Weekly Market Wrap - Are we sleepwalking into a Global Recession!

The global economy is teetering on the edge of a stagflation nightmare—and most investors are blind to the looming disaster. Are we underestimating the true impact of rising oil prices, geopolitical chaos, and collapsing European bonds? This episode uncovers how a potential recession is rooted in soaring debt levels and a potential shutdown of vital trade routes like the Strait of Hormuz. Journey beyond mainstream forecasts as we explore why credit, often ignored by traditional models, could be the decisive factor in triggering the next financial crisis. You’ll discover the overlooked warning signs: exploding private debt in Australia and America, the widening risk premiums in Europe, and the geopolitical tensions that threaten global oil supplies. The narrative that markets are resilient is challenged—warning they’re blindly pricing in a false sense of security, ignoring the long-term risks that could send stocks spiralling and push commodities like oil and gold to historic volatility. We break down the mechanisms of a stagflation scenario—where sluggish growth, rising inflation, and financial market collapse collide—and why central banks won’t be able to bail you out. This episode is essential listening for investors, policymakers, and anyone who refuses to ignore the signs of an imminent economic upheaval. Whether you're concerned about geopolitical conflicts, energy shocks, or the fragile state of global debt, this episode gives you a rigorous, reality-based view that might just change the way you see the future of finance. Don’t miss out—getting this perspective now could be the difference between being prepared or caught off guard. Prepare for an eye-opening look at what the next few months might hold for the global economy—and learn what you can do to protect your wealth before it’s too late.

Transcript

SPEAKER_05 0:14

Go to the window. Open it. Stick your head out and you know.

SPEAKER_04 0:23

If I want a man I wanted five years ago, I'd take a few one of this plant.

SPEAKER_05 0:28

Speak as you might to a young child or a golden retriever. It wasn't brains that got me here, I can show you of that.

SPEAKER_00 0:37

I've always been a non-orthodox economist. I've always criticized the mainstream and tried to look to alternative, what I regard as more realistic ways of modeling the economy. And I discovered the work of Hyman Minsky in what he called the financial instability hypothesis. Then in 2005, I took a look at the level of private debt both in Australia and America and realized that the level of private debt compared to GDP was growing at an exponential rate. It had to stop growing at some point. And when it did, credit would go from being a adding to demand to subtracting for demand, and I expected to be a huge financial crisis as a result of it. Now, mainstream economists don't even look at credit because according to their theories of how banks operate, they see banks as just agents who enable one person to lend to another, and therefore the level of credit doesn't affect economic activity. That's what they assume. Now I knew that was false. So I started looking at the level of private debt and said when it stops growing, there'll be a huge crash in demand, and we're going to get a rerun of the Great Depression.

SPEAKER_01 1:39

So the voice you heard there was Professor Steve Keene, and Steve has just wrapped up a long-form interview with the diary of a CEO host, Stephen Bartlett. And after he wrapped up that podcast, well, he had to do an interview with the second best podcast in the world, which is the most important thing. Great news is that Steve will be on the show next week, and really interesting interview. Steve is what you call a non-traditional economist, and we want to give different views to maybe question the status quo, maybe question the theories that are out there. So Steve is really, really interesting. So you'll be delighted to hear that there's other things going on in the world besides the Middle East conflict. So outside of the situation in Iran, something else that's been of interest is looking at European government bond yields. So on this chart here on the left, what you can see is the general government net debt, and the countries obviously we've got Japan, Italy, France, the main culprits in the Eurozone is are Italy, France, UK, obviously Germany, much more fiscally prudent. And what we can see if we look at the tenure government yields of those countries, then highlighted in yellow, we can see that the UK is in a pretty tricky spot at the moment, yields heading towards 5%. Italy and France, the spread between Italian and French government debt has relative to German bonds which you can see in in green, has widened. And and that is investors pricing in some additional risks. Given it's likely European countries are gonna have to start spending more money on defence. It's likely that these European countries are gonna have to have a higher defense budget, which means likely higher fiscal debt, leading to higher yields. But it's actually interesting in terms of this all comes back to America because when capital perhaps flows out of the United States back to some of these European countries, um that will put pressure on US government debt and US tenure yields yields might uh rise as well. So this is a global phenomenon, but the comparative advantage of the more fiscally prudent countries, and let's say, for example, the northern European countries we can see and the Nordics, Austria, Denmark, uh even Ireland. I mean, the yields much lower uh relative to our other European brethren, let's say, and the United Kingdom.

SPEAKER_02 4:24

Uh that little detour didn't last too long.

