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

Summary

Secular Inflation: The guest argues inflation is entering a renewed secular phase, with parallels to the 1970s and risks underpriced by markets.
Oil Shock & Middle East: The Iran conflict and Strait of Hormuz disruption are framed as catalysts for a larger, more persistent inflation shock and potential global growth hit.
Food Inflation: Fertilizer input constraints and supply bottlenecks could push food prices higher, historically a bigger CPI driver than energy in the 1970s.
Gold Hedge: Gold is presented as a dual-tail hedge (inflation and deflationary credit stress), with the primary bull trend seen as intact despite short-term weakness.
Private Credit Risks: Opacity, BDC weakness, and bank linkages make private credit a key transmission risk to listed credit and the broader economy.
Yield Curve: The guest expects yield curve steepening, echoing OPEC-1 dynamics, as breakevens and long-end inflation risk rise.
Dollar & Commodities: The traditional risk-off dollar surge may be muted; commodity performance can diverge in a commodity-induced slowdown.
Actionable Angle: A coming wave in food inflation (e.g., wheat) is highlighted as an underappreciated opportunity, with oil/product markets and refining logistics central to near-term pricing.

Transcript

This is Macrovoices, the free weekly financial podcast targeting professional finance, high- netw worth individuals, family offices, and other sophisticated investors. Macrovoices is all about the brightest minds in the world of finance and macroeconomics, telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Serezna. Macrovoic's episode 524 was produced on March 19th, 2026. I'm Eric Townsendant. 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&P, gold, copper, and just about everything else other than the dollar index and crude oil were down and down hard, closing on or near their lows of the day, and then selling off even more in futures trading after the 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 riskoff playbook, food price inflation, the breakdown in private credit, and much more. We had a huge positive response to Dr. Annis Al-Haji's cameo appearance updating us on the oil market disruption on last week's podcast. So this week, Commodity Context founder Rory Johnston will join us for another perspective on what the Iran conflict means to energy markets. That's coming up right after the feature interview with Simon White. Then be sure to stay tuned for our postgame segment when Patrick's trade of the week will take a look at the inflation surge event that hasn't happened yet. Not the one in crude oil where the price has already spiked, but the one in food prices which is Simon White will explain in the feature interview could come next. And oh, by the way, Rory Johnson is going to reinforce that view in the upcoming oil market update. And then we'll have our usual coverage on all the markets and Patrick's chart deck as of Wednesday's close. and I'm Patrick Szno with the macro scoreboard week overweek as of the close of Wednesday, March 18th, 2026. The S&P 500 index down 221 basis points, trading at 6625. Markets now trading at multimonth lows. We'll take a closer look at that chart and the key technical levels to watch in the postgame segment. The US dollar index up 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 9546. The war premium remains as the uncertainty continues. The May Arbob gasoline contract up, 124 basis points to 307. Gasoline now trading at three-year highs. The April gold contract down 546 basis points, trading at 48.96, 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 at 111 basis points, trading at 8475. The US 10-year Treasury yield up three 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 Macrovoices continues right here at macrovoices.com. 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, that means you haven't yet registered at macrovoices.com. Just go to our homepage, macrovoices.com. Look for the red button above Simon's picture that says looking for the downloads. Simon, it's great to get you back on the show. It's been too long. I want to dive right into your slide deck 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? >> Yeah. In spades. That's I think that's that's absolutely right. Um, Eric, I think this is um playing out in a way that's very analogous to the 70s, which is why I've referred to a threeact play there. And I certainly it 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 um team transitory is back and forth. If you looked at the CPI fixing swaps for instance they show like quite a sharp rise in inflation over the next few months expected maybe peeking out three and a half% 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. Again, we're looking for quite a short-term shock and it's even more egregious if you look at break evens. I mean, the shorterterm break evens have moved a bit more, two to five year, maybe moved 20 to 50 basis points since the war started, but the 10 year has barely clutched, 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 um you know I think that's quite complacent and that's why it's helpful to look at the 70s and you know no analogy is perfect but you know the 70s does have an uncanny amount of common commonalities with um 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 you know financial phenomenon or an economic phenomenon. So the chart on the left was something I first used uh 2022, so almost four years ago. And uh it was uncanny because I updated it. And so the blue line shows the CPI in like level, not the growth from the late 60s into the late '7s, 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 two. So the way I thought about it is act one was kind of when inflation first hits new highs. So this time round that was the the pandemic and first time round in the 70s it was on the back of uh 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 started to creep up much higher than expected. And then we went into act two which was kind of like the premature all clear. And that's where it was kind of taken that inflation was it was a temporary phenomenon. it wasn't going to be much of a problem. Um it was going to go back in his spots fairly quickly and that feels like where we've been over the last couple of years but you know stubborn um inflation has been proven very stubborn. it's um you not gone back to target stayed above um the target rate so it's it's remained elevated and if you look actually where that act 2 ends and you match it up to the 70s pretty much buying on October 1973 which is the beginning of the Yong Kapour 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, you know, led by Syria and Egypt on Israel and they attacked Israel on Yam Kapour. It was it was a very short war. It was only 3 weeks. So this war is not yet 3 weeks. Initially it's expected to be short, but that's looking less likely now. I mean I think Poly Market has an end of April ceasefire now down to 40% probability from something like 65%. not that long ago and um you had obviously a major oil shop in response to this uh this this war because what happened after the war after the three-week war was that the US state aid to Israel and the Arab states decided to have an embargo on oil and that created this this huge oil shop. So oil prices managed to quadruple in a matter of months. That's quite a significant oil shop. Um and then that led to the act three which is the comeback with the venance. So you had this massive rise in inflation through the end of the decade and it really didn't end until you got Paul Vulkar in with this exceptionally high interest rate hikes the Saturday night special that really managed to break the the back out of inflation. Um and if you look at some of the further um commonalities, it's not just obviously what happened with the oil price, not just that this was in the Middle East, not just that it involves um Israel. Um you you also we go to the the next slide in slide three, if you look at the equity market back then. So the equity market um back then, this is the time of the Nifty50. So this was a set of stocks that everybody thought they had to own. You know, they had great earnings, they were great businesses, and pretty much everyone owned them. uh excuse me and you know similar to today. So we had very narrow leadership. In fact it wasn't until the bangs in the magnificent seven that we had such narrow leadership again as what we had back in in the early '7s you had extremely narrow leadership as well and that the yapur war just before or 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've seen since the um since the great depression. So we saw a significant uh stock selloff. 