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- [00:08]
A
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices 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 Seresna. Macro voices Episode 524 was produced on March 19, 2026. 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 after the 4pm 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 Dr. Anas Alhaji'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 Post game 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.
- [02:30]
B
And I'm Patrick Ceresna with the Macro scoreboard week over week. As of the close of Wednesday, March 18, 2026, the S&P5 index down 221 basis points trading at 66.25 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 post game segment. The US Dollar Index up 97 basis points trading at 100 spot 21, attempting to bullishly break out of a 10 month trade range. The April WTI Crude Oil Contract up 941 basis points to 93.546. The War Premium remains as the uncertainty continues. The May R. Bob gasoline contract up 1204 basis points to 307 gasoline now trading at 3 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 84.75. The US 10 year treasury yield up 3 basis points trading at 426 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@macrovoices.com.
- [04:54]
A
And now with this week's special guest, here's your host, 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@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 because 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?
- [05:40]
C
Yeah, in space. I think that's, that's absolutely right. And Eric I think this is playing out in a way that's very analogous to the 70s, which is why I referred to a three act play there and I certainly could make sense to start here. I think inflation is probably the most mispriced thing 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 theme transitory is back and forth. If you look at the CPI fixing swaps for instance, they show quite a sharp rise in inflation over the next few months expected so maybe peaking out three and a half percent then very quickly goes straight back down. And within 12 months I think we're looking at roughly 2.8% in spot CPI which is only about 40 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 break evens. I mean the shorter term break evens have moved a bit more 2 to 5 year, maybe moved 20 to 50 basis points since the war started. But the 10 year has barely fast maybe 5 to 10 basis points. And I think the muscle memory is kicking back in that inflation will always go back to target. But I think that's, I think that's quite complacent and that's why is helpful to look at the 70s. No analogy is perfect, but the 70s does have an uncanny amount of commonalities with them today. And obviously the one thing that doesn't change is human nature. Human nature is immutable and inflation is as much of a psychological thing as it is an actual financial phenomenon or an economic phenomenon. The chart on the left was something I first used 2022, so almost four years ago. And it was uncanny because I updated it. And so the blue line shows the CPI in like level, not the growth from the late 60s into the late 70s, early 80s. And the white line is today. And so I updated it and we're kind of bang on today at the end of Act 2. So the way I thought about it is Act 1 was kind of when inflation first started hits new highs. So this time around that was the pandemic and first climb around in the 70s. It was on the back of we had a lot of fiscal easing because of the Vietnam war. You had LBJ's Great Society, Medicare, you already had quite loose fiscal policy. Inflation start to creep up much higher than expected. And then we went into Act 2 which was kind of like the premature all clear. And that's where it was just 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 faults fairly quickly. And that feels like where we've been over the last couple of years. But you know, stubborn inflation as we know has proven very stubborn. It's not gone back to target, it stayed above the target rate. So it's remained elevated. And if you look actually where that Act 2 ends, you match it up to the 70s pretty much by now, October 1973, which is the beginning of the Yom Kippur War. And that in itself is a comparison that's worth looking at. There's a lot of differences with that war, but there's actually a lot of 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 states led by Syria and Egypt on Israel and they attacked Israel on Yom Kippur. 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's looking less likely now. I mean, I think polymarket as an end of April ceasefire now down to 40% probability from something like 65% not that long ago. And you had obviously a major oil shock in response to this, this, this war. Because what happened after the war, after the three week war was that the US CD to Israel and the Arab states decided to have an embargo on oil and that created this, this huge oil shock. So oil prices managed to quadruple in a matter of months. That's quite a significant oil shock. And then that led to the Act 3, which had the comeback for the Belgian Sea, had this massive rise in inflation through the end of the decade. And it really didn't end until you got Paul Volcker in with this exceptionally high interest rate hikes, the Saturday night special that really managed to break the back out of inflation. And if you look at some of the further commonalities, it's not just obviously what happened at the oil price. Not just that this was in the Middle east, not just that it involves Israel also. We go to the next slide in slide 3. If you look at the equity market back then, so the equity market back then, this was the time of the nifty 50. So this was a set of stocks that everybody thought they had to own. They had great earnings, there were great businesses and pretty much everyone owned them. Excuse me. And Similar to today. So they had very narrow leadership. In fact, it wasn't until the Tiny Fangs and the Magnificent Seven that we had such narrow leadership again as what we had back in the early 70s, you know, extremely narrow leadership as well. And that Yom Kippur war just before, just after it started, stocks had already started to sell off maybe 10, 15% in the months before the war. But in the following year they sold off another 45% and that was the largest sell off we'd seen since the, since the Great Depression. So we saw a significant stock sell off. Now that's not to say that we're going to get the same thing playing out here. There's a lot of differences obviously today, for instance, 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 Strait of Hormuz. But there is still nonetheless a choke point in the supply states. But I think it's worth bearing in mind that as a non negligible tail risk just given we are in a sort of not dissimilar situation. And the kind of nail in the coffin, if you like in some ways for why you should be perking up now to be attended to the risks is that valuations, even though we had this massive decline in stocks, this huge big bear market in 73, 74, the cyclically adjusted price to earnings ratio was 18. Today it's more like 40. And also the allocation of households compared to financial assets, which much lower back then, it's much, much higher back to date. So really there's a number of reasons why you could see things. We'd have to see a more deterioration obviously for to get anything like that. But given 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 inherently seems to believe, I think that there is some sort of tackle on the way and therefore it's not really worth marketing trading down too much. I mean even if you look at like the food spreads, so the base went up initially. A lot of that was. Well, first of all was driven by cold spreads falling and then it's driven by food spreads rising. So people were putting on their insurance, but then they quickly monetized. I think those monetize those hedges that food spreads start to come off and so the VIX 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 new highs. Again, this is not something to get overly unique in the twist about. I'd argue again, along with inflation, that's something that is beginning to look a little bit complacent.
- [13:22]
A
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 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?