SPEAKER_01 4:27

Some of the main developments, I'm recording this uh late in the evening, 2nd of April, trying to make it as uh up to date and relevant as possible because this is the uh weekly market wrap. We can see that Brent Crude settled uh 7.8% higher at 109 approximately dollars a barrel, and this was after Trump's President Trump's warning to Iran, uh and this was in his speech uh to the US domestic audience last night. Wex's West Texas intermediate jumped to more than 11%, and this has closed at its highest level uh since mid-2022. Surprisingly enough, the SP closed a point one percent higher, uh, even though oil prices were rising as well. Uh, traders have attributed the main reason for that because of reports, media reports from Iran that Tehran was in talks with Oman uh to manage passage through the Strait of Hormuz. So, according to reports, a liquefied natural gas carriers among three Umani managed managed ships uh that appear to be transiting the Strait of Hormuz, according to ship track tracking data from marine traffic. We can see the chasm between European leaders and President Trump becoming wider again. Uh outspoken French President Emmanuel Macron uh labeled it unrealistic uh that the Strait of Hormuz could be opened by a military operation. And there was discussions between uh forty-one Allied nations to discuss how to reopen the waterway. I think it would be naive uh if we didn't uh think that there was discussions, back channel discussions ongoing uh in relation to uh a diplomatic agreement that didn't include the United States uh because uh it's not going too well for Mr. Trump uh with his 15-point plan. So there's a bit of upheaval internally. Uh we seen that Pete Hegsit got rid of uh his Chief of Staff, General Randy George, and we also see that Pam Bondi has just got the sack, uh just came across the wires there about an hour ago, and we know that he was very unhappy with her because of what he perceived as mishandling relating to the Epstein files. So Mr. Trump has a lot in his in tray at the moment, um a lot of distraction. So, where do we go to from here in relation to the Middle East? It's obvious that Iran is playing the long game, they are playing the pain threshold game. Iran's pain threshold is much higher than Trump's, than the US. Iran doesn't have an election coming up in a couple in a few months literally. I think investors are beginning to realize that they basically need to ignore Trump. Uh, President Trump is like the the boy who cried wolf, and this flip-flopping around is eroding any credibility he has or his team has in relation to to getting a deal. As I said, the pain threshold for Iran is much higher. And they need to build a serious deterrent so that the concern for Iran, if you were in Iran's shoes, you would be you would be thinking that Trump is just gonna get past the November uh midterms, and the day after the election he's just gonna hammer Iran again, and that is the big concern they have. And there's been a lot of talk about regime change uh in Iran, but perhaps it's gonna be a regime change in the United States, and Trump ha is at an existential threat. It's not just the mullahs, it's not just the uh leaders in Iran that have a an existential threat. President Trump has an existential threat. And a lot of people have been uh comparing the stock market reaction if this thing de-escalates to what happened last April with Liberation Day and the trade trade announcement. This is completely different. Trump could make these pronouncements in the White House lawn and then the very next day, unilaterally, uh on his own, decide to change, make changes, make amendments. You can't do this with oil, it's completely different. He doesn't hold all the cards to use his analogy. I think Iran has all the cards at the moment, and that's becoming more and more obvious. We're heading into a st or we're in probably a stagflationary environment. What that means is sluggish growth, and China has a factor to play here. Uh there's deflation in China, there's demand has cooled considerably, and in an environment where the second largest economy in the world is has a it has a deflationary uh twist, you're looking at in rising inflation because of the oil major oil price shock. So I believe it's likely we're heading for a stagflationary environment. If this persists, there's no doubt global recession is baked in. If this persists, everybody says it's going to be another week, two weeks, but you know, there is a lot of damage already built up in terms of disruption to uh supply chains. The problem with a stagflationary backdrop is it compounds the problems for financial markets because both stocks and bonds uh become positively correlated in in a sense that they both underperform. And uh central banks can't ride to the rescue in an inflationary, stagflationary backdrop. So my view is that the market hasn't priced any of this in. If and I'll take a look, I'll wrap up by taking a look at equity markets globally. And so the market is looking through this, uh assuming it's all going to end well, uh, and it might, but it's definitely not pricing in the major uh uh supply shock, probably the event that oil traders, uh oil experts were pointing to could be a nuclear option. This is Iran's other nuclear option. There's a lot of focus on uh nuclear weapons, but but basically blocking the Hormose Strait is the Armageddon for the global economy given our over reliance on oil, particularly in Europe and Asia. My view is that the market is looking through it. That's likely a mistake. If there is going to be a persistent slowdown, if there is going to be a persistent blockage of the Hormose Strait, we're gonna see a bear market in stocks. Uh, that's inevitable. We might just look at some of the