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. And there is still nonetheless, you know, a choke point in the supply states. But I think it's worth bearing in mind that you know the non-negligible tail risk just given we are in a sort of not a similar 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 bare market in 7374 the K cycl adjusted price earnings ratio was 18 and uh today it's more like 40 and also like the you 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 uh you could see things we'd see a more deterioration obviously for to get anything like that but given the some of the commonalities I think it's worth bearing in mind especially when you look at the market today it just does seem again there is some complacency in the air stock market inherently seems to believe I think that there is some sort of tackle on the way and therefore it's not really worth market trading down too much I mean even if you look at like the food spreads so the bits went Initially a lot of that was well first of all was driven by call spreads falling and then it's driven by food spreads rising so people are putting on insurance but then it quickly monetized I think those monetize those hedges that spread started 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 making the highs again but this is not something to get overly your knickers in the twist I'd argue again along with inflation that's something that is beginning to look a little bit complacent. >> Simon, let's go a little bit deeper on some of the both differences and similarities between the Yamapour war and the present conflict. The Yamapour war was really a war of solidarity. As you said, the US had sided with Israel. Basically, all of the Arab states together went in on the Arab oil embargo. You have a very different situation today where the US has once again sided with Israel in a conflict with Iran, but now Iran does not have uh solidarity of the other Gulf states. In fact, it's attacking the other Gulf states that are allied with the United States. It seems to me there are still similarities, but there are some almost diametric opposites in some aspects of this. How do we sort that out and make sense of what extent the economic outcome might be the same or different? Yeah, I think I think that's 100% you know alluded to that there is a number of differences and and so that puts you in a point where you know no analog is going to be perfect but I think when you combine it as I say with with the overall inflationary backdrop where we are in terms of this three play in the 70s you know you could argue that what happened in the 70s were a series of kind of quote unquote bad luck that led to inflation driving. So, you know, you had the kind of Xanti conditions per inflation as I mentioned. We had uh already the Vietnam war. We had the fiscal expansion on the back of the free society stuff and then you had 1971 was Nixon closing the old window. Then you had the uh the Arab oil embargo, the rural war. Um you had the end of the decade, you know, you had the Iranian revolution. You could argue all these things were bad luck, but they're also hitting a situation where inflation was already in a different regime. So, I think I think that's the thing to to note the differences that when you're in inflationary regime, lots of things can happen, right? Things will always happen, but if they hit when you're already an inflationary regime are much more likely to have bigger inflationary impact. You know, that that's where we are today. states is very uncanny if we happen to look compare the two analogies that almost to the month when you get this sort of premature allclear ending um is almost the month when the yur war started as when the attacks on Iran started. Yeah, I wouldn't want to overlay the point uh in terms of the analysis, but the um there there's so many precedents that makes it worthwhile looking a little bit deeper into. For instance, another one that's very interesting is it's 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 uh from food and from energy in the 1970s it was much bigger than it was for energy and in fact food inflation was already rising before the the energy shock. This time around we have the disruption to the straight of horm that obviously doesn't just affect energy prices it affects energy products and for instance a lot of stuff that goes into fertilizer is either produced in that region or has to travel through that region. So Iran itself produces a lot of ura ammonia. There's a huge amount of sulfur flows through the streets. All these things go into fertilizer. And in fact if we go a little bit further into the um presentation if we go to let me just slide the slide. If we go to slide uh eight we can see there actually you can see the two shots. So the blue line shows the food shock and after OPEC 1 the Yapur shock and you can see again after OPEC 2 the Iranian revolution both times the food shock was was worse and today already we have if you look at the contribution to CPI US CPI that is from food it's it's higher than than energy already. So if you have this effect leading into you know fertilizer prices and that's what I've tried to show in the chart on the right on slide eight you can see this fertilizer proxy to include some of the inputs I mentioned along with things like potach you when that starts to rise it's a very reliable leap by about six months that food CPI will start to rise so I don't think that is also be fully priced in and especially I think if you take account of the fact if you have energy and food both providing I think It's very unlikely you're not going to get some second round effect that it's going to feed into to 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 lot of 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 grades, but with the muted muted, sorry, next tier, Kevin Walsh coming in, you know, whether he's going to lean towards Dobish or the Hawker spectrum, uh, you know, I certainly think he's more likely to be more like an Arthur Burns who was in the in the early '7s at the time, the Yonapir war than he's likely to be a Paul Balker who was in charge after the OPEC 2 shot in after the Iranian revolution in 1979. So I think that further complicates the the matter uh in terms of what the Fed's reaction function is going to be. >> Well, it seems like the analogy that's most relevant is the Yamapour war only lasted a few days, but the Arab oil embargo lasted quite a lot longer than that. So the question is, you know, once the direct kinetic conflict is over, how long can Iran continue to disrupt the flow of traffic through the straight of Hormuz? Is that the right thing to focus on? And if so, what's the answer? >> Yeah, I think I think that that's that's correct, Eric. And that the 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 the human side of things doesn't change how humans respond. human nature responds doesn't really change. In fact, I can see that there two two nature of the two different shocks. If we go to slide six, so we've got two more charts there. And this this brings me to another point which I think needs to be made is that I don't think the yield curve is pricing in what's looking to be a much larger inflationary shock than for instance is being picked up in the break even market. So the left we can see there is what break evens did in the 1970s. So OPEC one and OPEC 2 both cases they ended up rising did rise quite considerably but they along after if you like CPI had already started rising so they were kind of late partying but both times they they did rise and if you look at the chart on the right there you can see the two the nature the different nature of the two shocks. So OPEC one was definitely more of a a permanent shock to oil prices. So really oil prices have never really revisited uh their pre-OPEC 1 or pre-war pre-muker war levels again. They just kept rallying through until OPEC 2 hit the Iranian revolution in 1979. They were sharply again but nowhere near as much in percentage terms as they did one and then he sort of gradually started decaying fairly soon after the Iranian revolution. So the OPEC 2 was more transient because the more transient shock but in both cases if you look at the bottom panel of that chart you can see core and in the interim periods between OPEC 1 and OPEC 2 um both made a higher low before rising again in the early 80s and again it wasn't until Paul got his hands on monetary policy that he was really able to put an end to this uh this huge inflation that it had through that decade. One of the theories of secular inflation is that it's a self-reinforcing vicious cycle. So, as you begin to see inflation, it changes consumer behavior. People start stocking up on things because they want to buy it while the price is still cheap before the price goes up more. That causes more consumption. That is inflationary and it all feeds on itself. And uh you know, you it's kind of like a fire that once you've started it, you can't put it out. Are we already at that point in terms of this coming inflation cycle where the fire has been started and can't be put out or are we still in the need to look at this and see what happens stage? >> We we are in we're already in that. It's in my view quite clear that what began in 2020 with the pandemic with the the large spike in inflation was the beginning of if you like that 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 like over the whole economy tends to be fairly stable and I think that's because all the different um actors that are taking price signals off one another. When inflation is not moving around h that much, they they tend not to get out of sync. But once the cat out of the bag, if you like, once you have this large ride in inflation, which we saw in the early 2020s, they go all out of sync and it takes a huge amount for them to get back in sync and you end up with inflation remaining elevated. So you can split CPI ups for instance into components. So you can look at the sensory sticky versus the non-sticky components. And what you notice in 2020 is both cyclical and structural inflation rose but cyclical start to fall and but the structural one remained more sticky and by the time the structural inflation had start to fall cyclical inflation because you can tell by its name 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 had started to fall h at a higher low but the cyclical part of is already rising again and this a war is just going to make it worse because obviously the the immediate effect is on headline inflation and so straight away you're going to see that be doing the cyclical side of things and once again what was what 2.4% 4% to where we are now and CPI maybe 3% at PCE you know they're going to look like again equivalent to what we saw in the mid70s after the young bird war this is the point where we start to see a rise again now I don't know how far it goes again the US is much more insulated um than it was back then but I think you do see a we 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 is really sure is going to be an inflation fighter. In fact, quite the opposite quite possibly which is kind of actually bit a bit odd just the slight deviation bit connected is it's kind of strange if you look at um real yields have been rising. So rail yields have been rising since the war and that's 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 moves so far have been real yields and that's on the back of as I say rate expectations have gone higher but that kind of just seems a little bit in Congress and you know given um and the conditions that well not conditions but the circumstances under his nomination and a president who still makes no bones about being absolutely determined to get lower rates immediately. I mean he was saying so only uh a couple of days ago and yesterday. So I feel that that is also adding to the structural kind of impediment for inflation to to keep rising. I think go back to the the yield point I was mentioning. So I think yields as I say are not priced for an inflation shock. And I think one one thing we'll see the yield curve will steepen. So if we go to slide seven on the tech I looked at basically how graded and real yields behaved in the 70s. 