- [14:14]
C
Yeah, I think that's 100%. I alluded to that. There are a number of differences. And so that puts you in a point where no analog is going to be perfect. But I think when you combine it, as I say, with the overall inflationary backdrop where we are in terms of this fiat play in the 70s, you could argue that what happened in the 70s were a series of bad luck that led to inflation rising. So you had the kind of ex ante conditions for inflation. As I mentioned, we had already the Vietnam War, we had the fiscal expansion on the back of the Great Society stuff. And then you had 1971 was Nixon closing the gold window. Then you had the Arab oil embargo, the Yom Kippur War. You had at the end of the decade, you had the Iranian revolution. You could argue all these things were bad luck, but there were also hitting a situation where inflation was already in a different regime. So I think that's the thing to note the differences that when you're in inflationary regime, lots of things can happen, right? Things will always happen. But if they hit when you're already in inflationary regime, they're much more likely to have bigger inflationary impact. That's where we are today, this day. It's very uncanny if we happen to look compare the two analogies that almost to the month when you get this sort of premature all clear ending is almost the month when the Yom Kippur war started as when the attacks on Iran started. Yeah, I wouldn't want to over labor. The point in terms of the analysis, there's so many precedents that makes it worthwhile looking a little bit deeper into for instance another one that's very interesting is an underappreciated fact that in the 70s the food shock was actually much bigger than the energy shock in terms of on its effect on cpi. So if you look at the weighted contribution from food and from energy in the 1970s, it's much bigger than it was for energy. And in fact food inflation was already rising before the energy shock. This time around we have the disruption to the straight of our moves that obviously doesn't just affect energy prices, it affects energy dramatic. 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, ammonia, there's a huge amount of sulfur flows through the strays. All these things go into fertilizer. And in fact, if we go a little bit further into the presentation, if we go to. Let me just find this slide, if we go to slide 8, we can see there actually you can see the two shocks. So the blue line shows the food shock after OPEC 1, the Yom Kippur shock and you can see again after OPEC 2, the Iranian Revolution. Both times the food shock was worse. And today already we have, if you look at the contribution to cpi, the US CPI that is from food, it's higher than energy already. So if you have this effect feeding into fertilizer prices, and that's what I've tried to show in the chart on the Right on slide 8 you can see this fertilizer proxy which includes some of these inputs I mentioned along with things like potash. When that starts to rise, it's a very reliable leap by the six months that food CPI will start to rise. So I don't think that is also being fully priced in. And especially I think if you take account of the fact that you have energy and food, I think it's very unlikely you're not going to get some second round effect that is going to feed into core inflation. And you get the sticky inflation that we saw in the 1970s and that's a lot more troublesome for the Fed. In one sense it should make a slightly 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, muted, sorry, next 13. Okay. The wars coming in, you know, whether he's going to lean towards the dovish or the hawker spectrum, you know, I certainly think he's more likely to be more like an Arthur Burns who was in the, in the early 70s at the time of the Yom Kippur War than he's likely to be a Paul Volcker who was in charge after the OPEC 2 shot in after the Iranian Revolution in 1979. So I think that further complicates the matter in terms of what the Fed's reaction function is going to be.
- [18:40]
A
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 the question is, 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?
- [19:06]
C
Yeah, I think that's correct Eric, in that the key message I think from that period was the war itself was very short, as you say, it was about a few weeks. But the impact was felt way through, all through the decade and it had a number of consequences. So again no analogy was perfect. But the human side of things doesn't change how humans respond. Human nature responds. It doesn't really change. In fact I can see that there's about two nature of the two different shocks if we go to slide six. So we've got two more charts there. And this just 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 a much larger inflationary shock than for instance has been picked up in the break even market. So the left chart we can see there is what breakevens did in the 1970s. So OPEC 1 and OPEC 2, both cases they ended up did rising, did rise quite considerably but the long after if you like CPI had already started rising so they were kind of late party but both times 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 shocks. So OPEC one was definitely more of a permanent shock to oil prices. So really oil crisis never really revisited their pre OPEC one or pre war, pre Yom Kippur war levels again they just Kept rallying through until OPEC 2 hit the Iranian Revolution in 1979. They rose sharply again, but nowhere near as much in percentage terms as they did in OPEC one. And then they sort of gradually started decaying fairly soon after the Iranian revolution. So the OPEC 2 was more transient because the more transient shot. But in both cases, if you look at the bottom panel of that chart, you can see core. And in the interim periods in OPEC 1 and OPEC 2 both made a higher low before rising again in the early 80s. And again, it wasn't until Paul Volcker got his hands on monetary policy that he was really able to put an end to this huge inflation that we had through that decade.
- [21:12]
A
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. 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 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?
