How Long Before Economy Collapses From War? Economist's Dire Warning | Peter Berezin
Summary
Market Outlook: Elevated recession risk from the Iran-driven oil shock; equities may bounce tactically but likely trend lower into year-end.
Energy/Oil: Strait of Hormuz disruptions and inelastic demand could push oil toward $200, with a persistent geopolitical risk premium even if conflict cools.
Gold: Despite headwinds from a stronger dollar and higher rates, central-bank diversification and macro risks support a multi-year bullish view on gold (some forecasts eye $6,000 by 2026).
AI and Software: AI is cannibalizing traditional software economics as customers can code cheaply with agents, pressuring application software margins and valuations.
Social Media Impact: AI agents may intermediate content discovery, shifting Instagram/YouTube/TikTok from destinations to repositories, a potential negative for Interactive Media & Services (e.g., META, GOOGL).
Semis/Hardware: Efficiency gains in AI inference (e.g., Google advances) and research lowering compute costs could dampen demand for chips and memory, weighing on names like Micron (MU).
Metals: Near term, less AI data center capex is bearish for base metals (e.g., copper), but long-term AI-driven productivity and resource scarcity argue for a bullish structural outlook.
Positioning/Currency: Prefers extra cash now amid valuation and margin risks; USD is okay near term on terms-of-trade but faces structural headwinds, indirectly supportive for gold.
Transcript
Well, the war has certainly exacerbated the risk of a recession. My recession probability for the US is 40%, for Europe and Japan, it's closer to 50%. Well, if we have a sustained decrease in global oil production of around uh 10%, 2008 was a very good example. Over the course of a couple of weeks in 2008, right around the time that Leman went bankrupt, gold fell by 20%. We're back with Peter Barrison, director of research and chief global strategist at BCA Research. And we'll be getting his outlook on markets and how long oil can sustain at current prices before the economy breaks. Peter, welcome back to the show. Good to see you. >> It's good good to be back back on. >> Let me just start with a chart of the NASDAQ. So we're speaking on the 1st of April currently and uh and we're getting a bit of a bounce in uh the stock market up one and a half% on news that Iran and uh Iran has proposed um a ceasefire. Uh this is from the Trump administration but previously last week Iran has denied any such negotiations have taken place but it markets seem to be buying the news. Anyway, the question is, Peter, before we talked about your oil in Iran, uh, and the consumer, the NASDAQ has pulled back considerably since the beginning of the year. It's down about 7.5% uh, year to date, not counting the dip, uh, earlier uh, in March, which would make it down to 12 negative 12% at the trough. This is the worst start to the year of any year since 2022. Peter, uh, has this pullback, uh, reached a point where it's now a good buying opportunity for investors, do you think? >> Well, we said last week that, uh, stocks were poised for a bounce, and they did bounce for the last couple of days, but I see, you know, like a bouncing ball going down a set of stairs. It'll bounce up for a while, but ultimately it'll end up lower than where it started. So, I kind of see the path of the stock market being like that. probably will end up at a lower level at the end of this year than where we are today. >> Every time Trump has announced uh negotiations with Iran or I guess closer to a ceasefire, markets move up. Why do you think markets believe this rhetoric? >> Well, I mean, you know, the lesson I think from basically for the last uh 16 years or so has been that you should buy the dip. uh that every time the stock market sells off especially on sort of policy related developments like we saw with the uh tariff shock in April that presents an opportunity to buy and so investors are keen to get back in as quickly as possible. The risk of force is that this doesn't prove to be just another uh tactical opportunity to buy that it proves to be a much more of a problem for the economy and for the broader financial markets. >> So let's get into that right now. You wrote on uh LinkedIn two weeks ago, the Strait of Cormoose carries about 20% of the world's oil. The Iranian oil is still getting through and some and some other oil is getting diverted through pipelines. So right now about 20 10% of the world's oil supply is being blocked. How much higher would oil prices need to rise to destroy 10% of global oil demand? Uh it's really inelastic. You said the demand for oil. So this means that every 10% increase in oil prices will reduce demand by 0.5% to 1%. Thus to reduce demand by 10% oil prices would need to double and possibly triple. So we know oil is inelastic, but we know demand for discretionary goods is not inelastic. So the question is how much longer can oil or does oil need to stay higher uh before consumers really pull back on spending? >> Well, if we have a sustained decrease in global oil production of around uh 10% then it's very easy to see oil prices going to $200. I mean think about the pandemic period dur during the worst point of the pandemic. Remember all those sort of empty streets? Global oil consumption was down about 20%. If you look in the straight of Hermuz, that's how much global oil supply goes through the straight uh every every day. So the point being is like imagine how high oil prices would need to go to see the same sort of empty streets that you saw back then. Oil prices would have to potentially go quite a lot. And it's not not just oil prices, of course. It's the impact that higher oil prices have on other goods. The p the price of fertilizer, uh the the price of jet fuel, the price of uh plastics and other other things. It goes right through the whole supply chain. >> Well, how do you see this playing out? Have you and your um team and your geopolitical team at BCA as well discussed a possible resolution to this conflict? >> I think that's sort of the base case that there'll be a resolution. The question is just around timing. I mean, Trump has basically been declaring victory now every day for the last 3 weeks. A lot really depends on what the Iranians are prepared to accept. The last thing they want is for the US to go back to bombing them, you know, 6 12 months from now, especially after the midterms are over. So they want to really make sure that people understand that if this happens again, then the straight will close down again and it'll be a shock to oil prices again. And then the problem I think for them is that the US and Israel killed off so much of their leadership. There's a bit of a power vacuum there. Uh we don't know what's going on, but most likely there's all sorts of jostling for power. The problem is that when you have kind of this power vacuum and you want to make it to the top in the Iranian governmental uh structure, you got to sound tough, right? Tough guys make it to the top in these sort of countries. You don't sound tough by saying, "Okay, you know, we're going