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 chart on the left there we can see again the difference between OPEC one and OPEC 2 and how the uh yields behave. So in both cases uh break evens rose but in the OPEC oil one what happened is that you sort the shock to break evens but then we had an equal opposite shock to real yields that's hex good stagflation what happened in OPEC pick two as I say the break 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 uh less energy intensive and more energy efficient and a lot of nonopc 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 Vulkar at the Fed and that really put a kind of cushion under how far real yields could fall. So in OPEC one the uh tailor yield maybe didn't move a huge amount because the real yield and break even cancer one another whereas the nominal yield rose a little bit in OPEC 2 but the difference between being in OPEC one and OPEC 2. So the OPEC one the curve steepened because we had Arthur Burns um and he as mentioned earlier you know was notorious for not believing that a central bank could do much about inflation let alone a supply shock inflation. He was kind of of the view that by and large most inflation shocks couldn't be solved by a central bank. And in fact he was the guy when he was at the Feds hackers working on some of the first measures of core inflation. Um and then through the decades he kept on taking out more and more core inflation in a franch which he discovered wasn't the case. Uh so you know we have this um very kind of um doubbish 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. The curve steepened in OPEC one in OPEC 2. Yes, 10 years old were riding a little bit, but you had Paul Vulkar who was massively raiding them at the front and so the curve um the curve flattened at this time. I think in some ways it the curve response it could be more like OPC one because I think that longer days and break even will rise. So I think that that move thus far that we see this muted move. I don't think that will last and that they should rise more from you the relative status and we're more likely to see as I say warf you're going to see lower weights. So I think lean toward the curve steeping this time and as we saw in OPEC one but not just for reasons that OPEC 1 is uh as similar to what's happening today. There are as we covered there's some similarities but there's a lot of differences as well. Well, if this was 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 a long-term bullish outlook on uh buying and holding stocks for the long haul. What does this mean for equity markets for the rest of the decade? >> Well, I uh 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 who 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 on the way, but even more than that, I think the big difference is is that that ultimately there's a backs stop and if things get really bad, the Fed can step in. I'm not saying that's what's going to happen right now, but you're always going to have that kind of tail covered. So, the commodity markets can really price in extremely kind of negative outcomes. Um, but they don't have a lesser lender of last resort, right? So, there's nowhere to go. If you your commodity market sees up for whatever reason, there's nothing really can be done. There's no back stop in the same way that you have for financial assets. Um, so I think that sort of explains why we have that today. And you know 1973 I don't think we 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 um a measure. Yes, it was overall more doubbish but this is the decade remember of gold stock monetary policy where you know loosened policy came back then you tightened it and then they like all right loosen policy again back and forth back and forth. So you know there's huge amount of volatility underlying there which obviously makes it more likely or or yeah increases the chance you can have deeper steeper falls in the market and so you don't really have some of that today but it does seem as I say earlier that feels like the market is overall being more complacent even with that in mind that there is a back stop that there is still a potential for some sort of tackle it still seems to be some sort of complacency and say what what drew me what draws me to that especially it's just looking as what's happened to KSCQ and you know that 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 cheap out the money boots here maybe the market's not going to sell that sell off that much in which case I 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 still a lot of moving parts here um most unpredictable is of course Trump himself And you know 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 like they want him money um but they're also kind of fearful that they can't really put much risk on because so much could change. >> Simon on page 11 you say gold is a hedge against both tales. uh elaborate on that please, but also I think it's it's relevant to point out if we're looking at the analog as being the 1970s, private ownership of gold wasn't relegalized until 1974. So there was a a very big transition catalyst there where it became legal once again to own gold bullion which probably disrupts the data. How should we think about this in the 2020s? >> Yeah, that's a good point. I think I think there's also another disruption at the other side as well. um because that the data in this chart goes back to the um late 20s and and back in the 30s was when the essentially the US confiscate private uh gold uh ownership. So they confiscate gold. I think they paid $20 and then revalued it at $35 an ounce. So quite possibly gold could have went up a lot more um in that period of the 30s. I think I think that's why gold's misunderstood though is that it is to some extent an inflation hedge. not a perfect inflation hedge. not a dependent and 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 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 that debation world where there's a lot of inflation or I don't know whether there's going to be a massive credit event um and that's going to be deflation rate. These are potential threats to the financial system. What can I own that has um you know proven record of protecting a portfolio in such an environment and there's really not much else other than gold. I think people sort of ran through all the options and they're like right that would work that would work. Bitcoin that hasn't been tested and they landed upon gold and you know a lot of people that generally like openly admitted they've never ever really savored gold. They've never been a fan of gold. They never understood it are never nevertheless starting to add or have started to add some exposure to their portfolios. So I think as an unimpeachable form of collateral really is what's driving driving driving its move and although you know struggled a little bit over the last few weeks and I think it's premature to say that that's the end of the primary bull trend because kind of a lot of the main reasons that driving it are still valid today. I mean there's still a need for diversification from the dollar system. I still think obviously a lot of geopolitical volatility that hasn't changed. You know, central banks I don't think are suddenly like a emer 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. You know, they they bought some and uh they may stop buying it, but I I don't see why they would suddenly turn tail start selling on mass. And there was a story that Poland uh was mooting selling some of its holdings. there the reason why they were thinking of selling them was for defense and that doesn't really strike me as a great sort of a gold bearish kind of reason for selling your gold overall. So I I think yeah the general environment is still very conducive to gold still still generally keeping to its primary bull threat and it's struggling right now perhaps because we see some marking up of short-term rates and the dollars had a little bit of a rally things like that but uh overall I I don't see why you know it take a big seller to come around to really force into massive bare market and I just don't see where that's going to come from >> as you said unfortunately what has not gone away is geopolitical uh excitement for a lack of a better word. The thing that's I've noticed just in the last few weeks is there was a very strong positive correlation. You know, next time a bomb drops, gold spikes upward. And what we've seen just in the last few weeks is a breakdown where when oil is up hard because of geopolitical, you know, bombs are dropping. Gold's actually moving down. What's going on there? Yeah, as I say, I think I think potentially it's because of the real yields has risen that could be part of that 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 I know I don't know for sure. But, you know, gold