- [21:51]
C
We're already in that. In my view, it's quite clear that what began in 2020 with the pandemic, the large spike in inflation, was the beginning of, if you like, that cycle starting. And really what's happening underneath is that why 2% inflation, for whatever reason is an arbitrary number, but 2% or around 2% inflation overall over the whole economy tends to be fairly stable. And I think that's because all the different actors that are taking price signals off one another, when inflation is not moving around that much, they tend not to get out of sync. But once the cash out of the bag, once you have this large rise in inflation which we saw in the early 2000s, they get 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 essentially in sticky versus the non sticky components. And what you notice in 2020 is both cyclical and structural inflation rose. Cyclicals start to fall, but the structural one remained more sticky. And by the time the structural inflation had started to fall, cyclical inflation, because you held by its name, is cyclical has started to rise again and start to reinforce structural inflation that was already elevated. And we're right in that period again now where structural has started to fall at a higher low, but the cyclical part of it is already rising again. And this war is just going to make it worse because obviously the immediate effect is on headline inflation. And so straight away you're going to see that feed through into the cyclical side of things. And once again, what was what, 2.4% where we are now and CTI maybe 3% at PCE, you know, they're going to look like again equivalent to what we saw in the mid-70s after the younger war. This is the point where we start to see a rise again. I don't know how far it goes. Again, the US is much more insulated than it was back then. But I think you do see a re acceleration. 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, quite the opposite, quite possibly, which is actually a bit odd. Just the slight deviation bit connected is it's kind of strange if you look at real yields have been rising. So real yields have been rising since the war and that's been driven by higher rate expectations. And so that's part of the rise in nominal yields. So break evens have moved a bit, as I mentioned, but really the bulk of the move so far have been real yields. And that's on the back of, as I say, rate expectations are going higher. That kind of this seems a little bit incongruous, you know, given and the conditions, 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 a couple of days ago and yesterday. So I feel that that is also adding to the structural kind of impediment for inflation to keep rising. And then go back to the yield point I was mentioned. So I think yields, as I say, are not priced for inflation shock. And I think one thing we'll see is the yield curve will steepen. So if we go to slide seven on the deck, I looked at basically how Grace Edens and real yield behaved in the 70s. Now there was no real yield in the 70s because TIPS didn't start trading until 1997. But you can synthesize a real yield. 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 and build basically a synthesized series of real yields in the 70s. So down the left there we can see again the difference between OPEC 1 and OPEC 2 and how the yields behave. So in both cases breakevens rose, but in OPEC one what happened is that you sort of shock to break evens, but then we had an equal opposite shock to real yields. That's textbook stagflation. What happened in OPEC 2? Price evens rose but real yields stayed largely static. And I think that was basically for two main reasons. One, the US response to OPEC one. So the US became less energy intensive and more energy efficient and a lot of non OPEC production came on stream 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 real yields could fall. So in OPEC one the 10 year yield maybe didn't move a huge amount because the real yield and break even canceled one another, whereas the nominal yield rose a little bit in OPEC 2. But the difference being in OPEC 1 and OPEC 2. So the OPEC 1 the curve steepened because we had Arthur Burns and he, as I mentioned earlier, was notorious for not believing that a central bank could do much for inflation, let alone a supply chalk inflation. He was of a 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 he got the staffers working on some of the first measures of core inflation. And then through 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. So we have this very kind of dovish banker who doesn't really believe central banker who doesn't really believe that inflation is something he can do much about. So short yields kind of fell. So they fell steepened in OPEC 1. In OPEC 2, yes, 10 yields were rising a little bit. But you had Paul Volcker who's massively reading them at the front ends of the curve. The curve flattened. But this time I think in some ways the curve response function could be more like OPEC one because I think that longer days and break even will rise. So I think that move thus far that we've seen this muted move I don't think that'll last and that this should rise more from the relative status and we're more likely to see, as I say, wharf, you're going to see lower rates. So I think lean toward the curve steeping this time as we saw in OPEC 1, but not just for reasons that OPEC 1 is 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.
- [28:18]
A
Well, if this was 1973 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 overlaps, 1973 was not a good time to have a long term bullish outlook on buying and holding stocks for the long haul. What does this mean for equity markets for the rest of the decade?
- [28:39]
C
It's interesting now. I mean, it depends who you speak to. And 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 equity and race people. You seem to be 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 along the way. But even more than that, I think the big difference is, is that 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 tail cover. So the commodity markets could really price in extremely negative outcomes, but they don't have a lender of last resort. So there's nowhere to go. If your commodity market sees us for whatever reason, there's nothing really can be done. There's no backstop in the same way that you have for financial assets. So I think that sort of explains why we have that today and 1973. I don't think we had that to the same extent. It wasn't this belief that the Fed was always going to protect equity return. So that's why you probably had that situation where you had this huge shock, much bigger than the energy shock we've got today combined with a measure. Yes, it was overall more dovish. But this is the decade, remember, of gold stock monetary policy, where loosened policy glacier 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 there's huge amount of volatility underlying there, which obviously makes it more likely or increases the chance that you can have 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 is overall being more complacent. Even with that in mind, that there is a backstop, that there is still a potential for some sort of tackle. It still seems to be some sort of complacency. And say what threw me, what draws me to that especially it's just looking at what's happened to put skew. You know, 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 the money puts here, maybe the market's not going to sell that, sell off that much, in which case I don't need this insurance right now. So again that sort of smacks to me just all complacent just because the distribution of outcomes are still very wide. Right. There's still a lot of moving parts here. Most unpredictable a lot is of course Trump himself. Back in the 70s we had a lot of volatility, political volatility, but again I don't think he 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. They want to make money but they're also kind of fearful that they can't really put much risk on because so much could change.
- [31:27]
A
Simon, on page 11 you say gold is a hedge against both tails. Elaborate on that please. But also I think it's relevant to point out if we're looking at the analog as being the 1970s, private ownership of gold wasn't re legalized until 1974. So there was a very big transition catalyst there where it became legal once again to own own gold bullion, which probably disrupts the data. How should we think about this in the 2000 and twenties?
- [31:55]
C
Yeah, that's a good point. I think there's also another disruption at the other side as well because the data on this chart goes back to the late 20s and back in the 30s was when essentially the US confiscated private gold ownership. So they confiscate gold, I think they paid $20 and then revalued at $35 an ounce. So quite possibly gold could have went up a lot more in that inflationary period of the 30s. I think that's why gold's misunderstood though, is that it is to some extent an inflation hedge. It's not a perfect inflation hedge. It's not dependent. But in extremes, when inflation goes very, very high and you're in that sort of environment, 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 downside tail hedge as well. And I think what has been driving a lot of the rally recently in gold is this is the lack of alternatives. If you start thinking about, I don't know what's going to happen. I don't know whether we're going to be in a debasement world where there's a lot of inflation or I don't know whether there's going to be a massive credit event and that's going to be deflationary. These are potential threats to the financial system. What can I own that has 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 won't work, that won't work. Bitcoin, that hasn't been tested and they landed upon gold. And a lot of people that generally openly admitted they've never ever really savored gold, they've never been a fan of gold and never understood it, are 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 this move. And although it's struggled a little bit over the last few weeks, I think it's premature to say that that's the end of the primary bull trend because a lot of the main reasons that were driving are still valid today. I mean, there's still a need for diversification from the dollar system. I still think with obviously a lot of geopolitical volatility, that hasn't changed. 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 going to turn tail and start selling in any great size. They bought some and they may stop buying it, but I don't see why they would suddenly turn tail, start selling en masse. There was a story that Poland was mooting selling some of its holdings. There were the reason why they were thinking of selling them was for defense. That doesn't really strike me as a great sort of a gold bearish kind of reason for selling your gold overall. So I think yeah, the general environment is still very conducive to gold still generally keeping to its primary bull threat. It's struggling right now perhaps because we see some marking up of short term rates, the dollars had a little bit of a rally, things like that. But overall I don't see why it would take a big seller to come around to really force into massive bear market. I just don't see where that's going to come from.
