Private Credit: Extensive discussion of mounting stress in private credit, including redemption caps, liquidity concerns, rising defaults, and retail investor exposure risks.
Oil and Energy Shock: Geopolitical tensions around Iran and Strait of Hormuz disruptions are driving oil price spikes, echoing 1973-74 dynamics and pressuring inflation and margins.
Stagflation Risk: The combination of higher energy costs, weak sentiment, and slowing growth raises the specter of stagflation, challenging both stocks and long-duration bonds.
Strong Dollar: A strengthening U.S. dollar undermines emerging markets and reduces odds of near-term Fed cuts, with potential for higher rates later in the year.
Defensive Positioning: Preference for liquidity buffers, short-term Treasuries, and high-quality balance sheets with pricing power to navigate volatility.
Gold as Hedge: Gold highlighted as a classic inflation and currency-weakness hedge, with historical outperformance during energy shocks and renewed relevance today.
Value Tilt: Lean toward value stocks across energy, staples, healthcare, and utilities, with evidence of relative outperformance versus growth in 2026.
Market Mechanics: Weak bond auctions, heavy Treasury supply, and policy uncertainty heighten volatility; disciplined rebalancing and risk management emphasized.
Transcript
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If you're looking for a portfolio manager, look no further. Horowits & Company. From seed through harvest, cultivating financial success. >> Here we go. We got a one-sided peace plan. Well, let's hope not at least. Inflation estimates in the 5% range one year out and climbing. Private markets, credit, and the same story all over again. And our guest today is Howard Linden, founder of Social Leverage. All this and much more on episode number 966 of the Disciplined Investor podcast and welcome back to the disciplined investor. I'm your host Andrew Horowitz and this is the show you know this to be fact. We cut through the noise, the hype. We stay grounded. We focus on building real wealth and of course disciplines. Not through the hype, not through panic, not through any shortcuts. Nothing is easy in the world of investing. And right now the markets, you know, they feel heavy. You can't argue that fact that one day we see this crazy move to the upside, one day we turn it around and it's the downside, they pick back up the next day. Every single headline seems to be reason for panic or a euphoric action into the markets. Volatility has definitely returned. No question about that. We're seeing that the sentiment out there is I I would probably say it is weak. It's fragile. It's fragile. That's probably a better way to to look at it. And many investors right now are probably looking at their portfolios and wondering what comes next. I bet you're one of them right now thinking, do I stay the course? Do I change up dramatically? Do I just tweak? So today we're going to address that directly with some actionable thinking. I guess in these uncertain times where we have the VIX at 25 and holding, where we have news headlines bombing us every single day and we're not sure whether or not we could believe them. We're not sure whether or not President Trump is in fact talking to himself about the potential for a ceasefire, a slowdown, or or even some kind of uh maybe just a a a delay. These are the same tactics that I see that were used I have it sitting right in the studio on my desk right now, lest I forget it, from a year ago. A year ago. Let's take the clock back. Let's turn the time machine backwards for a minute and let's look at what happened. The tariffs, the reciprocal tariffs, the the the the tariffs that were on top of tariffs and all of these that went on and freaked people out where we saw that China was getting hit was initially 34%, Vietnam 46%. You know, we saw that um uh Cambodia was at 49% and the list goes on and on. I have the whole list right here. Again, I didn't want to forget this. The insanity that we saw, how that was calculated, the haphazard approach to actually getting these numbers from the initial tariffs to charge the USA, which included currency manipulation and trade barriers, all the BS that was back then that was being fed to President Trump and acted upon and then realized that boy, this was a big mistake, man. Markets caved, interest rates came up, things went hairy, the dollar went sideways. basically blew out every kind of spread that we saw. But what happened? The playbook was was pretty easy. Let's overdo it. Let's say I'm going to kill you, but then say, you know what? I'm really just going to slap you. Let's say that I'm going to bankrupt you, but just say, you know what? I'm only going to charge you 10%. The playbook looks the same right now. Let's come over with extreme power. Let's come over with extreme amounts of of threats. And then what? Then we back off. We prove that we have something that we can do and we say, "You know what? You want any more of that? All right, keep it up. Otherwise, come to the table and talk and do this, that, this, and that." There's a 15-point plan that's supposedly floating around right now, presented by Jared Kushner and a few others to some people anywhere, somewhere. Maybe, maybe not. Maybe we're just negotiating with ourselves. I don't know. But Iran doesn't look like they really care. We know that we poked the hornets's nest. And there's residuals that come from that. It doesn't just die down and say, you know, okay, oh, we're sorry hornets. We killed the queen and now sorry. Well, let's uh let's let's talk. The fact is that there's a much different psychology when it comes to Iran and their beliefs and it comes to let's say other areas in the Western Hemisphere or even just focused in on Trump and his peeps. So here's the reality we're facing in March 2026 all the way one year forward from where we were where the playbooks looks about the same. We're dealing with a multitude of serious pressures that are happening all at the same time. This isn't a single crisis like we saw back in 2008, right? Where the housing market collapsed. We have overlapping stresses right now that making this environment much more challenging. The the um the envir the environment that we have now is wholly different than what we saw back in 089. And one of those problems, one of those differences I think we got to focus in something we've been talking about forever, it seems, and I've been banging the drum on this for a while now, is private credit markets. The these are these are showing some real strain. We saw that the news headlines over the week with a redemption request from Blackstone and Apollo Apollo's halting redemptions. It looks like they've surged, right? These redemption requests are off the hook. These are not only at the small places but the major funds as well where some vehic some of the vehicles have decided and the management has decided to just cap withdrawals and then there's the concerns about things like valuation and transparency and a defaults internally and liquidity especially which I think is fascinating. We talked about this last night. Um not last night it was when was this? I talked about last night with some colleagues, but I had another discussion about this. When was that? It was Oh, it was on DH Unplugged and that was last week when John C. D'vorak did come back, by the way, after his heart condition and his double bypass. We talked about this. So, this is kind of not just a one-off. This is a conversation that's been going on a lot now. this whole idea about what happened to the lending in the software area and the don't forget about the fraud that we saw in the autorelated lending that was going on. This is now rippling through Wall Street because already we're starting to see the after effects of what's going on with banks, right? They're tightening lending standards. And this private credit has been totaled to be about $1.8 trillion in total class assets is being stressed in ways that we haven't seen in years. In fact, I saw a recent discussion that showed that right now we are above the default rates that we saw back in 2008. 9.8% 8% I believe is the current default rate going up by the day. And some of this is because people are no longer willing to commit capital. They're like, "No, no, no. We're not going to put more money into that. Not chasing any uh good money with bad, bad money with good. It's not happening. We're just not doing it." And this is what happens. And one of the big problems that I see is that the push to allow or not even allow the push to to to prod to to corral retail investors into this asset class. I talked to you about this about a year ago, a year and a half ago. I was at a cocktail party at the um there was an event down in Miami. Um the Rholtz group put it on and I was invited down there to speak to a few people. As a matter of fact, Meb Faber and I met for a drink there and it was called Future Proof. Now, I met Meb at this particular after conference bar for a party. There was a gathering by one of somebody put it on. But I got there and before I even was able to get anywhere through the door, I was attacked literally just surrounded by all these randos that I never even met before talking about private credit. And I was like, "What what's this all about?" And it was like non-stop. And at that moment, I'm like, uhoh, this is bad. They're telling me how, you know, hey, uh, what size is your book and how much of it is in private credit? I'm like, uh, none. None that we've recommended. Well, you know, you really should have, uh, you know, upwards of 10 to% of a client's portfolio in private credit, maybe even some private equity. I'm like, that's great. That's not what we do. That's not what we want to do. We do not want to have the liquidity headache, the capital call issues. We don't want to have all the different parameters of that for clients that we are going to have to worry about in the future. In fact, we have only a few clients, a handful of clients that have any private credit, private