to give Donald Trump whatever he wants." So, this kind of selects for the more radical, the more aggressive people within the governmental ranks. And that in turn makes a compromise less likely at least in the near term. >> If you're we'll we'll talk about market indicators in just a minute, but if you just look at the news right now, troops are being deployed, Marines are being deployed to the Middle East. This is Peak Hex speaking at a conference. Just take a listen and we'll react together. >> Trump and boots on the ground. Uh I don't understand why the base, which they have already, they understand wouldn't have faith in his ability to execute on this. Look at his track record of pursuing peace through strength, America first outcomes. Uh, and what he's simply saying, and it's exactly true, and I've said from this podium, too, we're not going to foreclose any option. You can't fight and win a war if you tell your adversary what you are willing to do or what you are not willing to do to include boots on the ground. The our adversary right now thinks there are 15 different ways we could come at them with boots on the ground. And guess what? There are. So, if we needed to, we could execute those options on behalf of the president of the United States and this department. >> Wait a minute. How are you interpreting what he just said? Well, I mean, this could turn out to be, as Trump himself said, a little excursion. All these air aircraft carriers go there and they scare the Iranians and then and then they go back home. But that's kind of unlikely. Most likely the military conflict will heat up. And it's not at all obvious whether uh the US has the resources to actually have boots on the ground in any meaningful way. If you look at the first Gulf War, you know, 750,000 troops were involved in that. in the second war with Iraq, uh, 350,000 troops. So, the US is nowhere near those, uh, scale in, uh, troop deployment. So, maybe the Iranians just sort of hold out. Maybe they figure that they can fight an asymmetric war where they occasionally shoot up a tanker that tries to go through the straight and that keeps tankers for going through while prices stay high. The US has to uh, uh, kind of abandon its homes, hopes of regime change. That is also a very plausible outcome. >> Before we continue with the video, I'd like to bring to your attention something that's perhaps even more valuable and important than your investment portfolio, and that's your personal data and your privacy. Now, your personal information is more accessible than you may think. And that's where today's sponsor, Delete Me, comes in. Data brokers and search websites gather and sell details like your name, home address, phone number, and even family connections, sometimes without you even realizing it. Delete Me is a service I use to help me limit that exposure. 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Like I don't think any anyone can say anything definitive about what will happen militarily or politically but the risk is there and I would say maybe late last week the market was sort of pricing in uh quite a bit of uh downside risk after the rally of the last few days that's less true >> well which market or asset in particular do you think is the best leading indicator for what may happen in other words um how are markets pricing in the current situation and what's about to happen and which asset is the best at doing that. >> Well, it's interesting. You look at oil prices. They haven't really come down very much. Stocks have rallied. So, that's kind of telling me that there's just a lot of hope amongst equity investors, which isn't necessarily shared by commodity traders, and that's a bit of a dangerous uh development because most likely commodity traders are better informed uh about where oil is going than equity investors. >> And it's interesting how the uh inflation expectations though long-term have not risen. In fact, they've come down somewhat. Uh it spiked throughout uh the beginning of the year culminating in this is the tip ETF which tracks the tips. Uh but we have here a situation where the tips have been coming down. Why do you think that is Peter? And ultimately if inflation expectations aren't aligned with uh uh oil prices, then perhaps the markets don't believe this war is going to stay. Well, I think there's a risk that I think is increasing in the minds of investors that oil prices will stay high long enough to induce a recession. And if a recession happens, then you're going to get more slack in the labor market. Ultimately, that will lead to less inflation and lower uh bond yields. Uh so, I think that's kind of what the market is thinking. Uh the good news at least so far is that as you say David we haven't seen kind of higher inflation become embedded in uh in the economy in the way that it did in the 1970s and early 80s. So that does give central banks a little bit more flexibility. But nevertheless if you look at like what's happened to rate expectations they have gone from pricing and rate cuts to pricing and rate hikes in most uh most economies. What is the uh what is the uh outlook for the economy for you broadly speaking? Uh are you anticipating a recession? Um and do you think that uh the Iran war has exacerbated risks of a recession? >> Well, the war has certainly exacerbated the risk of a recession. My recession probability for the US is 40%, for Europe and Japan, it's closer to 50%. So, it's certainly high enough to be worried, but it's not so high that you want to be dogmatically predicting a recession. The oil shock could end, right? We could have a resolution to this conflict. We know that uh there's, you know, fiscal stimulus coming down the pike. US households are going to be getting 150 billion of additional tax refunds. Maybe some of the tariff uh tariffs come off. that could be also supportive for the economy. If oil prices start falling, maybe the Fed then can in fact cut rates outside of the US. You know, Germany is stimulating. Uh China probably could do and will do a bit more. So, it's possible that we avoid a recession. Uh but I think for that to happen, a the oil shock needs to end and b the whole AI capex story has to remain in place. If the capex story around AI starts to fizzle, then kind of regardless of what happens to oil, you would have to be a little more worried about the possibility of a recession. >> Do you think the bond markets with the 10-year yield now rising to above um 4 4.3% is is in indicating a slowdown in the economy? >> Not so much. I mean bond yields are basically now where they were uh you know 6 12 uh months ago. They haven't really done much for the last few years. If we do get a recession, I think the Fed will ultimately be forced to cut rates pretty aggressively and bond yields will go down, but that's not something the market is really focusing on in a major way at the moment. >> Well, bond yields going down, you mean the short end of the curve or the long end? Well, what would happen is that at both the short end and the long end, uh, yields would fall probably more at the, uh, short end. So, you get kind of this steepening