can often get hit in the shorter term. People need to liquidate. That's unfortunately the problem with having an insurance asset that's also can sometimes be a very liquid asset is it's often the one that's first to go. Um so it can give kind of uh counterintuitive signals. Uh but overall I just as I say I I don't know what the narrative or the argument would be to say that this is anything more than just you know obviously we've got to remember the market has rallied extraordinaryly much in recent months. So there's perfectly respectable for it to have uh 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 uh yeah I mean I think silver is a far more uh obviously volatile but a far a far more questionable kind of um uh you know response to that kind of overall idea and trade. And but gold to me seems certainly more more secure just because as I say the reasons underpinning its rally all seem to be mostly intact still now. Simon we've been jumping around in the slide deck. Uh let's go back to page four because you've basically said you're you're rewriting the riskoff playbook. Uh it seems like an important book to read. Tell us more about it. Well, I I'm certainly not going to rewrite it myself, but my point here is really that uh you know, we talked about some historical analoges. They're useful guides, but I think you have to keep an open mind as the the rules can change. So, I think standard, you know, risk off playbook as you see the dollar rally and treasury rally and risk assets sell off and that might not be the case to the same extent as so for instance, take the dollar. So the kind of quintessential risk moment really was the GSC and then the GSC the dollar rally. So I think that's for a lot of people like well you know what that that was the big one and the dollar rally. The dollar is therefore a safe haven but really if you look at what drove that and then you compare to today I don't think you can necessarily say that the 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 um the uh bond flows inflows from foreigners. So they they slowed equities were tiny back then are much bigger today as far as foreigners are concerned but what actually drove the dollar rally this was repatriation to close so the US basically mutual funds and banks have led to various European entities and it was these guys uh repatriating that led to the dollar rally. So it wasn't a case of foreigners channeling money in or needing dollars to cover like structural shocks. It was really just US entities repatriating um that led to the dollar rally. Now this time around the cash flows are or the structure of this is different. Um so bond flows are um much smaller now because we've had uh because the US is now not seeing treasuries are not seeing as much of 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 the US is much more exposed to equity outflows. So in a sort of riskoff environment that we're in right now, it's conceivable that more capital is repatriated and some of that is equities in the US equities tend to be unhedged. That is a dollar negative and you don't have that cushion of the same cushion of dollar repatriation. So um yeah, you wouldn't expect to see the dollar necessarily rallying as much and that can be seen even more if you look at the chart on the right. So after the you know Marago accord you know all the talk of the dollar disruption the tariffs you know that that didn't lead to sell America trade but I certainly think it made people think twice about their exposure to dollars and that can be seen as I say in this chart which is kind of like the dogs who didn't bar so the white line shows the the dollar reverse and what you tend to seen is the blue line which is reserves and denominated dollars. So when the dollar weakens i.e you see the white lines rise, the reserve managers have tended to buy dollars, tend to use the weakness in the dollar to to add to their dollar reserves and that signaling 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 um to global demand for dollars. So I don't necessarily see and I think the dollar a rally will be as big this time and thus far the DXY I think is up about one and a half 2% since the war started. We go to to slide five looking at say commodities. So commodities as a as a kind of risky asset is sort of seen as well certainly sell off in a recession I think is the general interpretation that isn't isn't always the case either. If you have a commodity induced recession um and if we are going to get recession there's there's very little chance in the next few months but that could change if the war continues and and the negative effects spiral. What often happens then is that commodities start to sell off before the slump in growth but the that that sort of sell in body prices kind of eases the growth shock and actually that allows commodities to rally through the rest of the recession. So that might may well happen again. we get a commodity induced recession say later this year or next year. That's not a prediction. But if we were to get one, I wouldn't automatically assume that commodities are going to sell off through that. >> Simon, let's move on to page nine. The title of that slide is it takes a war to bring down an economy this strong. Let's start with how strong the economy is, but then later you say 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? uh where is this thing headed >> is actually remarkably strong given I think the lengthhead time of the cycle and that really surprised me when I was looking at this and it's also a little bit ironic uh I guess that coming into this war the US was firing in all cylinders and you know as he mentioned it as I mentioned that war is perhaps just what it would take to to derail it and you have number of cycles for the US economy but everyone knows about the business cycle There's also the liquidity cycle. There's the housing cycle. There's the inventory cycle and the credit cycle. And all of them are actually in in pretty good shape. And so the business cycle, if you look at leading indicators, has been turning up. The liquidity cycle, so that's the chart on the left there. And I look at excess liquidity, which is the difference between 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 vacasillating around as you can see in the chart but it turned back up again and even even taken into account we've seen some tightening in financial conditions since the war but overall they've not been massive as I alluded to earlier the dollars rally hasn't been huge either um thus far so liquidity is in in pretty good shape and the business you know the general business cycle is in pretty good shape even taking into account that the job market slowdown I think it's possible to have a a jobless grow and some of the things that I would look at to see if there was a slowdown in growth coming such that temporary help is actually rising not falling uh average hours worked is kind of static you would normally expect to see that fall as people cut hours before they start sacking people I think I think it's you've got to remember that we have companies still got very strong margins the uh you know 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 need in the short term at least for heavy layoffs. And that that global the global economy is also in a good shape as well. So that's the chart on the right there. You can see that we're in the midst of this global cyclical upswing. If you look at OECD leading indicators for different countries around the world, almost all of them are turning up on six month basis. And then if we look at the inventory cycle um that looks like to be turning up as well. Leading indicators are pointing 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 leading indicators for uh housing is building permits. Building permits are are doing okay and they're actually led by mortgage spreads. we've seen quite a significant compression in mortgage spreads for beers of even such as falling bond volatility. And so you can't see that the the housing cycle is in a particularly bad shape either. And then we have the the credit cycle. So if we go to slide 10, uh the listed credit market from a fundamental perspective, my my leading indicator there on the chart on the left shows that on neck um fundamentals are still pointing to uh tighter spreads. So things like banks, lending conditions are particularly uh tightening in a particularly rapid way right now. Uh personal savings is still quite low which means there's more money to be spent which goes into um yeah back to corporates to their to their profits. So you've got this general kind of listed credit mark. The weakest link though is private credit and private credit I think is the one you do probably have to be most aware of. Uh obviously it's very fake unlike the listed markets. Um, but we've seen a number of cockroaches uh seem to be uh popping up with a little bit more frequency than probably most people would like. We had uh well uh redemptions uh redemption big redemptions in one of Cliffwaters uh funds JP Morgan loans and was limiting the amount of lending it was doing to private funds. And really what kind of triggered this latest little bout or weakness of was the concentration of uh 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 uh a lot of software companies business models. Maybe not all of them are it's not existential for a lot of them but it certainly means that they may not be able to charge as high or get as high margins on their businesses than they have before. We're seeing this markdown devaluations in their stocks and obviously that's been reflected in the loans as well and we're getting it's visible we can't see the loans themselves obviously because they're okay that's kind of a selling point the USB of the market but we can see the shares of BDC's the uh 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 vet year of your life because there used to be I remember there