equity that we've actually inherited for the most part and we manage it for them and we we review it and we handle capital calls and we do all that work for them. But the bottom line of this is that it's not something that we do the research on and grab because we found that this is much too difficult to understand. Not when things are good. That's easy. That's a breeze. When the tide goes out like it is going out now, there's a run for the exits. And that run for the exits like a run on the banks is what we're seeing. And that is what's causing a cascading effect creating more defaults. Because where before when everything was just hunky dory, everyone was just happy. Let's just get it going, put more money in, there was a constant stream of monies that were being utilized to fund, refund, co-und, and to make sure that whatever was coming out would go right back in. Therefore, it was creating this this stasis, this this leveling off of risk. Not the case anymore. So, this is why it's creating stress. We got to look at what stress is it can actually cause in areas like um insurance companies as well, which piled into this like nobody's business. So, that's something we're watching very carefully. Now, second, that was a long first, by the way, when we talk about private credit. Second, what else is going on? Well, we got the obvious elephant in the room, the conflict, the kurfuffle, the the war in the Middle East, particularly involving and centered around Iran. Right? There's all all sorts of problems. Just all sorts of badness. Oil prices have spiked, right? We saw wow 116 on Brent last week before panic set in and everybody started making up all these stories about a peace plan, a 15-point plan and talks going on and all of that. Not to mention, shall we for a minute? The 650 a.m. Monday morning, Eastern time, massive $1.5 billion dollar of futures, shorts on oil, longs on indexes, and an amazing timing where 15 minutes later, President Trump came out with an announcement that skyrocketed all those positions. The money made on that was absurd. research is being done right now by the SEC, CTF, all the different players out there trying to find out who did this because something is a miss. The volume was not normal by any standards just 15 minutes before this announcement. Somebody was told something. Now, with all this going on, inflation fears have cropped up dramatically. The reason? Well, you see oil where it is now, everybody's starting to think back to the oil embargos back in 7374 or maybe even the the conflict back in in 1979. This is a situation where we saw oil prices because of a variety of conditions reverberate through the economies of the US and other countries around the world for years to come. And even if oil does back down, we still have a lot of problems. Already we saw that the US Postal Service is increasing their rates on non postage, right? Um so their their packaging by 8% for a fuel search charge. You know that UPS and FedEx and all these companies are going to be doing the same thing, right? And that's going to lead to an inflation. In fact, I got a chart from my good friend Tom Nelson from Franklin Funds this week that talked about the one-year expectation and the break evens that look at about 5% one year out. We're talking about a major ramp in inflation expectations over the next 6 to 12 months. I don't think that's a surprise to anybody. Already we're starting to see a little bit of that before the war broke out. PPI, PCE, CPI, it's all ticking higher. Import cost a much greater number than we had expected just this week. So with that going on, we have the potential for stagflation that's going to cause a major problem from consumer goods to corporate margins. Now third, the bond market's under pressure. The last several Treasury auctions were abysmal. We have this massive Treasury supply, war related spending concerns, and shifting rate expectations have really pushed the longerterm yields higher. The 10-year Treasury recently climbed to 4.4%, 30-year 4.9, 6.4% on the 30-year mortgage. These are so much higher than they were just what uh 3 weeks ago. Investors are also pricing in bigger deficits and questioning, you know, how easy this market can absorb all this debt that's being pushed because we have a lot of spending that's going on. Again, just three weeks. Really think about this. Just three weeks of a war, the spend is amazing. A war that we were told we were never going to get into. A stupid war in the Middle East. We were told we're not going to get into that. Spending that we said wasn't going to happen with Doge, it's happening. The things that we were promised kind of broke down dramatically in the last 3 weeks. And the other thing that's happening right now is the US dollar has strengthened significantly. It's hit multi-month highs. Now, this blows our theory about emerging market assets right now. That were the the beneficiaries of a stable to weak dollar over the last year. The shift that we've seen has pretty much, I think, taken off the table expectations for a Federal Reserve rate cut. I mean, it's even introduced the possibility, dare I say this, of higher rates later this year, which could be a problem for other things. So the combination can creates this slow motion feeling of tension. Markets feel manipulated from what's gone on. Headlines are are are just screaming. So it's natural to ask whether it's already too late to make any defensive actions. So as a disciplined investor, what do we actually do? The answer is pretty straight. I think it's pretty easy. It's pretty understandable. I think you know what to do. Protect your capital without abandoning your long-term plan. So, what are we going to do here? We're going to first of all, we're going to start to review our overall allocation. We're going to make sure that we have proper defensive buffers. ative cash, short-term treasuries, um short-term high quality bonds, these kind of things, and maybe even some some uh I would say some hedges, things that could also pro provide things like you want to get um high liquidity, stability, especially if if the volatility increases beyond where we are now. I mean, a lot of investors today are probably really well served keeping, I don't know, 10 to 20% more in liquid, lowrisk assets, depending on where you are in your your risk tolerance. You don't want to get the whole point of this is you want to get spooked out. You need to rebalance things where needed. Certain parts of the portfolio have run hard or become overweight. Well, maybe it's time now, especially to trim back to the target weights. This is again one of those one of those things that we do on a regular basis to sell high and buy low over time. That's that's a core discipline of ours. I think in terms of your equity exposure, focus on on quality. We we're leaning towards value, the energy, the staples, uh healthcare, um utilities, things like that. leaning, have both, but we want strong balance sheets, consistent cash flow, consistent cash flow, um the potential for pricing power, right? Where people can uh weather higher input costs. That's important. Short duration when it comes to fixed income. So, that kind of is the the bulk of that, right? Um, I think that's really important because you know the thing is that you you want to you want to be able to ride through the bad times so you can get the longerterm potential good times. You want to I I think you want to separate this idea of what can I control and what can I not control. Because we none of us can predict what's going to happen here. I'm not even talking about in two years, two months, two days, two minutes. We don't know. Things are changing the exact path of this war, the Fed decisions, redemptions from private credit, or even what is the next monster under the bed that we don't even know about. But we can do things like controlling our spending, our savings rate, the diversification of our portfolio, our emotional reactions, right? I mean, we could definitely do that. One of the things we don't want to get involved in is panic selling at the bottom, right? That's the worst thing we can do because that is one of the ways you can evaporate more wealth than at any other time of your investing career. Also, doing nothing and hoping for the best can probably be just as dangerous, especially when re real real risks real risks. Try to get that out. Real risks are involved. So, history shows us that I think we could all agree that when we have these periods of multiple overlapping stressors, they're going to resolve. Some of them may be quickly, some of them may be with more pain at first, but I think that the investor, the disciplined investor that comes out ahead are those that can keep a cool head, remain calm. they could think clearly through all that is going on and pretty much act with a plan that they set up prior rather than reacting to the various headlines that come out. So the discipline in the times like these that you need means you're acknowledging the risk without letting fear drive your decisions. It means that you have a process that you you trust and the courage to follow it. So if your current situation feels like you're misaligned with today's realities, well do something about it. If you have too much liquidity, too much concentration, not enough dry powder in the event things go down for opportunities, now is a time for these adjustments. Not drastic moves, not panic selling, not getting crazy on that. Right? The bottom line here is that I want you to be set. I want you to be disciplined. I want you to be ready ahead of something and not making crazy reactive decisions at the wrong time. So, it doesn't matter whether you're you've done this a long time or whether you're new at it, right? Use this moment right now to strengthen your plan. Don't abandon it. Be disciplined. Let's take a moment and let's talk about Interactive Brokers, shall we? Because Interactive Brokers or IBKR as we call them has key competitive advantages for sophisticated investors just like you. IBKR's margin loan rates