of the yield curve as the market prices in pretty aggressive cuts to policy rates. >> Has, uh, BCA and your team uh, changed their tactical outlook for uh, energy since the start of the war? Or in other words, uh, have you been more long energy with oil WTI at $100 or do you think it's a bit overbought currently? >> Yeah, I think it's a much more of a nuance story. I mean, a month ago when the ships were kind of amassing in the Persian Gulf, the risk of an oil shock was, you know, underpriced. Now that we have oil prices where they are, you know, over $100 a barrel, there certainly is a chance that they go back down, but not back to where they were a month earlier. Even if the war ends, we know that a lot of uh countries are going to be looking to increase their stockpiles of oil. So, they'll still be buying for that uh reason. It'll probably still be a geopolitical risk premium associated with oil. So prices could fall enough to help us avoid a recession, but they're not going back to where they were in February. >> So which um which asset class do you like the most right now? Um stocks, bonds, metals, commodities, energy. >> I like cash right now. Uh there's just a lot of risk out there. uh stocks have gotten cheaper compared to where they were earlier this year, but they're still trading at around 20 times forward earnings on peak profit margins, right? So, there's a risk that not only does the P multiple come down, there's a risk that those huge profit margins, especially in the tech sector, start to uh decline and then you have a hit not only to the multiple, but also to the earnings associated with that multiple. That's not an environment where you want to be really long uh stocks. So, I would say keep a little bit extra cash on hand. If you do get a sell off, use that cash to get back into the stock market. >> Is there a particular currency that you think will do better than others right now? If you want to hold cash, >> I think the dollar is okay right now simply because the US is benefiting from higher oil prices. that helps the US terms of trade but hurts other economies such as those of Europe and Japan. Now if we kind of look through what happens over the next few months if the oil shock ends uh but then you have kind of this issue around maybe tech capex starting to slow at that point the dollar becomes less attractive because so much money has gone into US tech stocks if that money starts to flow out that's going to be negative for the dollar. Speaking of the dollar, here I'm going to put up a chart of the DXY. Uh, how do you think the Iran situation has fundamentally changed demand for the dollar? I think uh we've uh there's some headlines out there that Iran wants to a charge a toll for ships passing through the street of Hormuz and uh the toll has to be paid in Chinese yuang and so this may threaten the petro dollar some analysts say. What's your view? I I don't think that's um very important in the sense that how you denominate trade is much less important than what sort of assets uh investors want to hold and whether a country is running a trade surplus or a trade uh deficit. So I think in the case of the US you do have fundamental uh headwinds facing the dollar. A, it's still a fairly expensive currency based on standard purchasing price parody exchange rates. Uh, B, uh, the US has been running these huge current account deficits for 45 years. It's accumulated a massive amount of liabilities to the rest of the world. It's going to have to pay more to service those liabilities going forward. That's going to be a negative for the uh uh dollar. And then I would say C uh the fact of the matter is that the US is not the most popular place these days politically and so a lot of central banks are looking to diversify their dollar holdings away from the the dollar towards other currencies and I would say when I say other currencies I would include gold in that list and that's fundamentally supportive for gold prices. Well, why do you think the dollar has been moving up since the beginning of March ever since February 28th while gold has been moving the opposite direction? In fact, some people are confused as to why gold hasn't been behaving like a safe haven asset at all, moving up and down the alongside stocks. Well, I think a few things have kind of hurt gold. One, the macro environment hasn't been great for gold in the sense that you have had a stronger dollar and higher interest rates and typically the dollar typically gold does poorly when rates are going up. Remember the opportunity cost of holding gold is just the interest rates. So if interest rate goes up then it becomes more expensive to hold an asset that doesn't generate a yield like gold. That's not good for gold. It's not good for uh gold when the dollar strengthens. Nor is it good for gold when you have a lot of retail money parked in gold as was definitely the case in February. uh when you have that sort of uh retail uh interest often you do get very very sharp corrections in gold prices even in the context of a riskoff environment 2008 was a very good example over the course of a couple of weeks in 2008 right around the time that Leman went bankrupt gold fell by 20%. uh because so much hot money had gone into that uh asset. So we had a little bit of that going into March. Gold has corrected. My guess is that gold probably will start to do uh do well over the coming uh months and probably years. >> Well, JP Morgan has a uh 6,000 uh gold price outlook for 2026. Is that in line with uh what BCA uh has? We don't have we don't have a target but I would say directionally we're probably moving in that in that now in towards towards that level. >> I like to talk about software now and software and tech uh the cannibalization of software is front and center on investors minds as AI advances uh you need less of other software. Let's just give you a crude example. For example, uh spreadsheets some people say will be obsolete in a couple years because claude open claude and uh and other agents are replacing the need for manually typing in spreadsheets. Uh that's just one example. But software stocks haven't done well and I wonder if you've had a chance to look at whether or not this is a buying opportunity for software. In other words, markets are overreacted or software is going to be actually the Cisco of our time. >> Yeah, I think it actually goes beyond software. I mean, a few months ago, the prevailing wisdom was that software companies would benefit from AI because AI would allow them to code more cheaply. It turned out that that's that this was true. AI did allow those companies to code more cheaply. But the problem was that it allowed everyone else, including the customers of the software companies, to code more cheaply. And then, as you kind of suggested, people began asking, well, do we really need to buy this expensive off-the-shelf software? maybe we'll just ask Claude to code something for us for free or basically next to free and that caused software stocks to sell off but I think it's going to spread to other parts of the tech uh arena. I'm particularly uh of the view that social media could