used to be 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 just 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 mushroom in over the last couple years you're really seeing huge number of loans has been you know extended from the banking system to a lot of private credits so there's your kind of vector of risk right there. Um, you know, if if there is something more serious happens in private credit, it can quickly transmit uh into into the listed credit markets and then it's feasible of course that that that's bad for the rest of the economy. We've obviously been here before. Credit markets are big enough that they can do a lot of damage and if they turn down very rapidly. So that's where we are in terms of the overall economy is strong. The credit market again fundamentals look okay, but the weakest link is private credit. Um, and that's obviously the one to watch or watch as much as you can because of its opacity. It's kind of difficult 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 um that's one of the biggest risks. But take that away and the US 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 I don't know. But the longer that we have um straight up or moves blocked, the more the uh longer it takes to switch things back on. So the longer things are off stream, the longer it takes to switch back on. So whether that's if you power down refineries or refineries of damage or thing that smelters, if you switch them off, six months to bring them back on. Um, so there's many of these hysteresus effects that will start to kick in. I think that's also one of the reasons why a lot of people in the quality space are more bearish because they're kind of seeing this and they they can't see any upside. they're looking at disruptions go way out probably well into next year and that's on the basis that even if the war stopped in the quite short term and so I think I think that does have to color your your view and a protracted war would definitely do a lot of damage to to the economy. Simon, as you talked about private credit, it was kind of concerning to me because frankly 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? >> It looks very much like it. I think that was Ben Bernanti himself who said the housing is contained. I think um look I I go back to my kind of axiom that um the one thing that doesn't change is is human nature. I think we're sort of seeing that even within the private credit space in terms of when people have opportunities to make money and 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 assess their earn money now what are risks later hopefully they can not be around when the um proverbial hits the fan and so I I don't to see why why it wouldn't be any different. I mean there's even a story today one of the the credit funds if you look in the private credit fund there's yeah it's a black box but within it there's even more black boxes I mean that straight away reminded me of co square so we had cos which are already kind of niche derivative products but people started making up these cos of cos themselves and you know I'm sure a lot of people at Simon are thinking this probably can't end well and you know here we are again there's nothing new in finance >> Simon I can't thank you enough for a terrific interview before I let you go. I'm sure a lot of listeners are 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 writings. >> Sure. And and thanks again for for having me on the show, Eric. Uh so on the terminals, I have a column called Macroscope comes out twice a week, Tuesday and Thursdays. And I also write for the market live blog which is a a kind of 24hour five days a week market scroll and that you can follow all the latest market development. Patrick Sesna and I will be back as macrovoices continues right here at macrovoices.com. It was great to have Simon White back on the show. Rory Johnson is next on deck for a special second interview on a developing Iran conflict and what it means for the oil markets. Then Eric and I will be back for our usual postgame chart deck and trade of the week. Since the extra coverage format seems to be a hit with our listeners, we will do our best to continue it as long as the situation in the Middle East warrants. Now, let's go right to Eric's interview with Energy Markets expert Rory Johnson. Joining me now is Commodity Context founder Rory Johnston. Rory, you Dr. Anna Alhaji, really all of the most credible experts felt the same way, which was look, the the strain of Hormuz getting shut down is probably not that realistic of a scenario. And I'm going back to previous interviews, you know, months or years ago. Boy, everybody got thrown a curveball. So, what happened? How come all the experts, including yourself, who thought this really couldn't be shut down, is it just about insurance? Is it about minefields? Is it about something else? uh how come the traffic is not flowing through the straight first of all and we'll then we'll get into what does it mean. >> Thanks for having me back on Eric. As you note, I've been relatively kind of polyianaish 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 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 you we saw for instance the IEA's coordinated a strategic petroleum release last week that was good. Uh that's a absolutely what we should be doing in this in this situation but it was 2 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 Bessent announced to 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 uh and his wife. Basically, that happened on a Saturday or Saturday morning, I guess. There was all this, you know, what's happening, what's happening, what's happening. And then by Monday, you know, we had Deli Rodriguez in as the interimm 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 straight form was that um the Trump administration embarked on a what at that stage was a fairly stark break from US military policy towards Iran which is you know it directly engaged in uh 14 dropping 14 bunker buster bombs on uh three the three main Iranian nuclear sites at Ford, Natans and Isahan. 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 mid, you know, by the middle of Monday, we saw this kind of symbolic retaliation from Iran and then Trump saying, "We've got a pe we've got a ceasefire deal." And then I think crude ended the day down $10. That was kind of my framework for what I was 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 straight because again when we look historically the straight has never been closed even when we've had acute violence acute attacks in the straight back in the 1980s during the Iran Iraq war during the tanker wars we saw hundreds of ships hit we saw by by the calculations I saw was 450 ships attacked uh you had 250 tankers attacked and 55 of those tankers were basically either sunk were 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 straight. So that was our best historical parallel and quite frankly I expected something similar to be happening here and what we've seen so far is that no uh very very few I mean the the estimates vary but basically like between a 90 and 95% reduction structurally now through this rate of hormones and with things like insurance I think there was this expectation like okay maybe at the beginning it was a lack of insurance uh we were waiting for these you know these tanker owners to and the insurance providers to figure out a way to say okay you know we're going to figure out a way to lift obviously the risk has increased so we're cancelelling coverage and we're going to kind of reinstitute but but there was just you know that never happened. You ended up actually seeing and we've seen reports more recently that you know the war insurance has skyrocketed if it was basically 0.25% of a vessel's value kind of in the month before the war uh that is now by the latest estimates that I've seen published by Bloomberg jumped to 5%. So, we're talking a massive, massive increase. That's a $5 million insurance premium on a mill on a hund00 million vessel just to cross the straight. But the issue is that even at those insane levels, the arbitrage value across the straight still seems to clear that, you know, we now have effectively negative prices on the bad side of the straight 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 sanguin financial impacts that we've seen so far is that the market continues to expect the base case expectation is that Trump backs out here that we see another taco. And if that's the case, if there's the chance that tomorrow this ends or at least he declares it done, um why spend the $5 million and risk your ship and crew if this could be over tomorrow? And I think there's this continual hope that this is going to end because as we will talk about the consequences of it not ending are so extreme that it is unthinkable to me that a US president would bear the political cost of what's coming down the pipe. >> 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 or no significant meaningful transit of the straight 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 economy, that's the end of the story. Okay. If it's you, we can't go a year, but we could go into next week. Okay. How long is that fuse? What's are there tipping points where after a certain point things are broken that can't be fixed because the backlog is too long? What is the timeline look like of how long this can continue before you get into a situation where it's not reversible? >> The first thing I want to say, Eric, is I completely agree with you. 