are from just 4.14% to 5.14%. In fact, IBKR is rated one of the lowest margin fees by stockbrokers.com. I want you to compare IBKR's clients low margin borrowing costs to other brokers like Schwab or or E Trade, Fidelity, and Vanguard, which charge hundreds of basis points above IBKR's low rates. Look, the best informed investors choose Interactive Brokers. Margin, of course, is only for investors with experience and have have a high risk tolerance because you can lose more than your initial investment. Rates are of course subject to change. Get started today at ibkr.com. Interactive Brokers is a member of SIPC. Again, it's ibkr.com/compare. All right, here we are. We're ready to go. We're ready to roll in our guest. And you know what? I just got a text. I just got a text and an alert. He's not going to be available. So, we have to plow on. And the good news is I wish him the best. I think he's posted something on Twitter about a garage door incident or something that just happened. So Howard, we wish you the best. People around me are just things are happening. First we got JC D'vorak with his heart issue. Now we got Howard Linden with some kind of mishap with the garage door or something. I don't even know what's going on. So anyway, Howard feel better. The good news is I have lots to talk about because I I wrote up a comparison that I was going to talk to you about after Howard and we'll just talk about it now. And this was a look back. I wanted to look at what happened during the 19 7374 oil embargo. And I wanted to look back at that and put a little bit of a comparison into what's going on today. There are some eerie similarities. So I think arguably the 1973 oil embargo it was probably one of the most important energy shocks in I don't know is it modern history or at least history 73 that's number of years ago that was in history modern history maybe and understanding what happened here once again studying history so we don't repeat it in the future which by the way uh is all forgotten now because we didn't study the history and that's why we're getting what's going on right now. But studying history, understanding what happened can give us a little bit of perspective further on what we were talking about before the break about diversification, what we want to do, the outlook. Because when we look at geopolitical events and energy disruptions and how all this can create this massive inflation and impact markets, especially when we look at what's unfolding right now, here we are in 2026. So going back, here's some notes that I kind of put down about what happened in 73. I was I was young. I was a we lad at the time, so I had to go back to the history books and kind of pick out and tease out some of the information. But back then it was Egypt and Syria. They launched what was known then as a Yum Kipper war against Israel. The United States and a few allied nations provided support to Israel and in response the Arab members of OPEC then was known as OAPEC O a p um imposed this embargo not on a global basis but on the United States and a few other countries. They also began, if you remember, cutting production by about 5% each month until Israel withdrew from occupied territories. Okay. Now, this embargo lasted about a year or so, give or take. It would lasted into March of 74, not I guess it wasn't a year. The result, well, crude oil prices uh almost quadrupled, going from about $3 a barrel, $3 a barrel, think about that, to nearly $12 a barrel in just a few months. And back here at home, we saw gasoline stations with long lines, odd and even rationing days. I'll mention that in a second and tell you about that if you don't know what that was. and and total I I would say panic just absolute like oh my god where this was the toilet paper of COVID event people were freaking out that they weren't going to have enough gas or fuel it was this total back it was a supply shock that's what it was it was a total supply shock and that hit at a time where inflation was already kind of doing its thing was starting to come back and starting to rise now when you talk about the odd even rationing. Depending on what your license plate said, I think it was the last number on your license plate. If you were odd, you could, let's say, uh, fill up on Tuesdays, Thursdays, and Saturdays. If it was even, you had Mondays, Wednesdays, and Fridays. And, uh, what ended up happening is people do strange things like my father did, which was switching the license plate, the tag if you will, from car to car and filling up that car that whatever needed it. Now, this had a this had a really big impact on the US equity markets. It was it was pretty disastrous, I got to tell you. The market was already kind of rolling over a little bit going into the fall of 1973. The Dow Jones Industrial back then hit a peak nearing about 1,067 in January of 1973. And once the embargo actually hit, once we actually got into this whole problem where oil prices started rising, that decline started to accelerate sharply. The Dow, which was the measure back then that everybody used, it dropped to about 783 by mid December 1973. Look at the chart. You can kind of track this. and and that full bare market from the January 1973 high if you look at the chart to the December 1974 low was brutal. The Dow lost more than 45% of its value bottoming near I guess right here 577 578 give or take. Now the S&P was not in any better shape at the time. Dropped about 40%. And and none of this was a quick V-shaped crash recovery like we've seen so many times. It was this prolonged grinding bare market that just took your guts out. And that coincided with this nasty recession, which is probably not a surprise with all that was going on. And at the same time, yep, you guessed it, surging inflation. Now, if it sounds kind of familiar and eerily familiar to current times, let's go through that. But what happened then and probably was the last known since then of the real absolute definition of the sword, stagflation. And that was one of the toughest environments and is one of the toughest environments that you could probably have for investors. And the recovery from that took years. So let's first take a look at what worked back then and do some comparisons to what we have today. Traditional long-term bonds got absolutely crushed. Inflation soared into the double digits. Yields rose. But of course we know that the bond interest rate and price factor is an inverse relationship and therefore rates went up dramatically. Prices came down. Equities generally speaking suffered as well. Real estate mixed at best. What was the clear winners back then? Hold on to your seats. You won't believe it. Yes, you will. Here's what stood out. Gold. Gold performed really well. It acted like this classic hedge against currency weakness and runaway inflation. Cash and the very very very short-term treasuries were the most at that time most practical defensive mechanism that you could have. The choice to be in that was smart. What do they do? All those preserved capital. There were liquidity availability of all of those things as well. And when everything else felt uncertain, like we talked about at the top of the show, the uncertainty issue, those were areas that really stood out. Even if even if the high rate of inflation eroded some of the real values, in other words, you made 7% on your CD, 8% in a 5% 7% inflation environment. Therefore, you're not making so much money. And even when you factored that in, there really wasn't a great place. I mean, yeah, I mean, certain energy related commodities and stocks benefited directly from the price spikes that we saw in energy at that time, but not everything in that in those sectors did, you know, equally well. It was very hit or miss. Basically as we know that a stock performance the performance of a stock is somewhere about an 80 to 85% relationship correlation to what's actually happening in an underlying index. What's actually happening in the market itself is the primary driver of what you see in a stock. Now that's not in every stock in every circumstance. No, of course not. But generally speaking, there's a ve, you know, when stocks are selling off, when stocks are just getting hit, it doesn't matter usually long term if it lasts for a long and prolonged period of time whether that's a good stock or a bad stock. Bad stocks will get hit worse. Good stocks not so bad, but still bad enough. And the big takeaway from 197374 when you get this true supplyriven inflation shock combined with geopolitical tensions there often isn't a perfect safe haven. Again, gold and cash often the best relative protection. Most growth assets and longduration bonds suffered. Markets can only handle the pressure for so long of a period of time when all these multiple forces line up. So now you're asking me, okay, Andrew, okay, great. You scared the hell out of me. This sounds familiar. What what's what how does this how does it compare and contrast? What are we dealing with? What does it have to do with today? So once again, here we are thrown into another Middle East conflict. This time it involves this the the strikes related to Iran that has basically disrupted shipping. The straight of Hormuz is effectively closed for most things which we know is this critical choke point for about I I think the number is about 15th about 20% of global oil supply. We know that oil prices have spiked sharply. Brent is well above 100. You know, moving moving at 100 to 116 to 98. It's moving around pretty dramatically. WTI West Texas Intermediate $90 plus minus 85 100 somewhere around that with volatile swings that briefly push prices much higher. And we're hearing again renewed talk of sword sword. Don't tell anybody. stagflation just like the 1970s. However, however, stick with me here. There are important differences and I think that needs to be identified because in 1973 the embargo was coordinated. It was sustained by Arab and the OPEC members and this quadrupling of price over months lasted well into 74. Today's disruption appears so far so far