Wes Moss (2:30)
Let's talk about the geopolitical events of the day. We're in kind of week two, approximately, we have seen the IEA just came out recently and said that we're in the middle of the largest oil disruption, supply disruption that they've ever seen. And that's a global issue. Remember that even though we have plenty of oil in the United States, we produce more oil here than we even consume. So we're actually a net exporter. The price of oil is determined globally. If there's a supply disruption halfway around the world, which is exactly what's happening, it reverberates right back here to the United States. And it's really difficult. Even with the release of the Strategic Petroleum Reserves, which we've heard about also, there's only so much that can do to help curtail prices of oil. If we go back to, let's say, the end of last year, Christa, oil prices, and this is by the barrel, were in the mid-50s. And that translated to prices at the pump in the $2 range, 282.90. So we had some real relief at when we're filling up our cars. I know that Clark doesn't do that because he drives a Tesla, but for those who still use petrol or gasoline, it was relatively inexpensive last year. Now, the minute you see oil prices go up, the minute you see gas prices go up, and for every $10 per barrel, it's about 25 cents per gallon at the pump. And we have seen oil now go in the $100 range. So in any given day, depending on. When you're listening to this, the swings in oil have been so dramatic. Again, somewhat unprecedented to see prices move this much where we can see $120 per barrel oil in the morning and then $85 barrel oil in the afternoon. So depending on the hour you're listening, we could be at $130 in oil. We could be at $85. It really just depends on the news headline of the minute and the hour. What I do know is that the situation that we're in with the US at war in Iran, engulfing the entire Middle east, which impacts the critical oil choke point in the world, which is the Strait of Hormuz, where 20 to 25% of the entire world's oil is moved through. When that is shut, that means that a quarter of the world's oil is not moving. Yeah, that's a very, very big deal. What also doesn't get talked a Lot about are all these other, let's call them chemicals and fertilizers and other distillates that come through that strait. So it's not just oil, it's a supply chain that involves even more than that. So it's very disruptive. And that means that even if there's, let's say, movement and healing and traffic starting back up again, it's going to take a while for the oil market to kind of find its footing. So we're going to be in these reverberations of higher oil prices for potentially quite some time, even if there is a solution. So the question is, what does that do to the stock market? The minute you see oil go up, you typically see the stock market go down. It may be good for oil companies on that given day, you'll see red on the screen with almost every sector. But you might see oil companies up a little bit when prices are up. But for the vast majority, because oil is such a big input in our lives, 95% of products that are manufactured have some level of oil in them or derivative in them. So it's inflationary as well. We've been looking at. Inflation is an issue that the Fed has continued to try to deal with. So an oil shock impacts the economy and it impacts the stock market and impacts your 401. And the question is, what happens when we go through these shocks? The Federal Reserve keeps a list of geopolitical events. They are typically war related. Almost all of these are war oriented or standoff oriented. And we go back to history to say, how does the market do what happens to stocks when we get a war like or geopolitical shock? And we can go back to. Because the Dow Jones was around in the early 1900s, we can go back and look at the Dow Jones and how stocks did all the way back to the first geopolitical event, which is the Russia Japan war, which was well before World War I and then World War I and then World War One escalation, and then Germany invades the Eastern Bloc and then World War II and Pearl harbor, et cetera. And we go all through. There's about 25, let's call it two dozen geopolitical events that we can measure. Falkland's War, Iraq invades Kuwait, and then the Gulf War and then the Bosnian War, et cetera. The day that this happens, it's usually not good for stocks, as you can imagine. And we just saw that, the beginning of the disruption here, we saw the market down a couple percentage points. And we've had Some thousand point swing days in the Dow as well. But the real key here is to as we all know, investors are typically successful. Investors are participators as opposed to those who are perfectly timing the world right. And participation is the key and longevity is the key. And we want to go out and look okay, even though we have this shock typically the day of or the week of even what happens to markets three months later and six months and 12 months and even 36 months later. And the news there is pretty good. Even in situations like the Gulf War as an example, there's really kind of two different this is late 1990 and early 1991, where first it was Iraq invades Kuwait and then it was really the Gulf War. We saw oil prices double, then oil then was $20 a barrel doubled to over $40 a barrel. Stock market down 18%. So really big correction in stocks. But what happens on average over time, markets recover pretty significantly and they get back to more like their normal long term averages. Three months after these shocks, on average markets are up a little over 2%. And six months later markets are up about 5%. And a year later after these shocks, on average markets are up 11.3%. Which sounds a lot like the normal long term averages during those periods of time anyway, even without the shocks. So the shocks are scary and they do impact the world. In many cases it's because oil prices are going go up, makes everything more expensive. We're worried about inflation. We don't know when things are going to end and when the reverberations will stop. But ultimately history has shown us over and over and over again, really once every three to five years we have one of these shocks, the market has found its footing and recovered. And I think it's always important during periods of time of this extra volatility that we remember that. So that's the takeaway here today. Even though we're in the middle of a shock that may reverberate for a while, we need to be patient and know that markets eventually find their footing.