- [35:14]
A
As you said. Unfortunately what has not gone away is geopolitical excitement, for lack of a better word. The thing that I've noticed just in the last few weeks is there was a very strong positive correlation. You know, 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?
- [35:42]
C
Yeah, as I say, I think, I think potentially it's because of the real yields have risen that could be parted by the little bit of the rally 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 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 an insurance asset that's also can sometimes be a very liquid asset is it's often the one that's first to go. So it can give kind of counterintuitive signals. But overall as I say, I don't know what the narrative or the argument would be to stay that this is anything more than just obviously we've got to remember the market has rallied extraordinarily much in recent months. So there's perfectly respectable for it to have, you know, the kind of pause that it's having right now. Like it can't continue in that sort of trend indefinitely. But I don't think that means that the trend is over. So yeah, I mean I think silver is a far more obviously volatile but a far, a far more questionable kind of response to that kind of overall idea and trade. But gold to me seems certainly more secure just because as I say, the reasons underpinning its rally all seem to be mostly intact still.
- [37:03]
A
Now Simon, we've been jumping around in the slide deck. Let's go Back to page 4 because you've basically said you're rewriting the risk off playbook. That seems like an important book to read. Tell us more about it.
- [37:17]
C
Well, I'm certainly not going to rewrite it myself, but my point here is really that we talked about some historical analogues. They're useful guides, but I think you have to keep an open mind as the rules can change. So I think standard risk off playbook is 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 time. For instance, take the dollar. So the kind of quintessential risk off moment really was the gsc. And then the gsc, the dollar rallied. So I think that's for a lot of people it's like, well, you know what, that was the big one. And the dollar rallied. The dollar is therefore a safe haven. But really, if you look at what drove that and then you compare it to today, I don't think you can necessarily say that dollar is going to 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 the bond inflows, inflows from foreigners. So they slowed. Equities were tiny back then. Equities are much bigger today as far as foreigners are concerned. But what actually drove the dollar the rally was repatriation deposits. So the US basically mutual funds and banks have led to various European entities and it was these guys repatriating that led to the dollar rally. So it wasn't the case of foreigners channeling money in or needing dollars to cover structural shocks. It was really just US entities repatriating that led to the dollar rally. Now this time around, the cash flows are. The structure of this is different. So bond flows are much smaller now because we've had, because the US is now not seeing Treasuries, they're not seeing as much of a safe haven. And equity flows are now massive and the US outflows are not as large as they were back in 2008. So the net impact means that the US is much more exposed to equity outputs. 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 in the U.S. equity flows, as I say, tend to be unhedged. That is a dollar negative. And you don't have that cushion of the same cushion of dollar repatriation. So yeah, 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 Mar A Lago accord, all the talk of the dollar disruption to tariffs, 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 kind of like the dollar didn't bar. So the white line shows the dollar reverse. And what you tend to see is the blue line, which is reserves and denominated dollars. So when the dollar weakens, that is the white lines rise. The reserve managers are tending to buy dollars and tend to use the weakness in the dollar to add to their dollar reserve. And that signally hasn't happened this time around. So we've seen a big weakening of the dollar, but there's been no response yet from dollar reserves. I think that shows like a general change in attitude to global demand for dollars. So I don't necessarily see as I think it's all a rally will be as big the same. And Thus far the DXY, I think is up about one and a half, 2% since the war started. We go to slide five looking at, say commodities. So commodities as a risky asset is sort of seen as well if you certainly sell off in a recession. I think it's the general interpretation that isn't always the case either. If you have a commodity induced recession and if we are going to get recession, there's there's very little chance that in the next few months that that could change. If the war continues and the negative effects spiral. What often happens then is that commodities start to sell off before the slump and growth. But that sort of sell off in commodity prices kind of eases the growth shock. And actually that allows commodities to rally through the rest of the recession. So that may well happen again. We get a commodity induced recession, say later this year, next year. That's not a prediction, but if we were to get one, I wouldn't automatically assume that commodities are going to sell off through that.