temporary. It's tied to this conflict and shipping insurance issues other than ando as opposed to a full full um multi-year production embargo. That said, understand that's the bright side of the equation. But that said, one of the things we still need to recognize is that the impact of higher oil prices as we've seen them will have longl lasting implications. No matter what happens, whether we stop the war right now or it continues, we still have a major blip that we need to get through. A lot of analysts are watching this very closely. Most are expecting oil prices to peak within a couple of three weeks and then moderate towards again $65 to $80 later in 2026 if tensions ease and the straight opens. You know, we have a lot of tools today that we didn't have then back in the 70s. We didn't have the massive US strategic petroleum reserves which we've and and global SPRs that we've already seen a coordinated response and coordinated release of that. So that that helps us out a lot. Another key contrast if you look at this in 1973 that whole incident hit during a period of already high inflation and the end of the Brenton Wood system. Now today we we're entering this with again different levels of stress, multiple additional levels of stress. Private credit credit markets are showing redemption pressures, valuation concerns. We talked about that. Bond markets are struggling with heavy Treasury supply and shifting rate expectations. We talked about that at the top of the show. And of course, the stronger US dollar that's reducing hopes for near-term Fed rate hikes. I mean, that's something that we really need to consider and we need to think about how that's going to impact this because back in the 70s, obviously, we saw a coordinated effort to strike down this runaway inflation that brought up rates dramatically. Things got in trouble. this administration and the incoming Treasury uh and the current Treasury Secretary and the the incoming federal chair WSH whenever he gets there may be more inclined to say, you know, this all is our doing. This all is temporary. This all is going to be something that we believe we should look through and as such lower rates or not raise rates even though we may see inflation pressures. They may make the call that the inflation pressures are really just oil and a few other things that will subside very easily, but the risk to the economy is so much greater that we need to actually do something right away. And and that I think is a dangerous game to play, but something we need to consider in this whole analysis. In 1973, when we look to compare the stock markets in in the world and the and and particularly in the US, we're coming off the the nifty50 era of extreme valuations. We got that going today, right? Markets have its own concentration risk, particularly in technology and retail participation through apps and 247 trading have changed the speed and the psychology of the trade. That's why we've seen so many of these V-shaped recoveries. What happens though when sentiment changes and that 24/7 turns into 247 selling? There's a big difference today also that the news flow is constant and to the minute. Back in 73, what do we do? We had to watch the news that really they didn't focus on the markets back then. Walter Conroy wasn't talking about that. Um, that was just the news. It was it was the New York Times, the Wall Street Journal. It was the weekend baronss. It was um the reports you got if you were a professional through various mechanisms. It was not the internet. By the way, just to remember 1973, no, no, no internet. It wasn't even a glean in daddy's eye at that point. The core lessons from then to now are, I dare say, remarkably similar. And that is that energy supply shocks can quickly raise inflation fears. They can in a in a world right now where we have all these tariffs that are on, off, on, all but off. But most companies have done a lot of work absorbing the cost. This supply shock, which again is not just simply energy from the perspective of, oh my gosh, my gas prices are going up. No, diesel prices, cost of engineering, various chemical products, manufacturing, driving, transportation, it all goes into place pressuring corporate margins, slows growth. What it does is it creates this very challenging market and environment for both stocks and bonds. And in both periods, this combination of the the risk the um the geopolitical risk and and the higher cost because of energy forces all of us as investors to think carefully about positioning. And that's why I keep talking about and coming back to this about why discipline matters now more than ever reviewing your allocation and maintaining a defensive buffer in whether it's going to be high quality instruments or or cash or I'm not saying you know blow out the portfolio but I want you to favor companies and sectors with strong balance sheets and pricing power and and and think about some of these hedges whether it's gold silver uh that are getting whacked when the dollar goes up but then come act very strong real estate potentially in certain areas but again I talked about this at the top avoid these knee-jerk reactions because panic selling at the bottom again is has created all sorts of problems we none of us can predict how long today's energy disruption it's going to last because here's the here's this here's the bottom line on that we don't even know what's from today or tomorrow this administration changes their mind faster than people, you know, change their clothes. I mean, day to day to day, we have we have a halt. We have a renewal. We're going to bomb them. They're going to send them to hell. We're going to do this. We're going to now go to tariffs. Now, we're going to back off on tariffs. Now, we're going to sue to get tariffs. Now, we're going to talk about the Federal Reserve and what a J. Powell is. Literally, those words we used just a couple of days ago about J. Powell being a This is not a simple path here. This is not an easy answer right here. You know, if you say to me, Andrew, well, okay, well, all this being the case, what are you thinking from five years from now? Five years from now is is a lifetime with what we've seen with how things are going over the last number of years. five years from now. Sure. I assume, I will concur. I will agree that things will be okay. How deep are things going to get over the next year? That's an open question because history has shown us, right? What has it shown us? It's shown us that the u the shocks will eventually resolve. Markets will move forward. As a disciplined investor, what do we need to do? We need to prepare ahead of time. We need to stay stay the course when the headlines get loud, assuming we've made proper adjustments. Stay the course with proper adjustments. I think these are the lessons that probably served people well back in the painful days of 1970 through 74 plus++. And I and I do believe that by properly allocating I I'll tell you a couple things. We're we're already considering um we finally gotten to a tipping point and where we think the longevity of the supply shock, the oil prices, how the impact of that will be on the economy moving forward. The length of time it has been just at this point is now leading us to a reduction of risk and even shortening even further our fixed income portfolio. This is something we have been talking about in the office for the last month or two weeks, two and a half, three weeks. And while we're coming into this with a very short duration fixed income portfolio and we also have a bent towards value which has not taken the brunt about 1,200 basis points better on the large cap value versus the large cap growth this year alone 2026 barely three months in 1,200 basis points I think we're down we've seen the large cap growth down about 10% or so and the large cap value up 2% this year. That's a very telling situation. So, this is telling us what that investors have been working on this for a while now. We wanted to see the white of the bear's eyes before making any significant changes. And we're at that precipice. We're at the precipice where now we're no longer able to con get our levels on the S&P 500, the U S&P S&P 500, the Dow or the major indices like the Nasdaq above the 200 day average without colliding with it and then knocking back down. Yes, we are seeing some potential upside when we get the news that I don't know that we got another 5 days, 10 days, 20 days, one month. We we're not going to beat him up. We're going to send him to hell. I don't know. You know, we're going to uh support through this action by using Iranian oil or maybe Venezuelan oil or by allowing certain boats that are the Jones Act. We we recent that. I mean, there's all the release of the SPR all this mechanism. What is it doing? It's helping. It's not solving. It's prolonging. It's not curing. So right now, think about it. If you need any help with your portfolios, of course, you know, we'll be happy to take a look. But right now, I think uh we are at a point and we'll make the final decision in a couple days to uh make some changes because we don't see any potential real downside from making them and the upside is is pretty dramatic. So, we'll end the show there today. We wish Howard Linden a very healthy uh speedy response to uh whatever happened with the garage door. And then of course uh coming up this Tuesday is going to be myself and John C. D'vorak. Yes, he is back in the seat or in the bed with a microphone uh talking about things and as as John C. D'vorak as he ever has been in the past, he is there again. So pretty cool. Pretty cool. Make sure to tune in to DH Unplugged as well. go over to Amazon Music or Spotify, Apple Podcast, even on YouTube. We have a small following on YouTube because it's audio only, but you can get the podcast there. Anywhere you get your podcast from, that's where this show will be on. Thanks for joining me this week. Thanks for joining me every week. Go over to the discipline.com, check out the show notes, and uh we'll see you again next week. Thanks so much. This podcast is intended forformational purposes only and does not constitute personalized investment advice. 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TDI Podcast: Prepping for 1973 (#966)
