity markets so complacent it's useful to look at the performance year to date the S P 500 is still only down as of Thursday 19th of March below 4% the Dow down just over 4%. Got the Nasdaq down slightly more interesting about the Nasdaq the Nasdaq has performed better um in the recent month and we've seen that kind of move into tech stocks in the US relevant to the more cyclical areas which have sold off a bit more violently and that's the IL story. So I remember earlier in the year there was a lot of focus on the the AI story, the tech story AI concerns about AI and CapEx is going to influence the NASDAQ whereas concerns about the more cyclical sector definitely going to impact the likes of the the Dow Jones industrial average. If you look at the interesting looking at the UK market is still up year to date even though it's seen a lot of volatility recently the DAX and the CAC the French stock market have been pretty hammered both down over nine over almost nine percent and the last month. When we consider that Nikkei again is down almost four almost eight percent on a monthly basis just tells you about the strength of that recent rally with Japanese stocks. As expected uh we seen a significant enough pullback in gold. A lot of people expected gold to rally hard. As discussed last week we we didn't see a huge rally in gold just because of its momentum in recent months and years it just blew through$3,000 an ounce and so we get this relatively healthy correction pullback. Again gold tends to move inversely with a stronger dollar and all this talk about the US dollar not being a safe haven the dollar we had seen the dollar rise in recent weeks relative to other countries current currencies but we are now seeing other currencies rise and I think a lot of that is on the back of central bank. It was a busy week for central banks this week with Bank of England, the Bank of Japan, European Central Bank and the Fed all signalling really that in light of the the main word is uncertainty in light of the uncertainty around inflation expectations um the Fed is is holding they're not going to cut rates which was priced in by markets they had rate cuts priced then but there's talk of the likes of the Bank of England Bank of Japan potentially raising rates and and then the obvious reason for why you might see dollar weaknesses the obviously interest rate deferentials movements of currency markets as funds flow from one jurisdiction to the other. There was some signs of an American capitulation we saw Scott Bessent talking about a move on Iranian Isle whereby they were going to remove sanctions on Seaborne and Iranian Isle. Trump had also sent a tweet out distancing himself from Israeli action. So there are perhaps signals there of a softening position from the US there are risks obviously if there's a a distinction or a growing divergence in US Israeli relationship in relation to this war and there's a fracturing of that what confidence can there be that both will follow each other down an off ramp? Okay we've seen the hardline Israeli action obviously over the last number of years and will they follow suit? It's probably will but again it's just another layer of uncertainty. In terms of politics this is the main thing we've got a midterm election coming up in November and there is just huge disbelief amongst Republicans if you take a very cold callous political view of this why did Trump go ahead with such a drastic policy foreign policy that was going to alienate his base that was going to put pressure on candidates during the upcoming November midterm elections. There seems to be huge angst about that decision and we know politics is always local so just one example of that is if you look at there's been some rumors that the US may put some restrictions on oil exports in order to satisfy the domestic market. We've got upcoming Senate elections both of the Republican candidates are in a very tight decider with their Democratic counterparts in the largest export producing states Alaska and Texas. We had Dr. David Kelly the chief global strategist of JP Morgan Asset Management as our first guest of this series and I follow David's Notes of the week podcast excellent podcast I'll put it in the show notes but last week he focused on what kind of questions do we ask and are we asking the right questions? Because a lot of people have been asking what happens next David? And that's not the right question. The real question that matters is how does this end? And if you looked and studied history and any supply shocks, energy shocks throughout history it essentially has a usual playbook demand destruction and the old quip goes the cure for high commodity oil prices is high prices and that just makes kind of sense the price of oil goes to such a height that it kills demand for the commodity it causes a global recession slowdown. And there is some evidence of that you look at commodity prices copper is falling like a stone as I speak on March 9th but is that view right is a structurally higher oil price energy security premium now going to be embedded in oil prices given that the gloves have come off the rules of the game have changed and there has to be a risk premium associated with oil as a national security there is another view that no matter what happens now if there is some sort of of an agreement if there is some sort of a de-escalation that the cake is baked in terms of countries are going to become much more cautious in terms of their own energy security they're gonna stock up and oil prices are going to remain elevated. This has real implications for the flexibility that central banks have in terms of their monetary policy remember what was priced into markets was that central banks were going to cut interest rates and we know that the stock markets love lower interest rates. So if we're in a structurally higher inflation regime interest rates will stay high and that has negative impact on economic growth negative impact on credit demand and credit flow and also negative impact on the present value calculation of future cash flows with equities which means that stock prices may come under pressure. So we then finally drip into how does