year-to-day performances of the major indices to just re-emphasize that point. But before I do, I have a map there of the countries in the Middle East, uh, and what this shows is the crude and petroleum products exports as a percentage of global consumption. Now we know that the East West crude oil pipeline um uh towards the Red Sea is uh alleviating some of the pressure, but it's really only a fraction. And there is consideration now I see where UAE, Qatar, uh Saudi Arabia talking about uh building more pipelines. We have to factor in that Iran, although they seem to be in a good spot at the moment, will not want to completely alienate themselves either from the Gulf region. We can only assume that China and India will not want this to continue uh indefinitely. But there is also a view that China is sitting back uh watching what's going on, watching the fracturing of uh relationships, the old allies, mainly European and the US, they're sitting back, they're watching this talk like uh the US pulling out of NATO. I mean this is hugely significant. And why should the Chinese intervene? Uh this is geopolitics one oh one, you would imagine, uh, in terms of Sun Tzu, uh what's the famous quote? I'm gonna butcher this now, but let the enemy destroy themselves. There was a very famous uh interview with James Carvel, the famous Democrat strategist and during the Clinton years, and he basically said about two or three months after Trump's election win, his last election win, that the Democratic Party should just in inverted commers uh roll over and play dead. And what he meant by that was that if you give Trump enough room, he will destroy himself. And that looks like it's it's playing out. Likely Trump is going to get absolutely hammered in the midterm elections. Post that election, all his allies are gonna desert him. Uh, it's likely that he'll be isolated, and you know, he's a sitting duck then. So before I finish up, I want to have a look at the year-to-date performance of some of the numbers here, uh, just to kind of re-emphasize my view that uh markets are really looking past this, and I find it mind-boggling that they are. Okay, so what we're looking at here is the performance of the major indices, the major global indices. Uh, and I'm looking at the year-to-date column here, and this is the SP 500, you know, down uh 3.72%, the Dow Jones 3.14. Um, we obviously have uh the Nasdaq uh a bit more impacted uh given the value, that's a valuation story basically. These heavily weighted in the Mag 7, obviously, uh as is the SP 500. Nikkei is still in positive territory. We look at the UK, so the so this is the argument towards uh rest of the world, international diversification, perhaps away from the United States. We can see that some of the European countries have underperformed, and that's not surprising given uh the comparatively higher negative impact of oil supply shocks on some of these European countries. Um, the FTSE 100 is stuffed with banks and uh energy companies, so again, that's explains uh its resilience in in this market environment. Then shifting over to commodities, obviously, uh crude oil, Brent, natural gas. Uh, you know, you can see yourself uh the positive volatility that you can see in those markets, and then we have if we're looking at gold, for example, again, quite interesting. Uh, has had a bit of a recovery, uh, up seven percent for the week, a bit of a sell-off again, uh, but still up year to date. I mean, and when you look at the year-on-year numbers for gold, uh 50.26. I mean, people I I can understand why people are surprised that gold had a a pullback. Perhaps the surprise for us is that it it didn't pull back even more. Okay, so to wrap things up this week, we have had some developments on Friday morning, April 3rd. Uh, Iran continues to attack uh oil refineries. So it looks like Iran is continuing its attacks singling out United Arbor Emirates, UAE, and Kuwait for special treatment. So there's been another attack on an oil refinery in uh Kuwait, and there's been the highest number of attacks on the United Armed Emirates uh since the middle of March. So there's special treatment there. We can see that interestingly enough, a French-owned container ship has sailed out of the Strait Hormuz. Uh the first and that's the first Western European-owned vessel uh known to have done so. Trump is at it against uh flip-flopping, saying that he could easily open up at the Strait of Hormuz. But I think, as I said, in investors, market participants are tuning out now. This development of a US advanced fighter jet having been shot down, uh, that could be important. Uh so pilots pilot or pilots have landed somewhere in Iran, and that's something that uh will develop, I imagine. Okay, so that's it from for this week. Tune in next week. We've got the conclusion of the geopolitics special with those two experts, uh, Dr. Konstantin Gurjev, well known to Irish listeners, and also Matt Gherkin from BCA Research. And we also have Professor Steve Keene with his insights. This is the nonconformist economist, controversial as always, but interesting as well. So, happy Easter. Enjoy the long weekend, the long weekend in Ireland, and I'll see you next week. Thank you. I like putting all my eggs in one basket and then watching the basket very carefully.

SPEAKER_04 17:43

I know that there's dangers, but I'm aware of them.

SPEAKER_03 17:46

And I look right at them, and they want to take action based on their understanding of the world. I do the opposite. I wake up every morning knowing that I don't understand what's going on. Okay, and that is the way we're gonna have to operate. Our understanding. If you can say something President Trump is gonna hear you right now, quote it. You are a worthless pile of the colour.