Summary
Transcript
This episode is sponsored by Interactive Brokers. Where could quantum computing take your portfolio? Investment themes from Interactive Brokers. Well, they help you find out. Start with a trend like quantum computing or clean energy and instantly see which companies are most connected based on revenue and strategic focus and product relevance. You can explore competitors, global exposure, and business relationships across more than 500 themes. Built on AI powered insights from reflexivity, investment themes turns complexity into clarity and helps you move from trend to trade faster. Available now across IBKR desktop, mobile, and trader workstation. The best informed investors choose interactive brokers. Remember SIPC. Check it out right now at ibkr.com/themes. The Disciplined Investor is all about you, your money, and the markets. Sit back and get ready for this edition of the Disciplined Investor podcast. This episode of The Disciplined Investor is sponsored by Horowits & Company. If you're looking for a portfolio manager, look no further. Horowits & Company. From seed through harvest, cultivating financial success. >> Here we go. We got a one-sided peace plan. Well, let's hope not at least. Inflation estimates in the 5% range one year out and climbing. Private markets, credit, and the same story all over again. And our guest today is Howard Linden, founder of Social Leverage. All this and much more on episode number 966 of the Disciplined Investor podcast and welcome back to the disciplined investor. I'm your host Andrew Horowitz and this is the show you know this to be fact. We cut through the noise, the hype. We stay grounded. We focus on building real wealth and of course disciplines. Not through the hype, not through panic, not through any shortcuts. Nothing is easy in the world of investing. And right now the markets, you know, they feel heavy. You can't argue that fact that one day we see this crazy move to the upside, one day we turn it around and it's the downside, they pick back up the next day. Every single headline seems to be reason for panic or a euphoric action into the markets. Volatility has definitely returned. No question about that. We're seeing that the sentiment out there is I I would probably say it is weak. It's fragile. It's fragile. That's probably a better way to to look at it. And many investors right now are probably looking at their portfolios and wondering what comes next. I bet you're one of them right now thinking, do I stay the course? Do I change up dramatically? Do I just tweak? So today we're going to address that directly with some actionable thinking. I guess in these uncertain times where we have the VIX at 25 and holding, where we have news headlines bombing us every single day and we're not sure whether or not we could believe them. We're not sure whether or not President Trump is in fact talking to himself about the potential for a ceasefire, a slowdown, or or even some kind of uh maybe just a a a delay. These are the same tactics that I see that were used I have it sitting right in the studio on my desk right now, lest I forget it, from a year ago. A year ago. Let's take the clock back. Let's turn the time machine backwards for a minute and let's look at what happened. The tariffs, the reciprocal tariffs, the the the the tariffs that were on top of tariffs and all of these that went on and freaked people out where we saw that China was getting hit was initially 34%, Vietnam 46%. You know, we saw that um uh Cambodia was at 49% and the list goes on and on. I have the whole list right here. Again, I didn't want to forget this. The insanity that we saw, how that was calculated, the haphazard approach to actually getting these numbers from the initial tariffs to charge the USA, which included currency manipulation and trade barriers, all the BS that was back then that was being fed to President Trump and acted upon and then realized that boy, this was a big mistake, man. Markets caved, interest rates came up, things went hairy, the dollar went sideways. basically blew out every kind of spread that we saw. But what happened? The playbook was was pretty easy. Let's overdo it. Let's say I'm going to kill you, but then say, you know what? I'm really just going to slap you. Let's say that I'm going to bankrupt you, but just say, you know what? I'm only going to charge you 10%. The playbook looks the same right now. Let's come over with extreme power. Let's come over with extreme amounts of of threats. And then what? Then we back off. We prove that we have something that we can do and we say, "You know what? You want any more of that? All right, keep it up. Otherwise, come to the table and talk and do this, that, this, and that." There's a 15-point plan that's supposedly floating around right now, presented by Jared Kushner and a few others to some people anywhere, somewhere. Maybe, maybe not. Maybe we're just negotiating with ourselves. I don't know. But Iran doesn't look like they really care. We know that we poked the hornets's nest. And there's residuals that come from that. It doesn't just die down and say, you know, okay, oh, we're sorry hornets. We killed the queen and now sorry. Well, let's uh let's let's talk. The fact is that there's a much different psychology when it comes to Iran and their beliefs and it comes to let's say other areas in the Western Hemisphere or even just focused in on Trump and his peeps. So here's the reality we're facing in March 2026 all the way one year forward from where we were where the playbooks looks about the same. We're dealing with a multitude of serious pressures that are happening all at the same time. This isn't a single crisis like we saw back in 2008, right? Where the housing market collapsed. We have overlapping stresses right now that making this environment much more challenging. The the um the envir the environment that we have now is wholly different than what we saw back in 089. And one of those problems, one of those differences I think we got to focus in something we've been talking about forever, it seems, and I've been banging the drum on this for a while now, is private credit markets. The these are these are showing some real strain. We saw that the news headlines over the week with a redemption request from Blackstone and Apollo Apollo's halting redemptions. It looks like they've surged, right? These redemption requests are off the hook. These are not only at the small places but the major funds as well where some vehic some of the vehicles have decided and the management has decided to just cap withdrawals and then there's the concerns about things like valuation and transparency and a defaults internally and liquidity especially which I think is fascinating. We talked about this last night. Um not last night it was when was this? I talked about last night with some colleagues, but I had another discussion about this. When was that? It was Oh, it was on DH Unplugged and that was last week when John C. D'vorak did come back, by the way, after his heart condition and his double bypass. We talked about this. So, this is kind of not just a one-off. This is a conversation that's been going on a lot now. this whole idea about what happened to the lending in the software area and the don't forget about the fraud that we saw in the autorelated lending that was going on. This is now rippling through Wall Street because already we're starting to see the after effects of what's going on with banks, right? They're tightening lending standards. And this private credit has been totaled to be about $1.8 trillion in total class assets is being stressed in ways that we haven't seen in years. In fact, I saw a recent discussion that showed that right now we are above the default rates that we saw back in 2008. 9.8% 8% I believe is the current default rate going up by the day. And some of this is because people are no longer willing to commit capital. They're like, "No, no, no. We're not going to put more money into that. Not chasing any uh good money with bad, bad money with good. It's not happening. We're just not doing it." And this is what happens. And one of the big problems that I see is that the push to allow or not even allow the push to to to prod to to corral retail investors into this asset class. I talked to you about this about a year ago, a year and a half ago. I was at a cocktail party at the um there was an event down in Miami. Um the Rholtz group put it on and I was invited down there to speak to a few people. As a matter of fact, Meb Faber and I met for a drink there and it was called Future Proof. Now, I met Meb at this particular after conference bar for a party. There was a gathering by one of somebody put it on. But I got there and before I even was able to get anywhere through the door, I was attacked literally just surrounded by all these randos that I never even met before talking about private credit. And I was like, "What what's this all about?" And it was like non-stop. And at that moment, I'm like, uhoh, this is bad. They're telling me how, you know, hey, uh, what size is your book and how much of it is in private credit? I'm like, uh, none. None that we've recommended. Well, you know, you really should have, uh, you know, upwards of 10 to% of a client's portfolio in private credit, maybe even some private equity. I'm like, that's great. That's not what we do. That's not what we want to do. We do not want to have the liquidity headache, the capital call issues. We don't want to have all the different parameters of that for clients that we are going to have to worry about in the future. In fact, we have only a few clients, a handful of clients that have any private credit, private equity that we've actually inherited for the most part and we manage it for them and we we review it and we handle capital calls and we do all that work for them. But the