June 23, 2025 • 23 mins
John Authers, senior editor for markets, Bloomberg Opinion columnist, and author of the Points of Return newsletter joins Merryn Somerset Webb and John Stepek to make sense of the market reaction to the US involvement in the Iran-Israel conflict.
Note: We recorded this conversation earlier today, before Iran’s retaliatory strikes at a US air base in Qatar. Traders drove stocks higher as oil tumbled, with the strikes seen as limited and unable to trigger a broader economic fallout.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
Talks Money Market Wrap, where we talk about the biggest
moves in the markets this week and what is driving them.
(00:23):
I'm Marin Sumset, web editor at Large for Bloomberg UK Wealth.
Speaker 2 (00:27):
Now joined Steavik, senior reporter for Bloomberg and Money Distilled newsletter.
Speaker 1 (00:31):
Orthor okay, now, John, We're recording our Markets round up
a little bit early this week for two reasons. Well,
I'd say first it is Monday, June the twenty third
Brexit day, but that's not the reason for recording early.
Speaker 3 (00:44):
It could be, but it's not the first. The great
John Authors is in London.
Speaker 1 (00:47):
John, of course, the senior editor for Market's in a
Bloomberg opinion columnist is Bloomberg newsletter Points of Return is
a must read. You must read it after you have
read the Merrin Talks Money and the Money Distilled newsletter.
But it's a great for the week and the past life.
He's chief Market's commentator at the FT said we knew
each other there too, of course, So first of all,
welcome John.
Speaker 3 (01:08):
Good to have you with us.
Speaker 4 (01:09):
It's great to be great to be back in London.
Speaker 3 (01:11):
Also there's the second reason for this.
Speaker 1 (01:13):
We felt we needed to get some analysis on the
markets out immediately, because of course global markets are reacting,
or not actually reacting as much as you might think
they would, to America's decision to get directly involved in
the Israel Iran war. President Trump border strikes on nuclear
facilities Iran over the weekend. So we are going to
get into what that decision and the possibility of retaliation
(01:34):
from Iran means for oil, for the dollar, and possibly
for crypto, among other things. So here we go, John
and John. This is going to be very trying as
a conversation for me, isn't it?
Speaker 3 (01:46):
John and John?
Speaker 1 (01:47):
I just said we're going to be looking at the
market reaction, but so far there isn't really that much.
I mean, John number one, My John number one, John Seffeck,
you published a piece this morning.
Speaker 3 (01:57):
Why is the market shrugged off? Escalator? What is the
answer to that? This is scary stuff.
Speaker 2 (02:03):
So the US came in because they're the ones who've
got the bombs that are big enough to kind of
blow up the nuclear labs that Iran has got. But
that is all they want to do. My best guess
is basically the market doesn't actually see this as an escalation,
and it's hoping that it won't go beyond this, because
(02:24):
although everyone keeps saying that Iran could close the Strait
of Horn Moves, if it does that, that really is
a double edged sword because you know, a lot of
the world's energy goes through there. But the problem is
that actually that's also how Iran gets its oil into
the world, and Iran needs the money. It's also how
you know, China kind of relies on it to Kata
(02:47):
relies on it, and they are both. I mean, Iran
doesn't really have allies, but it does have people who
it hasn't annoyed in China, and Kata are among those.
So basically, if it shuts that off, risks alienating the
few people who would still support it, and also the
US would then it'll take action to actually do something
(03:07):
about it as well. So you're dragging the US for
the end of the war again. So I guess the
thing is that that is as far as I can
what could. That's why markets are basically shrugging this off
because the either get it escalates from here what it doesn't,
and the chances of it escalating, they will seem lower
than the chances of it actually escalating.
Speaker 3 (03:28):
Okay, yeah, is that how you see? John?
Speaker 4 (03:31):
I didn't catch anything in there that I that I
didn't agree with. I mean that the whole point of
risk management is that sometimes what's likely to happen doesn't.
But plainly, for the reasons John just set out, the
odds are that we don't get a serious escalation from here.
Iran has already been very badly weakened. As John said,
(03:54):
if you close the streets of Hormos, you annoy China,
which is basically by far, I mean more than half
of their oil exports go to China. They really need
to keep China being friendly. And it's also not so
much of an all or nothing thing. Closing the streets
of straight to four moods. There are two sections which
(04:15):
are only two miles wide. But it would be an
indicate invitation for the American fleet to come in and
sink the Iranian navy, which they probably would do. That
obviously would be an escalation. It would raise the risks
that you actually saw some US combat deaths, which makes
(04:35):
escalation bad. I'm not saying this is good, but it's
just that Iran can see this coming and that in
terms of the implications for the flow of oil and
the price of oil, which is what really matters, the
odds are high that oil is just not going to
go anywhere that the market can't handle. Also, you have
(04:56):
the underlying backdrop is that oil demand is on the
low side and oil supply is on the high side
or moves depending on whose estimates you believe. Has you know,
twenty percent of oil experts go through that strait. So
you can't shrug it off just like that. But if
there was a time to have a big one off
(05:20):
threat to oil supply, this is quite an easy one
for the market to deal with. That's the exact opposite
of three and a half years ago when Russia invaded
Ukraine when supply was weak and demand was increasing quite
rapidly in the wake of you know, the as the
world woke up after the pandemic, and that helped create
(05:40):
that spike then in the old price.