this all end we talk about the wealth effect so for the last decade even longer than that many investors have become extremely wealthy particularly the baby boomer generation they've seen their stock their their portfolios pension portfolios perform extremely well and there is a wealth effect a positive wealth effect associated with that what happens when that goes in into reverse you could see lots of volatility now this isn't all doom and gloom there's always opportunities in markets but trying to understand the most important thing at the moment it has to be what's going on in the Middle East does that mean we forget about everything? Else absolutely not there are concerns about private credit which we might bring take up next week and there has been a study out I saw saw some reference in the FT to the fact that yes there may be an issue with private credit but it's not systemic risk along the lines of what happened in 2008 because it's relatively small compared to the systematic nature of that liquidity crisis in 2008 and the collapse of Lehman Brothers. Best way to understand financial markets is to think about assets as telling you a story we can see that gold is down we can see that bond yields are rising short-term interest rates are rising and we can see that stocks are selling off so what can we take from that? There is a repricing of risk in the sense that inflation expectations have risen. If inflation expectations are going up then central banks are like likely to be more hawkish, likely to have more tighter financial conditions and that means that investors are pricing in more volatility perhaps not just in the short term but also the long term question that is an obvious one is how high could oil prices go? I know that James Hamilton has done a lot of work on this notion of demand elasticity and he's found that an increase of 10% in oil prices leads to a decline in demand for oil of between 0.5% and 1% in the short term. So we know that countries have significant supplies and some have more than others of petroleum supplies the likes of Japan for example there's talk of them running out of petrochemicals for fertilizers Australia is running out of jet fuel we know that there's evidence that Pakistan and Bangladesh is shortening their work weeks, closing schools. So this vulnerability of oil supplies leads to heightened geopolitical risk and this as I said earlier will mean that countries will build up their strategic reserves so even if this thing ends there is still likely to be structurally higher pressure on oil prices. Europe as we know is very reliant on gas. In terms of who are the winners and losers again back to that point we talked about last week it's obviously Russia now is seeing a bonanza in terms of its oil prices. Sanctions lifted China is very self-sufficient utilizer has reserves of natural gas eight months of strategic reserves in an inflation environment bonds are a bit more precarious because typically bonds fixed income acted as the ballast in your portfolio protection when stocks did went up bonds went down when bonds went up stocks went down that's a little more tricky if you look at the interview that I did with Sebastian Page we talk about that we talk about that and how it's difficult to moderate risk if you are primarily in stocks and bonds in an inflationary environment then it's gold. Does gold work but you gotta look at the rising rally in gold so gold is volatile as I said with my interview with Ronald Peter Stefler. So gold may not be the answer is it commodities you say well how do you hedge out inflation risk? Maybe it's you own inflation but if you have a view that oil is extremely volatile and if maybe it's not structurally as it's not going to remain structurally higher then you know trading in oil and buying oil is risky as well so is it hedge funds is is it is it is it cash is it bonds is it you know high quality equities the bottom line here is you need to be a bit more thoughtful in your portfolio construction process and giving yourself the knowledge to understand what's actually going on in the world is probably a good place to start. We've had about six episodes so far some fantastic guests the feedback has been absolutely phenomenal and please do send any future guest recommendations or any feedback at all we would appreciate it. This week we had Professor Russell Dapier talking about financial history and financial repression a lot of good feedback on that interview and part two of that is coming up next week we finished off the interview with Sebastian Page Sebastian is the chief investment officer with T Raw Price and a very special guest coming up next week a geopolitical expert an expert Middle East won't mention the name yet but really important in terms of relevant information for you on how to deal with the current situation. So I'm going to sign off and wish you luck out there it's not an easy environment for those trying to manage money or for those that have funds in this market. It's certainly volatile out there is it going to get more volatile probably remember that the markets in reality have barely moved the equity markets so it may take a lot more volatility for President Trump to capitulate it may in some type of weird sense actually be in the interest of world peace for this market to sell off more. But just remember that if you own high quality assets whether that's equities fixed income hedge funds you will be able to withstand the major volatility in this market. And if you're a long term investor speak with your advisor and ensure that you have a plan and that you have a proactive plan. I will say that the nature of this podcast and the information that I give here is only information. Although I am a qualified financial advisor and a certified financial practitioner and a trust and estate practitioner I have to say that all the information that I give here is for educational purposes only and it's not constituted as financial advice. You need to get expert financial advice before you make any decision in relation to your finances or your investment decisions or any financial planning that you take. That's critical. I hope you enjoyed the show