bottom line of this is that it's not something that we do the research on and grab because we found that this is much too difficult to understand. Not when things are good. That's easy. That's a breeze. When the tide goes out like it is going out now, there's a run for the exits. And that run for the exits like a run on the banks is what we're seeing. And that is what's causing a cascading effect creating more defaults. Because where before when everything was just hunky dory, everyone was just happy. Let's just get it going, put more money in, there was a constant stream of monies that were being utilized to fund, refund, co-und, and to make sure that whatever was coming out would go right back in. Therefore, it was creating this this stasis, this this leveling off of risk. Not the case anymore. So, this is why it's creating stress. We got to look at what stress is it can actually cause in areas like um insurance companies as well, which piled into this like nobody's business. So, that's something we're watching very carefully. Now, second, that was a long first, by the way, when we talk about private credit. Second, what else is going on? Well, we got the obvious elephant in the room, the conflict, the kurfuffle, the the war in the Middle East, particularly involving and centered around Iran. Right? There's all all sorts of problems. Just all sorts of badness. Oil prices have spiked, right? We saw wow 116 on Brent last week before panic set in and everybody started making up all these stories about a peace plan, a 15-point plan and talks going on and all of that. Not to mention, shall we for a minute? The 650 a.m. Monday morning, Eastern time, massive $1.5 billion dollar of futures, shorts on oil, longs on indexes, and an amazing timing where 15 minutes later, President Trump came out with an announcement that skyrocketed all those positions. The money made on that was absurd. research is being done right now by the SEC, CTF, all the different players out there trying to find out who did this because something is a miss. The volume was not normal by any standards just 15 minutes before this announcement. Somebody was told something. Now, with all this going on, inflation fears have cropped up dramatically. The reason? Well, you see oil where it is now, everybody's starting to think back to the oil embargos back in 7374 or maybe even the the conflict back in in 1979. This is a situation where we saw oil prices because of a variety of conditions reverberate through the economies of the US and other countries around the world for years to come. And even if oil does back down, we still have a lot of problems. Already we saw that the US Postal Service is increasing their rates on non postage, right? Um so their their packaging by 8% for a fuel search charge. You know that UPS and FedEx and all these companies are going to be doing the same thing, right? And that's going to lead to an inflation. In fact, I got a chart from my good friend Tom Nelson from Franklin Funds this week that talked about the one-year expectation and the break evens that look at about 5% one year out. We're talking about a major ramp in inflation expectations over the next 6 to 12 months. I don't think that's a surprise to anybody. Already we're starting to see a little bit of that before the war broke out. PPI, PCE, CPI, it's all ticking higher. Import cost a much greater number than we had expected just this week. So with that going on, we have the potential for stagflation that's going to cause a major problem from consumer goods to corporate margins. Now third, the bond market's under pressure. The last several Treasury auctions were abysmal. We have this massive Treasury supply, war related spending concerns, and shifting rate expectations have really pushed the longerterm yields higher. The 10-year Treasury recently climbed to 4.4%, 30-year 4.9, 6.4% on the 30-year mortgage. These are so much higher than they were just what uh 3 weeks ago. Investors are also pricing in bigger deficits and questioning, you know, how easy this market can absorb all this debt that's being pushed because we have a lot of spending that's going on. Again, just three weeks. Really think about this. Just three weeks of a war, the spend is amazing. A war that we were told we were never going to get into. A stupid war in the Middle East. We were told we're not going to get into that. Spending that we said wasn't going to happen with Doge, it's happening. The things that we were promised kind of broke down dramatically in the last 3 weeks. And the other thing that's happening right now is the US dollar has strengthened significantly. It's hit multi-month highs. Now, this blows our theory about emerging market assets right now. That were the the beneficiaries of a stable to weak dollar over the last year. The shift that we've seen has pretty much, I think, taken off the table expectations for a Federal Reserve rate cut. I mean, it's even introduced the possibility, dare I say this, of higher rates later this year, which could be a problem for other things. So the combination can creates this slow motion feeling of tension. Markets feel manipulated from what's gone on. Headlines are are are just screaming. So it's natural to ask whether it's already too late to make any defensive actions. So as a disciplined investor, what do we actually do? The answer is pretty straight. I think it's pretty easy. It's pretty understandable. I think you know what to do. Protect your capital without abandoning your long-term plan. So, what are we going to do here? We're going to first of all, we're going to start to review our overall allocation. We're going to make sure that we have proper defensive buffers. ative cash, short-term treasuries, um short-term high quality bonds, these kind of things, and maybe even some some uh I would say some hedges, things that could also pro provide things like you want to get um high liquidity, stability, especially if if the volatility increases beyond where we are now. I mean, a lot of investors today are probably really well served keeping, I don't know, 10 to 20% more in liquid, lowrisk assets, depending on where you are in your your risk tolerance. You don't want to get the whole point of this is you want to get spooked out. You need to rebalance things where needed. Certain parts of the portfolio have run hard or become overweight. Well, maybe it's time now, especially to trim back to the target weights. This is again one of those one of those things that we do on a regular basis to sell high and buy low over time. That's that's a core discipline of ours. I think in terms of your equity exposure, focus on on quality. We we're leaning towards value, the energy, the staples, uh healthcare, um utilities, things like that. leaning, have both, but we want strong balance sheets, consistent cash flow, consistent cash flow, um the potential for pricing power, right? Where people can uh weather higher input costs. That's important. Short duration when it comes to fixed income. So, that kind of is the the bulk of that, right? Um, I think that's really important because you know the thing is that you you want to you want to be able to ride through the bad times so you can get the longerterm potential good times. You want to I I think you want to separate this idea of what can I control and what can I not control. Because we none of us can predict what's going to happen here. I'm not even talking about in two years, two months, two days, two minutes. We don't know. Things are changing the exact path of this war, the Fed decisions, redemptions from private credit, or even what is the next monster under the bed that we don't even know about. But we can do things like controlling our spending, our savings rate, the diversification of our portfolio, our emotional reactions, right? I mean, we could definitely do that. One of the things we don't want to get involved in is panic selling at the bottom, right? That's the worst thing we can do because that is one of the ways you can evaporate more wealth than at any other time of your investing career. Also, doing nothing and hoping for the best can probably be just as dangerous, especially when re real real risks real risks. Try to get that out. Real risks are involved. So, history shows us that I think we could all agree that when we have these periods of multiple overlapping stressors, they're going to resolve. Some of them may be quickly, some of them may be with more pain at first, but I think that the investor, the disciplined investor that comes out ahead are those that can keep a cool head, remain calm. they could think clearly through all that is going on and pretty much act with a plan that they set up prior rather than reacting to the various headlines that come out. So the discipline in the times like these that you need means you're acknowledging the risk without letting fear drive your decisions. It means that you have a process that you you trust and the courage to follow it. So if your current situation feels like you're misaligned with today's realities, well do something about it. If you have too much liquidity, too much concentration, not enough dry powder in the event things go down for opportunities, now is a time for these adjustments. Not drastic moves, not panic selling, not getting crazy on that. Right? The bottom line here is that I want you to be set. I want you to be disciplined. I want you to be ready ahead of something and not making crazy reactive decisions at the wrong time. So, it doesn't matter whether you're you've done this a long time or whether you're new at it, right? Use this moment right now to strengthen your plan. Don't abandon it. Be disciplined. Let's take a moment and let's talk about Interactive Brokers, shall we? Because Interactive Brokers or IBKR as we call them has key competitive advantages for sophisticated investors just like you. IBKR's margin loan rates are from just 4.14% to 5.14%. In fact, IBKR is rated one of the lowest margin fees by stockbrokers.com. I want you to compare IBKR's clients low margin borrowing costs