get dinged by AI. Right now the prevailing wisdom is that AI is great for meta and these sort of companies. I'm not so sure about that. I think what's going to happen is that AI is going to create kind of this buffer around the uh users that now go to social media sites so that rather than going to like Instagram or YouTube uh or Tik Tok for content, I think increasingly what's going to happen is that users will ask AI to scour the whole internet and deliver content to them uh directly. And then the risk is that these social media sites go from being prized destinations to being kind of mere repositories of content and that's not really what is great for profits. >> Well, here's another casualty. Micron, maker of RAM chips, uh took a huge hit uh beginning or middle of March as Google unveiled Turbo Quad. It's a new technology designed for faster AI uh inference. basically significantly reducing the amount of chips and memory it requires to process uh a task and uh the idea is that chips will be in less demand and RAM will no longer be priced as high. Um maybe comment on on this trend and whether or not hardware is the next casualty. Yeah, in fact there was, you know, on this theme, there was a story in the in the Wall Street Journal today about some progress that researchers at Caltech have made in dramatically uh decreasing the energy uh costs and the computational cost of running these large language models. That's a trend that's going to continue. And I think the internet is sort of an example of how important uh these sort of efficiency gains could be. If you look at the amount of data that's been transmitted over the internet, it has grown exponentially. The chart that you're showing there actually shows that data uh data transmission has increased at an annualized pace of 42% commulative increase of half a million% over the last 25 years. And yet if you look at the amount of money spent on internet infrastructure, it's gone down as a share of GDP. Last year, the biggest telecom companies in the US, so Verizon, AT&T, Comcast, these guys, they collectively spent only $70 billion on uh capex. You know, compare that to the $ 1.5 trillion that OpenAI just a few months ago was saying that they expect to spend over the next 8 years. I think the irony could be is that we end up with an AI empowered world, but we don't need like trillions of dollars in data centers to get there. >> That spells bad news for commodities, does it not? Uh copper base metals, the story here is that as data centers become um more prevalent, we'll need more raw materials to build them. So you were looking at a counter trend here, Peter. It's a little bit nuanced in in the short short to medium term. Yes, absolutely. If we have uh less AI capex, that means less demand for AI. Longer term, I think the picture is a little bit more positive for metals because if AI does deliver on those productivity gains and those productivity gains will be easier to achieve if you don't need to, you know, spend trillions of dollars on data centers, then we're going to have a world where AI is able to create many new things. And that in turn will require resources. Uh and so kind of the irony would be that in a world of abundance made possible by AI, anything that kind of remains scarce becomes more valuable and metals probably will remain scarce for quite a long time because the earth is a finite uh resource. So longer term, I think AI could be quite bullish for metals, but in the short term, you're quite right, David. It's probably a bearish development if we have fewer data centers being built. >> Uh finally, let's comment on this. This leads me to get your reaction on top IPOs anticipated in 2026. Top of the list, SpaceX valued at over what trillion dollars, OpenAI by Dan's Anthropic, Data Brick, Stripe, Revolute, and Canva. Which of these excite you the most, Peter? Or none of the above? you're allowed to say. >> I would say probably none of the above, but if I had to sort of pick one, I think a company like Anthropic uh could turn out to be the winner because they seem to have the best offering within the kind of business AI services arena. And also if we get kind of this progress in terms of uh uh reducing the compute costs associated with AI that's going to be good for anthropic because they won't have to build as many uh data centers. But the reality is and you know this full full well David when you have like a industry where there's a lot of IPOs taking place that often marks the top for that industry. the CEO of Anthropic has uh famously been on uh media and has been very blunt about warning uh well the jobs market warning that is imminent. So basically he's saying unless you're creative or you have some sort of um talent that goes beyond uh tasks that AI can do, you're going to be out of work in the next 10 to 20 years. Uh is his is his probably even sooner. That's his message. Uh, it sounds crazy. People just don't believe it. That's his quote. Most of them are unaware that this is about to happen. AI could wipe out half of all entrylevel white collar jobs and spike unemployment to 10 to 20% in the next 1 to 5 years is his exact quote. Uh, Peter, let me just get your reaction to that. And um whether or not the productivity gains in AI could offset some of this unemployment. Well, do you even agree with this assessment, this outlook? >> I disagree with it. So economists are not good for many things but you know one thing we're good at is sort of thinking through these sort of questions. If you believe uh that AI will lift productivity then you must also believe that AI will lift incomes because in equilibrium income has to equal output. Uh so to get to a story that says you're going to have mass unemployment, you need to make an additional assumption which is that you need to argue that AI is going to generate a lot of income inequality. There'll be more income, but that income will be concentrated in the hands of the very rich. We tend to save a lot of money and so we're going to have this persistent shortfall in aggregate demand. First of all, that might not happen, right? AI could actually be uh a force that helps to equalize the power dynamics between companies and users by giving uh users the ability to use agents to find better deals on insurance, airline tickets and whatnot. But even if it does happen, you then have to answer the question, why wouldn't there be a policy response? So, if we have kind of this world of mass unemployment, presumably then we've got lower real wage growth, uh we've got a lot of all this slack in the economy, that's an opportunity to do more fiscal stimulus, right? Interest rates are low. You can issue more debt. Growth is strong. The the uh debt to GDP ratio is going down because the denominator is going up. So, that's kind of an recipe for easier monetary policy, easier fiscal policy. There will be a response policy-wise to such a development if it were to happen and I think that would prevent unemployment from going up sharply. >> But that sounds like more inflation though, fiscal stimulus, monetary stimulus, more money printing. >> No, not necessarily. I mean I if the response is more fiscal stimulus because you have a deflationary environment, then what's allowing that stimulus to happen is that interest rates have come down and governments can borrow more cheaply. >> Right. Thank you so much, Peter. Appreciate your update. tell us where we can follow you, learn more from you. >> Uh, I'm on uh Twitter X. You can follow me there. I'm on LinkedIn, of course. Please do go to bcaareearch.com and sign up for a trial. >> We'll put the links down below. So, make sure to follow Peter and BCA Research there. Thank you so much once again. Appreciate your time and we'll speak again next time. >> Great to be on, David. >> Thank you for watching. Don't forget to like, subscribe,