- [41:22]
A
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 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 where is this thing headed is
- [41:44]
C
actually remarkably strong given I think the length of time of the cycle. And that really surprised me when I was looking at this. And it's also a little bit ironic I guess that coming into this war the US was firing in all cylinders. And as he mentioned, as I mentioned, that that's a war is perhaps just what it would take to derail it. And you have number of cycles for the US economy to be. Everyone knows about the business cycle. There's also the liquidity cycle, there's the housing cycle, there's the inventory cycle and there's a credit cycle. And all of them are actually in pretty good shape. So the business cycle, if you look at leading indicators have 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 real money growth and economic growth. So that really gives you a measure of what impact this liquidity is going to have on markets. So the bigger the gap between liquidity and economic growth that means the economy needs less, but that more to go into risk assets. That has been vacillating around as you can see the chart, but it turned back up again. And even taking a look at Kylo, we've seen some tightening in financial conditions since the war, but overall they've not been massive. As I alluded to earlier, the dollar's rally hasn't been huge either thus far. So liquidity is in pretty good shape and the general business cycle is in pretty good shape. Even taken into account the job market slowed down. I think it's possible to have a jobless growth. And some of the things that I would look at to see if there was a slowdown in growth coming such that temporary health is actually rising, not falling, average hours worked, it's kind of static. You would normally expect to see that fall as people cut hours before they start sacking people. I think you've got to remember that we have companies still got very strong margins. Their balance sheets are generally in pretty good shape. And then you've got this massive amount of government money still filtering through the system. So there's maybe not the same acute needs in the shorter term, at least for heavy layoffs. And 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 swing. If you look at OECD leading indicators for different companies around the world, almost all of them are turning up on six month basis and then if we look at the inventory cycle and that looks like to be turning up as well, leading indicators are ponding 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. Housing growth, sales growth has slowed down and things like that. But one of the best seeding indicators for housing is building permits. Building products are doing okay and they're actually led by mortgage spreads. We'll see quite a significant depression in mortgage spreads for various reasons such as falling bond volatility. And so you can't see that the housing cycle is in particularly bad shape either. And then we have the credit cycle. So we go to slide 10 the listed credit market from a fundamental perspective. My leading indicator there on the chart on the left shows that on net fundamentals are still pointing to tighter spreads. So things like banks lending conditions are particularly tightening in a particularly rapid way right now. Personal savings is still quite low which means there's more money to be spent which goes into back to corporates to their profits. So you've got this general kind of listed credit markets to pay. The weakest link though is private credit. And private credit I think is the one you do probably have to be most aware of. Obviously it's very apa unlike the listed markets. I've seen a number of cockroaches seem to be popping up with a little bit more frequency than probably most people would like. We had redemptions, big redemptions in one of quickwaters funds, JP Morgan loans and limiting the amount of lending it's doing to private funds. And really what kind of triggered this latest little bout or weakness of was the concentration of software companies that private credit companies probably have exposure to. And that was on the back of this massive kind of like constant leap in the performance of AI coding agents which leads a lot of software companies, business models, maybe not, 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 than they have before. So we're seeing this markdown in valuations in their stocks and obviously that's been reflected in the loans as well. And we're getting this visible. We can't see the loans themselves obviously because they're opaque. That's kind of a selling point the USP of the market. But we can't see the shares of BDCs and business development companies and they've obviously been falling because the market is obviously lied to. The fact that perhaps what they have underneath or the loans that they have aren't in particularly a good shape. And the vector here be like because there used to be. I remember this been an argument that was like well it's private credit. Something bad happens that can be contained because these guys are kind of insulating the rest of the financial system. But that's not the case. If you look at the banks have been lending to private funds and if you look at lending to non bank financial institutions that has mushroomed over the last couple of years, you're really seeing huge number of loans has been extended from the banking system to a lot of private credit funds. So there's your kind of vector of risk right there. If there is something more serious happens in private credit, it quickly transmits into the listed credit markets and then it's feasible of course that that's bad for to the rest of the economy. We've obviously been here before. Credit markets are big enough that they can do a lot of damage if they turn down very rapidly. So that's where we are in terms of the overall economy is strong. The credit market again fundamentals look okay. But the weakest link is private credit. And that's obviously the one to watch or watch as much as you can because of its capacity. It's kind of typical other than just watching red banner headlines coming up telling you which fund is doing what with redemptions. Otherwise it's very difficult to really get a proper handle unless you're in that particular space yourself of really what's going on. But certainly that's one of the biggest risks. But take that away. The U.S. economy is in a pretty good spot. The one thing I think that could really derail it would be a protracted war. I mean you ask how long it's protracted, I don't know. But the longer that we have straight upon those blocked, the more the. The 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 switch them off six months to bring them back on. So there's many of these hysteresis effects that will start to kick in. I think that's also one of the reasons why a lot of people in the commodity space are more bearish because they're kind of seeing this and they can't see any upside. 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. So I think that does have to color your view and a protracted war would definitely do a lot of damage to the economy.
- [49:10]
A
Simon, as you talked about private credit, it was kind of concerning to me because frankly it echoes in my mind to about 19 years ago, the summer of 2007, 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 at the time was don't worry, it's contained to subprime, there's nothing to worry about. Is this another setup like that?
- [49:42]
C
It looks very much like it. I think so does Ben Bernanke himself who said the housing is contained. That look, I go back to my kind of axiom that the one thing that doesn't change 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 the more kind of off grid they are away from regulation, the standard kind of emotions of greed and fear will kick in. Greed initially and people will start to take inflated risks to essentially earn money. Now what are risks later? Hopefully they can not be around when the proverbial hits the fan. And so I don't see why it wouldn't be any different. I mean there was even a story today, one of the credit funds. 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 CDO squared. So we had CDOs that are already going to need to rivet product. But people started making up these CDOs off CDOs themselves. And you know, I'm sure a lot of people at SIMO are thinking this probably can't end well. And you know, here we are again. There's nothing new in finance.
- [50:52]
A
Simon, I can't thank you enough for a terrific interview. Before I let you go, I'm sure a lot of listeners are going to want to follow your work. You kind of have to be somebody special and have a Bloomberg terminal in order to access most of it. Tell them for those who are lucky enough to have that access where they can find your writing.
- [51:07]
C
So sure. And thanks again for having me on the show, Eric. So on the terminal I have a column called Macroscope comes out twice a week, Tuesday and Thursdays. And I also write for the Markets Live blog, which is a kind of 24 hour, five days a week market scroll that you can follow all the latest market developments.
- [51:27]
A
Patrick Ceresna and I will be back as Macro Voices continues right here@macrovoices.com
- [51:34]
C
it
- [51:35]
B
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 markets. 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.
- [52:09]
A
Joining me now is Commodity Context founder Rory Johnston. Rory, you Dr. Ana Salhaji. Really, all of the most credible experts felt the same way, which was, look, the strain of Hormuz getting shut down is probably not that realistic of a scenario. And I'm going back to previous interviews 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? How come the traffic is not flowing through the strait first of all? And then we'll get into what does it mean?