to other brokers like Schwab or or E Trade, Fidelity, and Vanguard, which charge hundreds of basis points above IBKR's low rates. Look, the best informed investors choose Interactive Brokers. Margin, of course, is only for investors with experience and have have a high risk tolerance because you can lose more than your initial investment. Rates are of course subject to change. Get started today at ibkr.com. Interactive Brokers is a member of SIPC. Again, it's ibkr.com/compare. All right, here we are. We're ready to go. We're ready to roll in our guest. And you know what? I just got a text. I just got a text and an alert. He's not going to be available. So, we have to plow on. And the good news is I wish him the best. I think he's posted something on Twitter about a garage door incident or something that just happened. So Howard, we wish you the best. People around me are just things are happening. First we got JC D'vorak with his heart issue. Now we got Howard Linden with some kind of mishap with the garage door or something. I don't even know what's going on. So anyway, Howard feel better. The good news is I have lots to talk about because I I wrote up a comparison that I was going to talk to you about after Howard and we'll just talk about it now. And this was a look back. I wanted to look at what happened during the 19 7374 oil embargo. And I wanted to look back at that and put a little bit of a comparison into what's going on today. There are some eerie similarities. So I think arguably the 1973 oil embargo it was probably one of the most important energy shocks in I don't know is it modern history or at least history 73 that's number of years ago that was in history modern history maybe and understanding what happened here once again studying history so we don't repeat it in the future which by the way uh is all forgotten now because we didn't study the history and that's why we're getting what's going on right now. But studying history, understanding what happened can give us a little bit of perspective further on what we were talking about before the break about diversification, what we want to do, the outlook. Because when we look at geopolitical events and energy disruptions and how all this can create this massive inflation and impact markets, especially when we look at what's unfolding right now, here we are in 2026. So going back, here's some notes that I kind of put down about what happened in 73. I was I was young. I was a we lad at the time, so I had to go back to the history books and kind of pick out and tease out some of the information. But back then it was Egypt and Syria. They launched what was known then as a Yum Kipper war against Israel. The United States and a few allied nations provided support to Israel and in response the Arab members of OPEC then was known as OAPEC O a p um imposed this embargo not on a global basis but on the United States and a few other countries. They also began, if you remember, cutting production by about 5% each month until Israel withdrew from occupied territories. Okay. Now, this embargo lasted about a year or so, give or take. It would lasted into March of 74, not I guess it wasn't a year. The result, well, crude oil prices uh almost quadrupled, going from about $3 a barrel, $3 a barrel, think about that, to nearly $12 a barrel in just a few months. And back here at home, we saw gasoline stations with long lines, odd and even rationing days. I'll mention that in a second and tell you about that if you don't know what that was. and and total I I would say panic just absolute like oh my god where this was the toilet paper of COVID event people were freaking out that they weren't going to have enough gas or fuel it was this total back it was a supply shock that's what it was it was a total supply shock and that hit at a time where inflation was already kind of doing its thing was starting to come back and starting to rise now when you talk about the odd even rationing. Depending on what your license plate said, I think it was the last number on your license plate. If you were odd, you could, let's say, uh, fill up on Tuesdays, Thursdays, and Saturdays. If it was even, you had Mondays, Wednesdays, and Fridays. And, uh, what ended up happening is people do strange things like my father did, which was switching the license plate, the tag if you will, from car to car and filling up that car that whatever needed it. Now, this had a this had a really big impact on the US equity markets. It was it was pretty disastrous, I got to tell you. The market was already kind of rolling over a little bit going into the fall of 1973. The Dow Jones Industrial back then hit a peak nearing about 1,067 in January of 1973. And once the embargo actually hit, once we actually got into this whole problem where oil prices started rising, that decline started to accelerate sharply. The Dow, which was the measure back then that everybody used, it dropped to about 783 by mid December 1973. Look at the chart. You can kind of track this. and and that full bare market from the January 1973 high if you look at the chart to the December 1974 low was brutal. The Dow lost more than 45% of its value bottoming near I guess right here 577 578 give or take. Now the S&P was not in any better shape at the time. Dropped about 40%. And and none of this was a quick V-shaped crash recovery like we've seen so many times. It was this prolonged grinding bare market that just took your guts out. And that coincided with this nasty recession, which is probably not a surprise with all that was going on. And at the same time, yep, you guessed it, surging inflation. Now, if it sounds kind of familiar and eerily familiar to current times, let's go through that. But what happened then and probably was the last known since then of the real absolute definition of the sword, stagflation. And that was one of the toughest environments and is one of the toughest environments that you could probably have for investors. And the recovery from that took years. So let's first take a look at what worked back then and do some comparisons to what we have today. Traditional long-term bonds got absolutely crushed. Inflation soared into the double digits. Yields rose. But of course we know that the bond interest rate and price factor is an inverse relationship and therefore rates went up dramatically. Prices came down. Equities generally speaking suffered as well. Real estate mixed at best. What was the clear winners back then? Hold on to your seats. You won't believe it. Yes, you will. Here's what stood out. Gold. Gold performed really well. It acted like this classic hedge against currency weakness and runaway inflation. Cash and the very very very short-term treasuries were the most at that time most practical defensive mechanism that you could have. The choice to be in that was smart. What do they do? All those preserved capital. There were liquidity availability of all of those things as well. And when everything else felt uncertain, like we talked about at the top of the show, the uncertainty issue, those were areas that really stood out. Even if even if the high rate of inflation eroded some of the real values, in other words, you made 7% on your CD, 8% in a 5% 7% inflation environment. Therefore, you're not making so much money. And even when you factored that in, there really wasn't a great place. I mean, yeah, I mean, certain energy related commodities and stocks benefited directly from the price spikes that we saw in energy at that time, but not everything in that in those sectors did, you know, equally well. It was very hit or miss. Basically as we know that a stock performance the performance of a stock is somewhere about an 80 to 85% relationship correlation to what's actually happening in an underlying index. What's actually happening in the market itself is the primary driver of what you see in a stock. Now that's not in every stock in every circumstance. No, of course not. But generally speaking, there's a ve, you know, when stocks are selling off, when stocks are just getting hit, it doesn't matter usually long term if it lasts for a long and prolonged period of time whether that's a good stock or a bad stock. Bad stocks will get hit worse. Good stocks not so bad, but still bad enough. And the big takeaway from 197374 when you get this true supplyriven inflation shock combined with geopolitical tensions there often isn't a perfect safe haven. Again, gold and cash often the best relative protection. Most growth assets and longduration bonds suffered. Markets can only handle the pressure for so long of a period of time when all these multiple forces line up. So now you're asking me, okay, Andrew, okay, great. You scared the hell out of me. This sounds familiar. What what's what how does this how does it compare and contrast? What are we dealing with? What does it have to do with today? So once again, here we are thrown into another Middle East conflict. This time it involves this the the strikes related to Iran that has basically disrupted shipping. The straight of Hormuz is effectively closed for most things which we know is this critical choke point for about I I think the number is about 15th about 20% of global oil supply. We know that oil prices have spiked sharply. Brent is well above 100. You know, moving moving at 100 to 116 to 98. It's moving around pretty dramatically. WTI West Texas Intermediate $90 plus minus 85 100 somewhere around that with volatile swings that briefly push prices much higher. And we're hearing again renewed talk of sword sword. Don't tell anybody. stagflation just like the 1970s. However, however, stick with me here. There are important differences and I think that needs to be identified because in 1973 the embargo was coordinated. It was sustained by Arab and the OPEC members and this quadrupling of price over months lasted well into 74. Today's disruption appears so far so far temporary. It's tied to this conflict and shipping insurance issues other than ando as opposed to a full full um multi-year production embargo. That said, understand that's