How Long Before Economy Collapses From War? Economist's Dire Warning | Peter Berezin
Summary
Transcript
Well, the war has certainly exacerbated the risk of a recession. My recession probability for the US is 40%, for Europe and Japan, it's closer to 50%. Well, if we have a sustained decrease in global oil production of around uh 10%, 2008 was a very good example. Over the course of a couple of weeks in 2008, right around the time that Leman went bankrupt, gold fell by 20%. We're back with Peter Barrison, director of research and chief global strategist at BCA Research. And we'll be getting his outlook on markets and how long oil can sustain at current prices before the economy breaks. Peter, welcome back to the show. Good to see you. >> It's good good to be back back on. >> Let me just start with a chart of the NASDAQ. So we're speaking on the 1st of April currently and uh and we're getting a bit of a bounce in uh the stock market up one and a half% on news that Iran and uh Iran has proposed um a ceasefire. Uh this is from the Trump administration but previously last week Iran has denied any such negotiations have taken place but it markets seem to be buying the news. Anyway, the question is, Peter, before we talked about your oil in Iran, uh, and the consumer, the NASDAQ has pulled back considerably since the beginning of the year. It's down about 7.5% uh, year to date, not counting the dip, uh, earlier uh, in March, which would make it down to 12 negative 12% at the trough. This is the worst start to the year of any year since 2022. Peter, uh, has this pullback, uh, reached a point where it's now a good buying opportunity for investors, do you think? >> Well, we said last week that, uh, stocks were poised for a bounce, and they did bounce for the last couple of days, but I see, you know, like a bouncing ball going down a set of stairs. It'll bounce up for a while, but ultimately it'll end up lower than where it started. So, I kind of see the path of the stock market being like that. probably will end up at a lower level at the end of this year than where we are today. >> Every time Trump has announced uh negotiations with Iran or I guess closer to a ceasefire, markets move up. Why do you think markets believe this rhetoric? >> Well, I mean, you know, the lesson I think from basically for the last uh 16 years or so has been that you should buy the dip. uh that every time the stock market sells off especially on sort of policy related developments like we saw with the uh tariff shock in April that presents an opportunity to buy and so investors are keen to get back in as quickly as possible. The risk of force is that this doesn't prove to be just another uh tactical opportunity to buy that it proves to be a much more of a problem for the economy and for the broader financial markets. >> So let's get into that right now. You wrote on uh LinkedIn two weeks ago, the Strait of Cormoose carries about 20% of the world's oil. The Iranian oil is still getting through and some and some other oil is getting diverted through pipelines. So right now about 20 10% of the world's oil supply is being blocked. How much higher would oil prices need to rise to destroy 10% of global oil demand? Uh it's really inelastic. You said the demand for oil. So this means that every 10% increase in oil prices will reduce demand by 0.5% to 1%. Thus to reduce demand by 10% oil prices would need to double and possibly triple. So we know oil is inelastic, but we know demand for discretionary goods is not inelastic. So the question is how much longer can oil or does oil need to stay higher uh before consumers really pull back on spending? >> Well, if we have a sustained decrease in global oil production of around uh 10% then it's very easy to see oil prices going to $200. I mean think about the pandemic period dur during the worst point of the pandemic. Remember all those sort of empty streets? Global oil consumption was down about 20%. If you look in the straight of Hermuz, that's how much global oil supply goes through the straight uh every every day. So the point being is like imagine how high oil prices would need to go to see the same sort of empty streets that you saw back then. Oil prices would have to potentially go quite a lot. And it's not not just oil prices, of course. It's the impact that higher oil prices have on other goods. The p the price of fertilizer, uh the the price of jet fuel, the price of uh plastics and other other things. It goes right through the whole supply chain. >> Well, how do you see this playing out? Have you and your um team and your geopolitical team at BCA as well discussed a possible resolution to this conflict? >> I think that's sort of the base case that there'll be a resolution. The question is just around timing. I mean, Trump has basically been declaring victory now every day for the last 3 weeks. A lot really depends on what the Iranians are prepared to accept. The last thing they want is for the US to go back to bombing them, you know, 6 12 months from now, especially after the midterms are over. So they want to really make sure that people understand that if this happens again, then the straight will close down again and it'll be a shock to oil prices again. And then the problem I think for them is that the US and Israel killed off so much of their leadership. There's a bit of a power vacuum there. Uh we don't know what's going on, but most likely there's all sorts of jostling for power. The problem is that when you have kind of this power vacuum and you want to make it to the top in the Iranian governmental uh structure, you got to sound tough, right? Tough guys make it to the top in these sort of countries. You don't sound tough by saying, "Okay, you know, we're going to give Donald Trump whatever he wants." So, this kind of selects for the more radical, the more aggressive people within the governmental ranks. And that in turn makes a compromise less likely at least in the near term. >> If you're we'll we'll talk about market indicators in just a minute, but if you just look at the news right now, troops are being deployed, Marines are being deployed to the Middle East. This is Peak Hex speaking at a conference. Just take a listen and we'll react together. >> Trump and boots on the ground. Uh I don't understand why the base, which they have already, they understand wouldn't have faith in his ability to execute on this. Look at his track record of pursuing peace