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 enga, you know, bearing that political consequence because what we're talking about to your point, like I mean, I'm normally not a guy that comes, you know, comes up with like big price calls. I typically I don't like them, but like 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 heristic here, we talk about 20 million barrels a day of oil flow through the straight. Let's even just knock it down to 15 because maybe we get, you know, the East West pipeline and Yanboo 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 co 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. Um, but I think in wealthy economies we will generally experience this as a debilitating recessionary, you know, n depressionary price shock that will sab 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. uh we saw this in in kind of notorious fashion now in 2022 when the kind of the infamous example of the ch of the committed tanker to Pakistan that they broke their commitment uh they paid the breakage fee and they shipped that gas to Europe because they could make a you know a king's ransom on the ARB even factoring for the breakage fee and that's how markets are going to clear that's how they're supposed to clear in 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. >> Let's try to put some specific time frames on this, which I know is difficult, and I apologize for doing this to you, but as you said, what's going on here is most people are thinking, well, surely this is about to be over. I mean it's it's crazy to continue it. It's about to be over. It must be about to be over. Just in case it's not, let's imagine say both a 3 weeks more scenario and a 3 months more scenario. What are each of those if you had to guess the impact of three more weeks just like the last 3 weeks or however long this has been and then three more months. What do those scenarios look like in your mind? >> So let's actually start with the an even more sanguin 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 3 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 resume full flow and like nothing ever happened. Even in that case, we're talking about months of supply chain recovery because these ships are going to be piled on top of each other. You've had you've already had roughly a 400 million barrel gap or 300 and 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 3 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 plus million barrels a day, which again has never happened before. We've already seen Asian refineries attempt to short basically frontr run this to extend their runways. They've reduced operating rates. They've cut product output. So we talking we've seen $150 crude in Dubai and physical crude. But we've seen over $200 a barrel jet fuel in Asia uh in Singapore. And I think that is that alone would take months to sort out. But let's go to that 3 week scenario. Okay. So let's say we're already in this for the 3 weeks. Let's say it's double. Now you're looking at 2/3 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 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. And I think, you know, in terms of price call, I think in three more weeks of this, I think we could 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 people are like, well, well, why wouldn't, you know, why would anyone buy that that crude? Why would you just want 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 delivering till next month and you need to get it from Cushing to the coast. Then 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 hopeium, 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 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. Uh, and it also means that that kind of acute local scarcity in crude in the Middle East and products in Asia is also going to begin spreading out to all the rest of the world. And I think it's really easy for Americans and the American president to say, "Who cares about tight oil markets in the Middle East, we're here and oil prices are still pretty low." It's because this shock wave kind of moving out through the system takes time to kind of incentivize and bid all those barrels over. And I also think back to this why aren't ships going through because they, you know, maybe they think Trump's going to taco. I also think that the futures market are in the exact same situation. And 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 spread in 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 job owning you know those people got blown to their positions. Many of them lost their jobs. People are much more wary now to kind of frontr run because normally you expect futures markets to frontr run the tightness in physical markets because markets are forward-looking. But I think now we have to wait for that physical market tightness to kind of fully and aggressively manifest in the west before those future prices are going to actually converge. >> Now you said earlier that you thought the Trump administration had no idea that this outcome which has already occurred was even possible. I 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 straight 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 Straight of Hormuz is closed down, it sounds like he thinks that's a problem that affects other countries but doesn't affect us. So, you know, the hell with it. Let them worry about it. I I don't I'm not 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 uh for the sake of global commerce. Oil prices are set globally and so forth. But it does seem like there's room that the reason the president's not so concerned about this outcome is not that he didn't foresee it, but he's just not as worried about it as you and I are. I think there's a chance of that and I'm I think again I didn't expect him to go this far so I'm I can't pretend perfect knowledge of Trump's mind by any means but I think what we've seen in those comments over the past two and a half weeks now is evidence of remarkable goal shifting. We had that 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 panic. 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 or longer. And if we're starting to see him attempt to 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 the comment of the strait came mostly after he asked all of the kind of allied NATO nations and and Asian nations that that consume the oil to kind of come help them and they were kind of like no because again I think the world a lot of the consuming world like I think if they knew 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&P was crashing that's when he talked out. There was an expectation that this was the same mechanism that we'd be seeing now but with oil and I worry that is beginning to lose its sensitivity given that I think now it's a question of how can Trump figure out a way to declare victory because again he's not 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 this. 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. here. I mean, when there was a lack of centralized leadership, you had different elements that were being more negotiating or kind of consiliatory 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 endgame? And over the last two days, they've shot back up that. And again today in particular, we we were chatting about this before we started recording, but like Brent popped above 110 following Israel's attack on the South Ps 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 Razinora, you had you've had attacks on Fujera, but overall there are a lot more targets across the Middle East that were very very tempting targets. I mean we all remember Abcake in 2019. Clearly the Iranians can hit it. they have chosen not to yet because it again for them I think that they still have this conception of different degrees of escalation and what we saw already was you know as soon as the south powers gas field was hit they were like okay now these bunch of petrochemical facilities and upstream facilities they're all legitimate targets now and they also warned that if Trump bombed Car 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 parameter ize 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 tan that those were kind of against the wishes of the White House that you know there is still some kind of freelancing here on the Israeli side about like how far they're going to go and how much they want to escalate this. Clearly they want they want more escalation, right? I think that's clearly 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 uh was trying to get on Marine One. But I do worry that that's the kind of situation we're ending up in now. Normally Rory people who are in macro markets and you know investors who are not specialists in oil only pay attention to two benchmarks. Brent crude which is based on North Sea oil production is the global benchmark and then West Texas Intermediate is the US benchmark. Uh 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 cuz really Brent and and WTI only got I guess WTI was 119. Neither one of them has gone above 120 in this. That's uh you know they've gone up a lot but they haven't gone up that much. I think it was Oman traded above 185 this week. Uh 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 as oh well that's just a a logistics thing. It doesn't really count or are those price signals that could portend what's coming for Brent and WTI? They're exactly what's coming for Brent and WTI because I think that I was kind of talking around this point a little earlier but what we're talking about right now is again the these markets and you will know this well Eric that futures and benchmarks there is both a locationational element to it and a time element and where the current tightest market is right now is 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 Oman and just basically turn around and head back. But those are the barrels that are at $150 orund. I had I had honestly seen Oman go up to one uh 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 I think 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 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 US average diesel prices over $5 a gallon. Gasoline's coming up there, too. Diesel is going to go higher. Jet fuel is going to go higher. I worry that we're going to see kind of kind of a red