- [52:51]
D
Thanks for having me back on, Eric. As you note, I've been relatively kind of Pollyannaish about this for a long time. That it 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 1970s 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 straight, 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 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 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 war. 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, we saw, for instance, the IEA's Coordinated Strategic Petroleum release last week. That was good. 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, if you were planning this, you would have an IEA release lined up. You know, we saw that ahead of the Gulf War as an example. You would have had things like the Marine insurance facility that, that Besant announced at 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 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're going to see something that clearly the largest military buildup in the Middle east since the invasion of Iraq in 2003 was going to lead to something. But, right. We saw the same kind of buildup 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, kidnapped Nicholas Maduro 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 Delsey 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 the Trump administration embarked on what at that stage was a fairly stark break from US Military policy towards Iran, which is, you know, it directly engaged in 14 dropping 14 bunker buster bombs on three, the three main Iranian nuclear sites at Fordow, Natanz and Isfahan. And again, if you remember, and I'm sure you remember this, Eric, like the Monday when that or 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, you know, by the middle of Monday, we saw this kind of symbolic retaliation from Iran and then Trump saying, we've got a p. We've got a ceasefire deal. And Then I think crude ended the day down $10. That was kind of my framework for what is expecting out of this conflict. And by that token, I had 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 Deli 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 closed, even when we've had acute violence, acute attacks in the strait. Back in the 1980s 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 450 ships attacked. You had 250 tankers attacked, and 55 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, very, very few. I mean, the, the estimates vary, but basically like between a 90 and 95% reduction structurally now through the Strait of Hormuz. And with things like insurance, I think there was this expectation like, okay, maybe at the beginning it was a lack of insurance. 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 going to 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, that is now by the latest estimates that I've seen published by Bloomberg, jumped to 5%. So we're talking a massive, massive increase. That's a $5 million insurance premium on a mil on a hundred million dollar vessel just across the strait. But 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 $150 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 going to 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, 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 pipe.
- [60:20]
A
Well, let's talk about that specifically next then. I think you and I could easily agree that, and I'll just go to an extreme here. If this continued for a year, if there was no transit, no significant meaningful transit of the Strait of Hormuz for a year, that would result in probably a bigger than 2008 global financial crisis because it would shut down the entire global economy. There's no energy, there's no, that's the end of the story. Okay, if it's, we can't go a year, but we could go into next week, okay, how long is that fuse? 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?
- [61:10]
D
The first thing I want to 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 because I think it's important to try and imagine it. But again, I just can't imagine the political, 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 with like big price calls. I typically, I don't like them. But like 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 20 million barrels a day of oil flow through the straits, let's even just knock it down to 15 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 15. That is ballpark, the peak of the demand destruction we experienced in March and April of 2020 during COVID 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, just purely through price mechanisms, that is an extraordinarily high price to clear that kind of demand destruction. I, 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 about. 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. We saw this in kind of notorious fashion now in 2022 when the kind of the infamous example of the, of the committed tanker to Pakistan that they broke their commitment, 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 this 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 life. 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.
- [64:23]
A
Let's try to put some specific timeframes 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 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, what do those scenarios look like in your mind?
- [65:01]
D
So let's actually start with 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, 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 resumed full flow and like nothing ever happened. Even in that case, we're talking about months of supply chain recovery because these ships are gonna be piled on top of each other. You've had, you've already had roughly a 400 million barrel gap or 300, 340 million barrel gap that's emerged in these. Basically the normal flow of oil into, 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 3, 4 weeks to get where they're going. And when that air pocket finally hits land in Asia, that's when we're going to start drawing inventories at 10, 15 million barrels a day, which again has never happened. Before, we've already seen Asian refineries attempt to shorten to basically front run this to extend their runways, they've reduced operating rates, they've cut product output. So we are talking, we've seen $150 crude in Dubai and physical crude, but we've seen over $200 a barrel jet fuel in Asia, 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 9 million barrels a day of crude oil production capacity shut in through the Gulf. The longer that's off, the longer the straight is closed, the more we're going to 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 $150 brand. We're already obviously there at the kind of physical Dubai cash market. And I think they're like, oh well, why wouldn't, you know, why would anyone buy that, that crude? Why wouldn't you just buy WTI? It's like $50 or $60 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 deliver until next month and 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 basket and they're starting to kind of try and buy these, these other barrels which means that they're now worrying that this is going to be going on for months 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 who cares about tight oil markets in the Middle East? We're here and oil prices are still pretty low. It's because this shockwave 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 made they think Trump's gonna taco. I also think that the future market are in the exact same situation. What we saw not, you know, two Mondays ago, the, the, you know, the, the second weekend that again everyone thought he was going to end on the weekend, he didn't. Prices spiked higher. You hit almost $120 barrel Brent. But then you got the first kind of. Trump said the, you know, the war is almost over and prices cratered. You had a $35 barrel intraday's spread and Brent, which I don't believe has ever happened before. 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 jawboning, you know, those people got blown to their positions, many of them lost their jobs. People are much more wary now to kind of front run because normally you 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.
- [69:55]
A
Now you said earlier that you thought the Trump administration had no idea that this outcome which has already occurred was even possible. I want to 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 want to 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, to hell with it, let them worry about it. I'm not going to bother asking you whether we should be concerned about it, because I think you and I agree that we should be concerned about the Strait needs to be open 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 so concerned about this outcome is not that he didn't foresee it, but that he's just not as worried about it as you and I are.
- [71:33]
D
I think there's a chance of that. And I think, again, I didn't expect him to go this far. So 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, 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 comments out of Trump about, you know, basically, don't be a panicking, don't bid up the price of oil. You know, this is going to 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, he 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 longer. And if we're starting to see him attempt 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 1980s, 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. He was also elected 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. 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 comment of the straight came mostly after he asked all of the kind of allied NATO nations and Asian nations 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 100% that this was going to go on for years, yeah, they're going to 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 similar to the tariffs that when, you know, the S and P was crashing, that's when he tacoed. 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 going to 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 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 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 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 assets hadn't been hit. You've had, you had a couple refineries there, you had Rasdinora, you had, you've had attacks on Fujairah. But overall, there are a lot more targets across the Middle east that were very, very tempting targets. I mean, we all remember Abcake in 2019. Clearly, the Iranians can hit it. They have chosen not to yet, because at least. But 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 Pars gas field was hit, they were like, okay, now these bunch of petrochemical facilities and upstream facilities, they're all legitimate targets now. 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 is clearly they want, they want more escalation.
- [77:31]
C
Right?
- [77:31]
D
I think that's clear that what we've seen so far. But I do, I do wonder whether or not that's the kind of thing that's going to piss off Trump. Very frankly. We, we saw this. He got really upset with the Netanyahu government last June when, you know, there was worry that they weren't going to play ball with the ceasefire or whatever else. There was like, that famous comment as just trying to get on Marine One. But I do worry that that's the kind of situation we're ending up in.