through strength, America first outcomes. Uh, and what he's simply saying, and it's exactly true, and I've said from this podium, too, we're not going to foreclose any option. You can't fight and win a war if you tell your adversary what you are willing to do or what you are not willing to do to include boots on the ground. The our adversary right now thinks there are 15 different ways we could come at them with boots on the ground. And guess what? There are. So, if we needed to, we could execute those options on behalf of the president of the United States and this department. >> Wait a minute. How are you interpreting what he just said? Well, I mean, this could turn out to be, as Trump himself said, a little excursion. All these air aircraft carriers go there and they scare the Iranians and then and then they go back home. But that's kind of unlikely. Most likely the military conflict will heat up. And it's not at all obvious whether uh the US has the resources to actually have boots on the ground in any meaningful way. If you look at the first Gulf War, you know, 750,000 troops were involved in that. in the second war with Iraq, uh, 350,000 troops. So, the US is nowhere near those, uh, scale in, uh, troop deployment. So, maybe the Iranians just sort of hold out. Maybe they figure that they can fight an asymmetric war where they occasionally shoot up a tanker that tries to go through the straight and that keeps tankers for going through while prices stay high. The US has to uh, uh, kind of abandon its homes, hopes of regime change. That is also a very plausible outcome. >> Before we continue with the video, I'd like to bring to your attention something that's perhaps even more valuable and important than your investment portfolio, and that's your personal data and your privacy. Now, your personal information is more accessible than you may think. And that's where today's sponsor, Delete Me, comes in. Data brokers and search websites gather and sell details like your name, home address, phone number, and even family connections, sometimes without you even realizing it. Delete Me is a service I use to help me limit that exposure. 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Like I don't think any anyone can say anything definitive about what will happen militarily or politically but the risk is there and I would say maybe late last week the market was sort of pricing in uh quite a bit of uh downside risk after the rally of the last few days that's less true >> well which market or asset in particular do you think is the best leading indicator for what may happen in other words um how are markets pricing in the current situation and what's about to happen and which asset is the best at doing that. >> Well, it's interesting. You look at oil prices. They haven't really come down very much. Stocks have rallied. So, that's kind of telling me that there's just a lot of hope amongst equity investors, which isn't necessarily shared by commodity traders, and that's a bit of a dangerous uh development because most likely commodity traders are better informed uh about where oil is going than equity investors. >> And it's interesting how the uh inflation expectations though long-term have not risen. In fact, they've come down somewhat. Uh it spiked throughout uh the beginning of the year culminating in this is the tip ETF which tracks the tips. Uh but we have here a situation where the tips have been coming down. Why do you think that is Peter? And ultimately if inflation expectations aren't aligned with uh uh oil prices, then perhaps the markets don't believe this war is going to stay. Well, I think there's a risk that I think is increasing in the minds of investors that oil prices will stay high long enough to induce a recession. And if a recession happens, then you're going to get more slack in the labor market. Ultimately, that will lead to less inflation and lower uh bond yields. Uh so, I think that's kind of what the market is thinking. Uh the good news at least so far is that as you say David we haven't seen kind of higher inflation become embedded in uh in the economy in the way that it did in the 1970s and early 80s. So that does give central banks a little bit more flexibility. But nevertheless if you look at like what's happened to rate expectations they have gone from pricing and rate cuts to pricing and rate hikes in most uh most economies. What is the uh what is the uh outlook for the economy for you broadly speaking? Uh are you anticipating a recession? Um and do you think that uh the Iran war has exacerbated risks of a recession? >> Well, the war has certainly exacerbated the risk of a recession. My recession probability for the US is 40%, for Europe and Japan, it's closer to 50%. So, it's certainly high enough to be worried, but it's not so high that you want to be dogmatically predicting a recession. The oil shock could end, right? We could have a resolution to this conflict. We know that uh there's, you know, fiscal stimulus coming down the pike. US households are going to be getting 150 billion of additional tax refunds. Maybe some of the tariff uh tariffs come off. that could be also supportive for the economy. If oil prices start falling, maybe the Fed then can in fact cut rates outside of the US. You know, Germany is stimulating. Uh China probably could do and will do a bit more. So, it's possible that we avoid a recession. Uh but I think for that to happen, a the oil shock needs to end and b the whole AI capex story has to remain in place. If the capex story around AI starts to fizzle, then kind of regardless of what happens to oil, you would have to be a little more worried about the possibility of a recession. >> Do you think the bond markets with the 10-year yield now rising to above um 4 4.3% is is in indicating a slowdown in the economy? >> Not so much. I mean bond yields are basically now where they were uh you know 6 12 uh months ago. They haven't really done much for the last few years. If we do get a recession, I think the Fed will ultimately be forced to cut rates pretty aggressively and bond yields will go down, but that's not something the market is really focusing on in a major way at the moment. >> Well, bond yields going down, you mean the short end of the curve or the long end? Well, what would happen is that at both the short end and the long end, uh, yields would fall probably more at the, uh, short end. So, you get kind of this steepening of the yield curve as the market prices in pretty aggressive cuts to policy rates. >> Has, uh, BCA and your team uh, changed their tactical outlook for uh, energy since the start of the war? Or in other words, uh, have you been more long energy with oil WTI at $100 or do you think it's a bit overbought currently? >> Yeah, I think it's a much more of a nuance story. I mean, a month ago when the ships were kind of amassing in the Persian Gulf, the risk of an oil shock was, you know, underpriced. Now that we have oil prices where they are, you know, over $100 a barrel, there certainly is a chance that they go back down, but not back to where they were a month earlier. Even if the war ends, we know that a