discussion or we've already seen musings about export controls out of the United States that this is actually something that the Biden administration mused in 2022. They're like, well, well, could we restrict or ban the export of refined products? There are a lot of issues with that. It bottles up diesel in the Gulf Coast. it it it creates issues with potential u 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 uh precursor to that argument being put out by Trump. And I think back to that question of he's saying we don't get any oil from the straits. So what do we care? And then your point well cuz glo 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 mcking with trade. Even the United States which is a net petroleum exporter we you well know that that's not the same in crude or quality. That's not the same in product slate by region. You've even seen the uh the repeal or at least temporary waiver of the Jones Act, which is a very substantial political move for the White House. That really makes the most sense in the context of well, what if we ended up, you know, banning exports? Well, then we could use non Jones Act tankers to move US GF Coast crude to different US GF 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 shutins and US particularly GF coast refining shutins, which is the opposite we want. So temporarily, it would lower prices and I think that's why it would be very attractive for the White House. But in the long term, it would shortcircuit wealthy markets capacity to just pass this on through price and then we would likely end up facing physical shortages in these advanced markets. Rory, when we hear about the straight of hormuz, what comes to investors minds is of course crude oil, but tell me about how fertilizer plays into this story as well. >> Yeah. So I am not a fertilizer expert, but in addition, I mean, we've all been focused on oil and maybe gas, but there's a lot of other things that come from the Gulf, whether it's fert 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 to oil products as well. If this continues, we will see crop yields decline. We will see food production decline. We will see the food that does get to your plate more expensive on the commodity base of the food itself and being shipped there by either by truck or by plane at far more expensive rates. So this is absolutely 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 co bullwe effect and for the first time in my life central banks took an 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 unore 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 '7s. 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 c we're we're sewing the seeds of these like deep ripple effects these deep kind of multi-industry bull webss that are going to be working through a 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 3 weeks longer or heck, as you mentioned, 3 months longer, oh man, like these industries are going to break and people will need to cut back. There will be physical losses that people will have to experience. And that's why I go back to I don't see this as tenable long-term politically for anyone involved. But I also thought that so far and I've been wrong. Rory, I can't thank you enough for a terrific interview. Before we close, I want to add a quick point just of clarification about last week's interview with Dr. Anna Al-Haji. Several of you on Twitter and in email said, "Hey, Annis 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. Rory, I want to come back to what you do at Commodity Context for anybody who's not familiar with it. Terrific website. Please give us your Twitter handle and tell people what they can expect to find at commoditycontext.com. >> Thanks for having me again, Eric. I always love coming on the show. You can follow me on Twitter at uh rory_jston and all of my public research is published at commodity context.com. We've got an the oil context weekly report every Friday that covers I currently call it the oil the oil and Iran war context weekly because that's all we're talking about. But every Friday at 4:00 to 5:00 pm Eastern uh I publish three monthly uh data reports on OPEC global balances and North American detailed balances. And then I also I'm doing particularly these days a lot of thematic work on Iran on Venezuela and the overall insanity in this current oil market and I encourage you to join me. >> Patrick Szna and I will be back as macrovoices continues and stay tuned folks in case you didn't connect those dots. Simon White told me earlier in this podcast that we needed to worry about food price inflation next. That was even without considering the fertilizer angle that I just discussed with Rory. So Patrick's trade of the week is going to be about food inflation and how to hedge against it. That's coming up next right here at macrovoices.com. Now back to your hosts, Eric Townsend and Patrick Szna. 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 at macrovoices.com. Just go to our homepage and look for the red button over Simon's picture saying looking for the downloads. Patrick, everyone's focused on oil as the inflation driver right now. But Simon made an interesting point that food might actually be the bigger story. Then Rory Johnston echoed that from a completely different perspective having to do with fertilizer. How are you thinking about that and what is the trade of the week to express it? Eric, the key insights from Simon is that the real inflation risk isn't the first order energy shock. It's what comes next. In the 1970s, food inflation ultimately had the more persistent impact on CPI. And we're starting to see the early pieces of that same transmission through today's rising fertilizer costs, supply chain disruptions, and emerging weather risks. So, if this is the beginning of that second wave, I think the cleanest way to express it is in wheat. The trade of the week is to go long Chicago SRW wheat, where tightening export flows and a still netshore 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 Tukrium wheat fund ETF ticker WAT 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 16th, 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 4:1 payoff ratio over a 212day window. The idea here is straightforward. Use the skew to your advantage and define the risk while still maintaining meaningful upside if the food inflation narrative begins to repric. So the idea here is simple. By using the defined risk call spread, we're able to position for that upside while keeping the premium outlay relatively small in a market that is already pricing in elevated volatility. It is a straightforward way to gain exposure to a potentially underappreciated macro theme with a payoff structure that becomes increasingly attractive if this narrative starts to gain traction in the months ahead. Patrick, every Monday at Bigpicture Trading, your webinar explains how retail investors can put on our most recent trade of the week. For those listeners that want to explore how to put on these trades in greater detail, don't miss out on a 14-day free trial at bigpicturetrading.com. Now, let's dive into the postgame chart deck. All right, Eric, let's dive into these equity markets. Patrick, Wednesday was a major riskoff 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 4 p.m. cash close. It continued to trade lower than that after the cash close. It did trade lower than today's cash close on an intraday basis back on March 9th, but today was the lowest closing price of 2026 for the S&P 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 Hegsth say it's going to be, then in that case, if that's what you think, then this is a terrific buy the dip setup. It probably sets the stage for a rally to new all-time highs. If President Trump can really get this all under control and wrap it up and there's no lasting impact from it, and to be sure, in order for there to be no lasting impact, it really needs to get wrapped up pretty quickly here. If you think that's what happens, then it's time to buy this dip and buy it in size because we're we're going much higher. On the other hand, if you don't think that, if you think that the Trump administration has started a fire that they won't be able to put out and that this is not under control and that this Iran conflict might turn into a repeat of the Iraq debacle that began in 2003, well, if that's what you think, because we're leaving my politics out of this one, uh that would pretend a very very different equity market outcome. We could easily be looking at a cyclical bare market and the worst case would be if oil transit through the state 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 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 Straight of Hormuz closure? How long does it take to get things back to flowing as normal again? That's really, I think, what's going to drive equity prices. And frankly, I don't think anybody knows for sure what's coming next in this market. So, it really comes down to your geopolitical outlook. I think all of us are vulnerable to allowing our personal politics to bias our judgment as investors. So, remember this uh market reaction is not going to depend on what you think or what I think should happen. It's 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. Eric, I'm going to keep my analysis very simple from a technical perspective. We're remaining below the 50-day moving average. Uh we're breaking lower highs and lower lows. There is clear distribution. The bears are in control and uh in the driver's seat on the short term on that distribution side. We continued to see all rallies failing uh at Fibonacci zones which is all indicating uh that generally the distribution cycle is still in play. Now while we have seen uh substantial increases in bearishness as uh the sentiment is pivoting. We've seen huge spikes in volatility index and other things that are signs that you typically would see from oversold conditions. But