- [77:54]
A
Now, normally, Rory, people who are in macro markets and 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. 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 because really Brent and WTI only got, I guess WTI was 119. Neither one of them has gone above 120 in this. That's, you know, they've gone up a lot, but they haven't gone up that much. I think it was oman traded above 185 this week. As you said, there was jet fuel prices above 200 in Singapore. Should we be thinking about these really high prices that are occurring in some localized markets? Is, oh, well, that's just a logistics thing. It doesn't really count. Or are those price signals that could portend what's coming for Brenton wti?
- [79:00]
D
They're exactly what's coming for Brenton 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, 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 $150 or 100. And I didn't see, I hadn't honestly seen Oman go up to 1 180. 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 110. WTI, has some other potential weirdness going on. There's been a lot of talk about, 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 because again, Trump says this is good, he doesn't care. But eventually pump prices are going to rise. We already have U. S Average Diesel prices over $5 a gallon. Gasoline's coming up there too. Diesel's going to go higher. Jet fuel is going to go higher. I worry that we're going to see kind of, kind of a re discussion or we've already seen musings about export controls out of the United States that this was actually something that the Biden administration used in 2022. They're like, oh, 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 to 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 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, because our markets are global, the way to solve that is to make markets not global. And I think that is my, 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, 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, use non Jones act tankers to move US Gulf coast crude to different 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 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.
- [83:23]
A
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.
- [83:32]
D
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 as well. I think when you think about fertilizer and even I think this ties back into 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 base of the food itself and being shipped there either by truck or by plane at far more expensive rates. So this is absolute, I mean again, this is, you know, our most recent experience here with, and again where all this goes with monetary policy as well. Our most recent kind of parallel is 2022, that central banks 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, 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, the 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 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, we're sowing the seeds of these like deep ripple effects, these deep kind of multi industry bull whips that are going to be working through the system that even if you end it today, we're still going to have consequences trailing out for months. And if we, 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 where I go back to. I don't see this as tenable long term politically for anyone involved. But I also thought that so far, and I've been wrong.
- [86:15]
A
Rory, I can't thank you enough for a terrific interview. Before we close, I want to add a quick point just of clarification about last week's interview with Dr. Anas Alhaji. Several of you on Twitter and an email said, hey, Anas was wrong when he said that Iran had a huge vulnerability if their desalination plants were attacked. Iran only gets 3% of their water from desalination. I agree it was a little bit ambiguous how it was worded, but that was not Dr. Alhaji's intended point. The point that he was making is 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 rely on desalination for 3% 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. 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@commoditycontext.com thanks Rich, for having me again. Eric.
- [87:42]
D
I always love coming on the show. You can follow me on Twitter. Rory Johnston and all of my public research is published@commoditycontext.com We've got the Oil Context Weekly report every Friday that covers I currently call it the Oil and Iran War Context Weekly because that's all we're talking about. But every Friday at 4 to 5pm Eastern, I publish three monthly 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.
- [88:21]
A
Patrick Ceresna 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@macrovoices.com. Now back to your hosts, Eric Townsend and Patrick Ceresna.
- [88:58]
B
Listeners, we're going to 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@macrovoices.com just go to our homepage and look for the red button over Simon's picture saying looking for the downloads.
- [89:25]
A
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?
- [89:45]
B
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 wheat 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 weat, 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 16, 2026 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 4 to 1 payoff ratio over a 212 day window. The idea here straightforward Use the skew 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.
- [92:26]
A
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@bigpicturetrading.com now let's dive into the postgame chart deck.
- [92:45]
B
All right, Eric, let's dive into these equity markets.
- [92:48]
A
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 500 was sitting below its 200 day moving average as of Wednesday's 4pm cash close. It continued to lower than that after the cash close. It did trade lower than today's cash close on an intraday basis back on March 9, but today was the lowest closing price of 2026 for the S&P 500 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 going to 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 by 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 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 2003. Well, if that's what you think, because we're leaving my politics out of this one, 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 $250 a barrel that would cripple the global economy and lead to a global financial crisis on the scale of, if not bigger than 2008. 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 going to 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? 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 market reaction is not going to depend on what you think or what I think should happen. It's going to 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.
- [96:21]
B
Eric, I'm going to keep my analysis very simple. From a technical perspective. We're remaining below the 50 day moving average. We're breaking lower highs and lower lows. There is clear distribution. The bears are in control and in the driver's seat on the short term. On that distribution side, we continue to see all rallies failing at Fibonacci zones, which is all indicating that generally the distribution cycle is still in play. Now while we have seen substantial increases in bearishness as 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, 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 encounter trend. This is the environment where hedges are 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.
- [97:36]
A
Patrick, by recording time we were back down to a high 99 handle after surging above 100 and then below 100 intraday on Friday. I think by the cash close we were back over 100 again. So we're right on that hairy line between 99. The question to ask is whether we're topping out here at overbought resistance on this technically overbought market or if the strength that we've seen in the dollar so far is just the beginning of a new bullish trend. Once again, I think the answer depends on your geopolitical outlook. Sorry folks, that's going to 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 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.
- [99:17]
B
Well Eric, when looking under the hood of the dollar, the key thing is to observe 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 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 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 stressing the euro right now. On the downside, if we see euro breaking some of these key levels, that is gonna be a huge bullish tailwind for this dollar index. Now we're at the top of almost a 10 month trade range and if the dollar index makes any progress above this hundred level with, we've got ourselves some sort of a strong US Dollar countertrend move. And so we have to watch whether or not this gains momentum from here. All right Eric, let's touch on crude oil.
- [100:26]
A
Well, as I already discussed with Rory Johnston, the Oman benchmark traded over $180 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 with Iran that's going to drive Rory Johnston said I think it would be foolish to assume that, hey, it's going to 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 extraction cost price increases, higher oil prices and so forth. Hopefully we don't get to that point where that self reinforcing cycle kicks.
- [101:41]
B
All right, let's move on to gold here because we just got ourselves a little bit of a down day here on Wednesday. What's your take of what's going on?