lot of uh countries are going to be looking to increase their stockpiles of oil. So, they'll still be buying for that uh reason. It'll probably still be a geopolitical risk premium associated with oil. So prices could fall enough to help us avoid a recession, but they're not going back to where they were in February. >> So which um which asset class do you like the most right now? Um stocks, bonds, metals, commodities, energy. >> I like cash right now. Uh there's just a lot of risk out there. uh stocks have gotten cheaper compared to where they were earlier this year, but they're still trading at around 20 times forward earnings on peak profit margins, right? So, there's a risk that not only does the P multiple come down, there's a risk that those huge profit margins, especially in the tech sector, start to uh decline and then you have a hit not only to the multiple, but also to the earnings associated with that multiple. That's not an environment where you want to be really long uh stocks. So, I would say keep a little bit extra cash on hand. If you do get a sell off, use that cash to get back into the stock market. >> Is there a particular currency that you think will do better than others right now? If you want to hold cash, >> I think the dollar is okay right now simply because the US is benefiting from higher oil prices. that helps the US terms of trade but hurts other economies such as those of Europe and Japan. Now if we kind of look through what happens over the next few months if the oil shock ends uh but then you have kind of this issue around maybe tech capex starting to slow at that point the dollar becomes less attractive because so much money has gone into US tech stocks if that money starts to flow out that's going to be negative for the dollar. Speaking of the dollar, here I'm going to put up a chart of the DXY. Uh, how do you think the Iran situation has fundamentally changed demand for the dollar? I think uh we've uh there's some headlines out there that Iran wants to a charge a toll for ships passing through the street of Hormuz and uh the toll has to be paid in Chinese yuang and so this may threaten the petro dollar some analysts say. What's your view? I I don't think that's um very important in the sense that how you denominate trade is much less important than what sort of assets uh investors want to hold and whether a country is running a trade surplus or a trade uh deficit. So I think in the case of the US you do have fundamental uh headwinds facing the dollar. A, it's still a fairly expensive currency based on standard purchasing price parody exchange rates. Uh, B, uh, the US has been running these huge current account deficits for 45 years. It's accumulated a massive amount of liabilities to the rest of the world. It's going to have to pay more to service those liabilities going forward. That's going to be a negative for the uh uh dollar. And then I would say C uh the fact of the matter is that the US is not the most popular place these days politically and so a lot of central banks are looking to diversify their dollar holdings away from the the dollar towards other currencies and I would say when I say other currencies I would include gold in that list and that's fundamentally supportive for gold prices. Well, why do you think the dollar has been moving up since the beginning of March ever since February 28th while gold has been moving the opposite direction? In fact, some people are confused as to why gold hasn't been behaving like a safe haven asset at all, moving up and down the alongside stocks. Well, I think a few things have kind of hurt gold. One, the macro environment hasn't been great for gold in the sense that you have had a stronger dollar and higher interest rates and typically the dollar typically gold does poorly when rates are going up. Remember the opportunity cost of holding gold is just the interest rates. So if interest rate goes up then it becomes more expensive to hold an asset that doesn't generate a yield like gold. That's not good for gold. It's not good for uh gold when the dollar strengthens. Nor is it good for gold when you have a lot of retail money parked in gold as was definitely the case in February. uh when you have that sort of uh retail uh interest often you do get very very sharp corrections in gold prices even in the context of a riskoff environment 2008 was a very good example over the course of a couple of weeks in 2008 right around the time that Leman went bankrupt gold fell by 20%. uh because so much hot money had gone into that uh asset. So we had a little bit of that going into March. Gold has corrected. My guess is that gold probably will start to do uh do well over the coming uh months and probably years. >> Well, JP Morgan has a uh 6,000 uh gold price outlook for 2026. Is that in line with uh what BCA uh has? We don't have we don't have a target but I would say directionally we're probably moving in that in that now in towards towards that level. >> I like to talk about software now and software and tech uh the cannibalization of software is front and center on investors minds as AI advances uh you need less of other software. Let's just give you a crude example. For example, uh spreadsheets some people say will be obsolete in a couple years because claude open claude and uh and other agents are replacing the need for manually typing in spreadsheets. Uh that's just one example. But software stocks haven't done well and I wonder if you've had a chance to look at whether or not this is a buying opportunity for software. In other words, markets are overreacted or software is going to be actually the Cisco of our time. >> Yeah, I think it actually goes beyond software. I mean, a few months ago, the prevailing wisdom was that software companies would benefit from AI because AI would allow them to code more cheaply. It turned out that that's that this was true. AI did allow those companies to code more cheaply. But the problem was that it allowed everyone else, including the customers of the software companies, to code more cheaply. And then, as you kind of suggested, people began asking, well, do we really need to buy this expensive off-the-shelf software? maybe we'll just ask Claude to code something for us for free or basically next to free and that caused software stocks to sell off but I think it's going to spread to other parts of the tech uh arena. I'm particularly uh of the view that social media could get dinged by AI. Right now the prevailing wisdom is that AI is great for meta and these sort of companies. I'm not so sure about that. I think what's going to happen is that AI is going to create kind of this buffer around the uh users that now go to social media sites so that rather than going to like Instagram or YouTube uh or Tik Tok for content, I think increasingly what's going to happen is that users will ask AI to scour the whole internet and deliver content to them uh directly. And then the risk is that these social media sites go from being prized destinations to being kind of mere repositories of content and that's not really what is great for profits. >> Well, here's another casualty. Micron, maker