the bright side of the equation. But that said, one of the things we still need to recognize is that the impact of higher oil prices as we've seen them will have longl lasting implications. No matter what happens, whether we stop the war right now or it continues, we still have a major blip that we need to get through. A lot of analysts are watching this very closely. Most are expecting oil prices to peak within a couple of three weeks and then moderate towards again $65 to $80 later in 2026 if tensions ease and the straight opens. You know, we have a lot of tools today that we didn't have then back in the 70s. We didn't have the massive US strategic petroleum reserves which we've and and global SPRs that we've already seen a coordinated response and coordinated release of that. So that that helps us out a lot. Another key contrast if you look at this in 1973 that whole incident hit during a period of already high inflation and the end of the Brenton Wood system. Now today we we're entering this with again different levels of stress, multiple additional levels of stress. Private credit credit markets are showing redemption pressures, valuation concerns. We talked about that. Bond markets are struggling with heavy Treasury supply and shifting rate expectations. We talked about that at the top of the show. And of course, the stronger US dollar that's reducing hopes for near-term Fed rate hikes. I mean, that's something that we really need to consider and we need to think about how that's going to impact this because back in the 70s, obviously, we saw a coordinated effort to strike down this runaway inflation that brought up rates dramatically. Things got in trouble. this administration and the incoming Treasury uh and the current Treasury Secretary and the the incoming federal chair WSH whenever he gets there may be more inclined to say, you know, this all is our doing. This all is temporary. This all is going to be something that we believe we should look through and as such lower rates or not raise rates even though we may see inflation pressures. They may make the call that the inflation pressures are really just oil and a few other things that will subside very easily, but the risk to the economy is so much greater that we need to actually do something right away. And and that I think is a dangerous game to play, but something we need to consider in this whole analysis. In 1973, when we look to compare the stock markets in in the world and the and and particularly in the US, we're coming off the the nifty50 era of extreme valuations. We got that going today, right? Markets have its own concentration risk, particularly in technology and retail participation through apps and 247 trading have changed the speed and the psychology of the trade. That's why we've seen so many of these V-shaped recoveries. What happens though when sentiment changes and that 24/7 turns into 247 selling? There's a big difference today also that the news flow is constant and to the minute. Back in 73, what do we do? We had to watch the news that really they didn't focus on the markets back then. Walter Conroy wasn't talking about that. Um, that was just the news. It was it was the New York Times, the Wall Street Journal. It was the weekend baronss. It was um the reports you got if you were a professional through various mechanisms. It was not the internet. By the way, just to remember 1973, no, no, no internet. It wasn't even a glean in daddy's eye at that point. The core lessons from then to now are, I dare say, remarkably similar. And that is that energy supply shocks can quickly raise inflation fears. They can in a in a world right now where we have all these tariffs that are on, off, on, all but off. But most companies have done a lot of work absorbing the cost. This supply shock, which again is not just simply energy from the perspective of, oh my gosh, my gas prices are going up. No, diesel prices, cost of engineering, various chemical products, manufacturing, driving, transportation, it all goes into place pressuring corporate margins, slows growth. What it does is it creates this very challenging market and environment for both stocks and bonds. And in both periods, this combination of the the risk the um the geopolitical risk and and the higher cost because of energy forces all of us as investors to think carefully about positioning. And that's why I keep talking about and coming back to this about why discipline matters now more than ever reviewing your allocation and maintaining a defensive buffer in whether it's going to be high quality instruments or or cash or I'm not saying you know blow out the portfolio but I want you to favor companies and sectors with strong balance sheets and pricing power and and and think about some of these hedges whether it's gold silver uh that are getting whacked when the dollar goes up but then come act very strong real estate potentially in certain areas but again I talked about this at the top avoid these knee-jerk reactions because panic selling at the bottom again is has created all sorts of problems we none of us can predict how long today's energy disruption it's going to last because here's the here's this here's the bottom line on that we don't even know what's from today or tomorrow this administration changes their mind faster than people, you know, change their clothes. I mean, day to day to day, we have we have a halt. We have a renewal. We're going to bomb them. They're going to send them to hell. We're going to do this. We're going to now go to tariffs. Now, we're going to back off on tariffs. Now, we're going to sue to get tariffs. Now, we're going to talk about the Federal Reserve and what a J. Powell is. Literally, those words we used just a couple of days ago about J. Powell being a This is not a simple path here. This is not an easy answer right here. You know, if you say to me, Andrew, well, okay, well, all this being the case, what are you thinking from five years from now? Five years from now is is a lifetime with what we've seen with how things are going over the last number of years. five years from now. Sure. I assume, I will concur. I will agree that things will be okay. How deep are things going to get over the next year? That's an open question because history has shown us, right? What has it shown us? It's shown us that the u the shocks will eventually resolve. Markets will move forward. As a disciplined investor, what do we need to do? We need to prepare ahead of time. We need to stay stay the course when the headlines get loud, assuming we've made proper adjustments. Stay the course with proper adjustments. I think these are the lessons that probably served people well back in the painful days of 1970 through 74 plus++. And I and I do believe that by properly allocating I I'll tell you a couple things. We're we're already considering um we finally gotten to a tipping point and where we think the longevity of the supply shock, the oil prices, how the impact of that will be on the economy moving forward. The length of time it has been just at this point is now leading us to a reduction of risk and even shortening even further our fixed income portfolio. This is something we have been talking about in the office for the last month or two weeks, two and a half, three weeks. And while we're coming into this with a very short duration fixed income portfolio and we also have a bent towards value which has not taken the brunt about 1,200 basis points better on the large cap value versus the large cap growth this year alone 2026 barely three months in 1,200 basis points I think we're down we've seen the large cap growth down about 10% or so and the large cap value up 2% this year. That's a very telling situation. So, this is telling us what that investors have been working on this for a while now. We wanted to see the white of the bear's eyes before making any significant changes. And we're at that precipice. We're at the precipice where now we're no longer able to con get our levels on the S&P 500, the U S&P S&P 500, the Dow or the major indices like the Nasdaq above the 200 day average without colliding with it and then knocking back down. Yes, we are seeing some potential upside when we get the news that I don't know that we got another 5 days, 10 days, 20 days, one month. We we're not going to beat him up. We're going to send him to hell. I don't know. You know, we're going to uh support through this action by using Iranian oil or maybe Venezuelan oil or by allowing certain boats that are the Jones Act. We we recent that. I mean, there's all the release of the SPR all this mechanism. What is it doing? It's helping. It's not solving. It's prolonging. It's not curing. So right now, think about it. If you need any help with your portfolios, of course, you know, we'll be happy to take a look. But right now, I think uh we are at a point and we'll make the final decision in a couple days to uh make some changes because we don't see any potential real downside from making them and the upside is is pretty dramatic. So, we'll end the show there today. We wish Howard Linden a very healthy uh speedy response to uh whatever happened with the garage door. And then of course uh coming up this Tuesday is going to be myself and John C. D'vorak. Yes, he is back in the seat or in the bed with a microphone uh talking about things and as as John C. D'vorak as he ever has been in the past, he is there again. So pretty cool. Pretty cool. Make sure to tune in to DH Unplugged as well. go over to Amazon Music or Spotify, Apple Podcast, even on YouTube. We have a small following on YouTube because it's audio only, but you can get the podcast there. Anywhere you get your podcast from, that's where this show will be on. Thanks for joining me this week. Thanks for joining me every week. Go over to the discipline.com, check out the show notes, and uh we'll see you again next week. Thanks so much. This podcast is intended forformational purposes only and does not constitute personalized investment advice. 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