- [101:49]
A
The low print on the January 30th correction was 44.234423. That was a near perfect test of the 50 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 50 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 38.2% Fibonacci retracement level of that January 30th 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 50 day moving average was the bisection 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 48.24 as we're 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 100 day moving average at 4591-4591. So 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 increase in tension in Iran, more geopolitical upset that would normally be up on precious metals. That broke down on March 2 gold is not trading up on geopolitical escalation the way it was before March 2nd. 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 45 handle, if not lower. That's the next obvious support level below the current market. So either we get a bounce here and the 50 day really was the trading signal that it should have been, or if we continue to see this weakness below the 50 day continue through the day on Thursday, I think we're probably headed down to 45.91, maybe 4,600 on the 100 day moving average by the time we get there.
- [104:10]
B
Well, Eric, my view on gold has remained unchanged for the last month after we saw that key blow off top on gold and that huge reversion. Typically, 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 we continue to see here on Gold as we saw some retesting of highs and and this sideways consolidation continuing. Overall, after this consolidation finishes, there's lots of room for gold to go higher. But at this stage, I think it'll be deeper into the second quarter before we see a meaningful turn up. How low could this gold correction go? Well, 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 of this retrace. If that doesn't hold, I mean, there's always the possibility we head back down toward that $4,500 level and $4,400 level below. But if that was to happen, that would probably be a compelling buy on dip to take advantage of. All right, Eric, what are your thoughts here on the fact that uranium continues to just consolidate sideways inactively?
- [105:33]
A
Well, Patrick, the fundamentals are uber bullish and they're only getting better by the day as we see 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 the uranium stocks on Wednesday. We're still looking at 49 spot 05 at the close on Wednesday on the URA ETF, which is the one that's most followed. That's still well above its 200 day moving average whereas the indexes have moved below their 200 day moving averages. But frankly I think it's headed for its 200 day moving average which is at 46 spot 03. So we'll see what happens next. Broad market risk off event is obviously going to 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. I think the next obvious target is 4,603 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 the oil prices continue to rise, particularly if they spike over $150 setting new all time highs at least on the major indices, we're already there with some of the other markets around the world. But if we get there on Brenton WTI above 150 that probably brings on an outright crash in equity markets and anything could happen.
- [107:13]
B
Well structurally the chart remains bullish. All consolidations are being held, higher highs and higher lows. But it's just been a quiet period. Maybe the lack of liquidity in the broader asset markets could be just keeping this all contained. But overall the charts are still on the bull trend and at major support lines now. Eric, I want to just quickly touch on copper here.
- [107:41]
A
Copper futures very decisively took out their 100 day moving average to the downside on Wednesday, closing near the print of the day and they continued to trade substantially lower even after the cash close as I'm recording. So we're looking actually already we're halfway down from the 100 day which was the hopeful support line today. The next support is all the way down at the 200 day moving average at 5 spot 38. We're halfway there as of recording time. So it looks like that may be where we're headed next on copper unless we get a sudden resolution to the Iran conflict and a real revolution here. Lots and lots of signs across the board from equities to precious metals to Dr. Copper, all closing down hard on Wednesday near or at their low prints of the day and continuing, continuing to trade even lower on after hours future trading. Those are all ominous signals that 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 60s, then obviously this is all going to reverse. But until they do, all of the markets, including Dr. Copper, are telling us we've got a serious problem on our hands.
- [109:08]
B
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 tend to march to their beat of their own drum independently. But when I here show an overlay of the gold, 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. 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, it's undeniable that right now copper is just trading tick by tick with gold. I'm very curious to see whether or not this trend continues in the weeks and months to come.
- [110:02]
A
Patrick, before we wrap up this week's podcast, let's hit that 10 year treasury note chart.
- [110:06]
B
What we've seen here is that it's trading right up toward the 230 level. We had the FOMC meeting and the first reaction after the post FOMC was yields rising up to their 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 going to just a fake out retest of the highs.
- [110:34]
A
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 bigpicturetrading.com Patrick, tell them what they can expect to find in this week's research roundup.
- [110:49]
B
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 Wein and you'll find the trade of the week chart book we just discussed here in the post game, 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. Listeners send us an email@researchroundupoices.com and we will consider it for our weekly distributions. If you have not already, follow our main account on X at Macro Voices for all the most recent updates and releases. You can also follow Eric on X Townsend. That's Eric spelled with a K. You can also follow me me Patrick Ceresna on behalf of Eric Townsend and myself. Thank you for listening and we'll see you all next week.
- [112:07]
A
That concludes this edition of Macro Voices. Be sure to tune in each week to hear feature interviews with the brightest minds in finance and macroeconomics. Macro Voices is made possible by sponsorship from BigPictureTrading.com the Internet's premier source of online education for traders. Please visit bigpicturetrading.com for more information. Please register your free account@macrovoices.com Once registered, you'll receive our free weekly Research Roundup email containing links to supporting documents from our featured guests and and the very best free financial content our volunteer research team could find on the Internet each week. You'll also gain access to our free listener discussion forums and research library. And the more registered users we have, the more we'll be able to recruit high profile feature interview guests for future programs. So please register your free account today@macrovoices.com if you haven't already. You can subscribe to Macro Voices on itunes to have Macro Voices automatically delivered to your mobile device each week, free of charge. You can email questions for the program to mailbagrovoices.com and we'll answer your questions on the air from time to time in our Mailbag segment. Macro Voices is presented for informational and entertainment purposes only. The information presented on Macro Voice should not be construed as investment advice. Always consult a licensed investment professional before making investment decisions. The views and opinions expressed on Macro Voices are those of the participants and do not necessarily reflect those of the show's hosts or sponsors. Macro Voices, its producers, sponsors and hosts Eric Townsend and Patrick Ceresna, shall not be liable for losses received resulting from investment decisions based on information or viewpoints presented on Macro Voices. Macro Voices is made possible by sponsorship from BigPicture Trading.com and by funding from Fourth Turning Capital Management, LLC. For more information, visit macrovoices.com.
- [114:26]
C
Sam.