of RAM chips, uh took a huge hit uh beginning or middle of March as Google unveiled Turbo Quad. It's a new technology designed for faster AI uh inference. basically significantly reducing the amount of chips and memory it requires to process uh a task and uh the idea is that chips will be in less demand and RAM will no longer be priced as high. Um maybe comment on on this trend and whether or not hardware is the next casualty. Yeah, in fact there was, you know, on this theme, there was a story in the in the Wall Street Journal today about some progress that researchers at Caltech have made in dramatically uh decreasing the energy uh costs and the computational cost of running these large language models. That's a trend that's going to continue. And I think the internet is sort of an example of how important uh these sort of efficiency gains could be. If you look at the amount of data that's been transmitted over the internet, it has grown exponentially. The chart that you're showing there actually shows that data uh data transmission has increased at an annualized pace of 42% commulative increase of half a million% over the last 25 years. And yet if you look at the amount of money spent on internet infrastructure, it's gone down as a share of GDP. Last year, the biggest telecom companies in the US, so Verizon, AT&T, Comcast, these guys, they collectively spent only $70 billion on uh capex. You know, compare that to the $ 1.5 trillion that OpenAI just a few months ago was saying that they expect to spend over the next 8 years. I think the irony could be is that we end up with an AI empowered world, but we don't need like trillions of dollars in data centers to get there. >> That spells bad news for commodities, does it not? Uh copper base metals, the story here is that as data centers become um more prevalent, we'll need more raw materials to build them. So you were looking at a counter trend here, Peter. It's a little bit nuanced in in the short short to medium term. Yes, absolutely. If we have uh less AI capex, that means less demand for AI. Longer term, I think the picture is a little bit more positive for metals because if AI does deliver on those productivity gains and those productivity gains will be easier to achieve if you don't need to, you know, spend trillions of dollars on data centers, then we're going to have a world where AI is able to create many new things. And that in turn will require resources. Uh and so kind of the irony would be that in a world of abundance made possible by AI, anything that kind of remains scarce becomes more valuable and metals probably will remain scarce for quite a long time because the earth is a finite uh resource. So longer term, I think AI could be quite bullish for metals, but in the short term, you're quite right, David. It's probably a bearish development if we have fewer data centers being built. >> Uh finally, let's comment on this. This leads me to get your reaction on top IPOs anticipated in 2026. Top of the list, SpaceX valued at over what trillion dollars, OpenAI by Dan's Anthropic, Data Brick, Stripe, Revolute, and Canva. Which of these excite you the most, Peter? Or none of the above? you're allowed to say. >> I would say probably none of the above, but if I had to sort of pick one, I think a company like Anthropic uh could turn out to be the winner because they seem to have the best offering within the kind of business AI services arena. And also if we get kind of this progress in terms of uh uh reducing the compute costs associated with AI that's going to be good for anthropic because they won't have to build as many uh data centers. But the reality is and you know this full full well David when you have like a industry where there's a lot of IPOs taking place that often marks the top for that industry. the CEO of Anthropic has uh famously been on uh media and has been very blunt about warning uh well the jobs market warning that is imminent. So basically he's saying unless you're creative or you have some sort of um talent that goes beyond uh tasks that AI can do, you're going to be out of work in the next 10 to 20 years. Uh is his is his probably even sooner. That's his message. Uh, it sounds crazy. People just don't believe it. That's his quote. Most of them are unaware that this is about to happen. AI could wipe out half of all entrylevel white collar jobs and spike unemployment to 10 to 20% in the next 1 to 5 years is his exact quote. Uh, Peter, let me just get your reaction to that. And um whether or not the productivity gains in AI could offset some of this unemployment. Well, do you even agree with this assessment, this outlook? >> I disagree with it. So economists are not good for many things but you know one thing we're good at is sort of thinking through these sort of questions. If you believe uh that AI will lift productivity then you must also believe that AI will lift incomes because in equilibrium income has to equal output. Uh so to get to a story that says you're going to have mass unemployment, you need to make an additional assumption which is that you need to argue that AI is going to generate a lot of income inequality. There'll be more income, but that income will be concentrated in the hands of the very rich. We tend to save a lot of money and so we're going to have this persistent shortfall in aggregate demand. First of all, that might not happen, right? AI could actually be uh a force that helps to equalize the power dynamics between companies and users by giving uh users the ability to use agents to find better deals on insurance, airline tickets and whatnot. But even if it does happen, you then have to answer the question, why wouldn't there be a policy response? So, if we have kind of this world of mass unemployment, presumably then we've got lower real wage growth, uh we've got a lot of all this slack in the economy, that's an opportunity to do more fiscal stimulus, right? Interest rates are low. You can issue more debt. Growth is strong. The the uh debt to GDP ratio is going down because the denominator is going up. So, that's kind of an recipe for easier monetary policy, easier fiscal policy. There will be a response policy-wise to such a development if it were to happen and I think that would prevent unemployment from going up sharply. >> But that sounds like more inflation though, fiscal stimulus, monetary stimulus, more money printing. >> No, not necessarily. I mean I if the response is more fiscal stimulus because you have a deflationary environment, then what's allowing that stimulus to happen is that interest rates have come down and governments can borrow more cheaply. >> Right. Thank you so much, Peter. Appreciate your update. tell us where we can follow you, learn more from you. >> Uh, I'm on uh Twitter X. You can follow me there. I'm on LinkedIn, of course. Please do go to bcaareearch.com and sign up for a trial. >> We'll put the links down below. So, make sure to follow Peter and BCA Research there. Thank you so much once again. Appreciate your time and we'll speak again next time. >> Great to be on, David. >> Thank you for watching. Don't forget to like, subscribe,