right now with enough of this global uncertainty here, uh this could be an overhang that keeps this market distributing. Now Eric, we certainly can't rule out that at some point the bulls will reverse this and counter trend it. This is again the environment where hedges are in critical and we've talked about them over the last couple of weeks with our listeners and I continue to advocate that uh portfolio insurance here makes a whole lot of sense. All right, Eric, let's talk about that US dollar. Well, Patrick, by recording time, we were back down to a high 99 handle uh 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 and 100. The question to ask is whether we're topping out here at overbought resistance on this uh technically overbought market or if the strength that we've seen in the dollar so far is just be the beginning of a new bullish trend. Once again, I think the answer depends on your geopolitical outlook. Sorry folks, that's 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 nose dive. So there's plenty of room for much much more upside in the dollar index. But ultimately I think that upside would be driven by flight to safety trades in the Iran conflict. Someday when the Iran conflict wears off or or winds down, then I think it becomes a bearish it's time to sell the dollar there because I think it will be overbought and ripe for a major correction, maybe resuming the primary downtrend that was in play before this conflict arose. The question is timing. How much longer before this Iran conflict is over? Whenever it's over, that's the time I think you want to sell the dollar index. Well, Eric, when looking under the hood of the dollar, the key thing is to observe that the predominant weakness is coming from the euro and the yen, which happen to be very large waitings in the dollar index. But the story isn't uh the US dollar strength and all crossurrencies weakening against it. We continue to see resilience in a lot of the commodity based currencies like the Aussie dollar and the Canadian dollar and and that euro is really where the drag is as there continues to be growth concerns at a time when obviously their energy prices are under a lot of pressure which is uh stressing uh the euro right now on the downside. If we see euro breaking some of these key levels that is going to be a huge bullish tailwind for this dollar index. and we're at a the top of a almost a 10month trade range. Uh and if the dollar index makes any progress above this 100 level with momentum, we've got ourselves some sort of a strong uh US dollar counter trend move and so uh we have to watch whether or not this gains momentum from here. All right, Eric, let's touch on crude oil. Well, as I already discussed with Rory Johnston, the Oman benchmark traded over $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 everything. As 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 uh extraction cost price increases, higher oil prices, and so forth. Hopefully we don't get to that point where that self-reinforcing cycle kicks in. All right, let's move on to gold here because we just got ourselves a little bit of a a down day here on Wednesday. Uh what's your take of what's going on? The low print on the January 30th correction was 4423 4423. 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 macrovoices 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 buy signal. The bottom could be in already, except we went right through it and we're trading considerably below it at recording time. I'm looking at 48.24 as we're uh 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 45914591. So I I think we're probably headed in that direction unless there's a sudden change in the fundamentals. But it's also clear that there's been a breakdown of correlations between precious metals and the usual, you know, if it's a increase in tension in Iran, more geopolitical upset, that would normally be up on precious metals. That broke down on March 2nd. 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 uh below the current market. So, either we get a bounce here and the 50-day really was the the trading signal that it should have been. or if we continue to see this uh weakness below the 50-day continue through the day on Thursday, I think we're probably headed down to 4591, maybe 4600 on the 100 day moving average by the time we get there. Well, Eric, my view on gold has uh remained unchanged for the last month after we saw that key blowoff top on gold and that huge reversion. uh typically uh if if we look at the last four consolidations of gold, it took as much as two to four months of gold consolidating before it attempted to break to fresh new highs. At this stage, that analog is the one that we continue to see here on gold as we saw some retesting of highs and this sideways consolidation continuing. Overall, um after this consolidation finishes, there's lots of room for gold to go higher, but uh at this stage, I think it'll be deeper into the second quarter before we see a a meaningful turnup. Could how low could this uh gold correction go? Well, uh the first level to watch on the support side is this 4,800 level we're trading down to right now, which is a a fib zone uh of this retrace. Um, if that doesn't hold, I mean, there is always the possibility we head back down toward that 4500 level and $4,400 level below, but if that was to happen, that would probably be a compelling buy on dip uh to take advantage of. All right, Eric, what are your thoughts here on the fact that uranium continues to just consolidate sideways inactively? Well, Patrick, the fundamentals are uber bullish and they're only getting better by the day as we see more and more nuclear announcements. The nuclear renaissance is on and it's on strong. And the market for uranium and uranium miners is holding up pretty darn well considering how bad everything else is going. We didn't see as big of a downside as I was fearing we might see on uh the uranium stocks on Wednesday. We're still looking at 49 spot.05 at the close on Wednesday on the URA ETF, which is the one that's most followed. That's uh still well above its 200 day moving average, whereas uh 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 uh riskoff 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? Uh I I think the next obvious target is 4603 on the UR ETF. But let's see what happens with the broader risk markets because if we get an outright market crash here as could happen if uh the oil prices continue to rise particularly if they spike over $150 setting new all-time highs at least on the major indices we're already there with some of the uh the other markets around the world but if we get there on Brent and WTI above 150 that probably brings on an outright crash in equity markets and anything could happen. Well, structurally the chart remains bullish. Uh oil consolidations are are being held. Higher highs and higher lows, but it's just been a quiet period. Maybe the the lack of liquidity in the broader asset markets uh could be uh just keeping this all contained. But overall uh the charts are still on the bull trend and uh at major support lines. Now Eric, I want to just quickly touch on copper here. 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 uh 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 five spot 38. We're halfway there as of recording time. So, uh, 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 resol resolution 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. uh and continuing to trade even lower on after hours future trading. Those are all ominous signals that uh these markets are still headed lower. Now, of course, they can all turn on a dime on news flow. If there is a sudden resolution to the Iran conflict and the straight of Hormuz is flowing freely and oil prices are rapidly correcting back down into the 60s, then uh 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. >> Now, Eric, I want to focus in on some bizarre price action that we've seen in copper when it's overlaid on gold. Now, typically precious metals trade in correlation. And a lot of times these industrial metals uh tend to uh march to their beat of their own drum independently. But when I uh here show an overlay of the gold and copper charts, for some odd reason, copper almost day by day, tick by tick has actually been correlating with gold. Now, why I really actually don't have an explanation. Uh it's and I and I certainly don't know whether this will continue, but certainly as of this moment when we're looking at this chart, uh it's undeniable that right now copper uh is just uh trading tick by tick with gold. I'm very curious to see whether or not this trend continues in the weeks and months to come. Patrick, before we wrap up this week's podcast, let's hit that 10-year Treasury note chart. What we've seen here is that it's uh trading right up toward the 230 level. Uh we had the FOMC meeting and the first reaction after the post FOMC was uh yields rising up to their uh one month ranges or multimonth 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. Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of Bigpictur 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. Well, in this week's research roundup, you're going to find the transcript for today's interview. You're going to find the slide deck that was put together by Simon White. And you'll find the trade of the week chart book we just discussed here in the postgame, including a number of links to articles that we found interesting. You're going to find this link and so much more in this week's research roundup. That does it for this week's episode. We appreciate all the feedback and support we get from our listeners, and we're always looking for suggestions on how we can make the program even better. 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MacroVoices #524 Simon White: War + Inflation = More Inflation

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