Speaker 1 (05:42):
The other thing you might add to that is when
we use this twenty percent number and had verified twenty
percent here or there, but as twenty percent of the
world's oil flows, so the fact that the US, for example,
is now energy independent thanks to share to the great
game changer. The idea that oil should have a very
big geopolitical risk premium attached to it might have changed
(06:05):
over the last decade.
Speaker 4 (06:05):
Even it's certainly weakened. There's this concept of the oil burden.
You take a look at the cost the total expenditure
on oil as a proportion of GDP, and it's far
lower than it was in the seventies. Because we're a
less energy intense economy, there are far more services. The
(06:27):
industries that do make things generally do so in a
much more energy efficient manner. Doesn't mean that you can
ignore it, but the kind of it's hard even to
imagine anything that could create the same shock, same level
of inconvenience to global industry that happened with the embargo
(06:49):
of seventy three.
Speaker 3 (06:50):
Yeah.
Speaker 1 (06:50):
I do want to clarify there, because people tend to
sometimes deliberately by sent to down this kind of thing.
What you mean is that oil, the expense of oil
is a lower percentage of GDP, not that the US
or the UK and the country used less oil than
they did previously. It's not an absolute it's precisely speaking
about here.
Speaker 3 (07:07):
I just want to be clear on.
Speaker 4 (07:08):
That, but in percentages it's much less, much less significant
than it was.
Speaker 1 (07:12):
Okay, so oil seems relatively relatively stable. Ish cure markets
have barely reacted Iver John.
Speaker 2 (07:21):
Again number one. Sorry, I guess that's just that's downstreamly oil. Really,
I mean, that's what I mean. I suppose breaking it down,
this has happened because the world or you know, the
US and the bits of the world of we around
certainly don't want a nuclear armed Iran. And that's why
the US went in and did this one off thing.
It's not like I know a lot of people, I
(07:43):
think sometimes with malintentions, have tried to draw a parallel
between this and Iraq. There's nothing like it. The you know,
the US is not looking to occupy Iran or even
regime change. And see why Israel would want regime change.
But that's a different issue. So it's as far as
the US is in is in this they want to
make sure that Iran can't get a nuclear weapon, and
(08:06):
so if and also I think the other thing I
have to remember is that Donald Trump's you know, base,
one of the reasons Donald Trump was popular with his base.
And also, you know, between twenty sixteen twenty twenty he
must avoid geting the US involved in any significant wars,
which was an unusual feat for a president, and he
kind of wants to maintain that streak. So the chances,
(08:28):
you know, that leans heavily against the US getting any
more involved in this war, which is another reason why
Iran will probably unless the regime is completely desperate, will
be thinking it would be better if we don't close
the streets of hor moves, because we don't want to
escalate to the point where we drag the US in.
So again, it's just sort of buzzed down to this
(08:49):
thing where there is from from an equity market, in
Visu's point of view, there is not really any point
on worrying about this until it does get worse. So
like why doing your portfolio today, which kind of me explained,
I'll give you.
Speaker 1 (09:03):
I'll give you that, But I would have still thought
that as geopolitical tension around the world rams up and
up and up and up, there would come a point
when whether you whether the oil price is rising or not,
whether there's an obvious feed through to inflation or not,
whether there's an obvious feed through into corporate earnings or not,
you might get to a point where ever, we're just
(09:23):
not to feel nervous and think to themselves, you know what.
I can't really pin down where it's making me feel
scared here, but I think I might hold fewer expensive equities,
and I might hold a little bit more gold, and
I might just you know, maybe a little cash for
now because it looks a little scary out that. And
that's the thing that surprises me. I would have expected
by now the market to stop shrugging off absolutely everything.
(09:45):
And you make a great case, but this doesn't really matter.
Maybe it's fine, who knows, let's get hysterical.
Speaker 3 (09:51):
But you know, over the last.
Speaker 1 (09:52):
Six months have been thing after thing after thing after
thing after thing, and everyone's thought, oh, well, you know,
maybe it's fine. I would have thought by now have
moved into you know, maybe it is fine territory.
Speaker 3 (10:03):
But call me a bersamuster. I don't know.
Speaker 4 (10:05):
Okay, if I could invoke, continuing the the coterie of
people connected to the Financial Times, our our old colleague
Rob Armstrong, who has suddenly become much more famous after
he came up with this acron taco always chickens out.
Speaker 1 (10:24):
Damn it, John, Why didn't one of us come up
with that and we'd be more famous.
Speaker 4 (10:28):
That did bother me has crossed my mind. That being said,
I'm quite happy not to have Rob's inbox at the moment,
which might not might be even more of a frenetic
read than mine.
Speaker 3 (10:43):
Do you know we can fix that for you. We
can talk about crypto.
Speaker 4 (10:48):
Anyway. Carry on the point is that the taco trade
had some considerable validity to it. That's how it went
viral because on the tariff's liberation Day tariffs with China,
his threatened to fire j. Powell from the FED. You know,
he made a number of threats, and if you look
(11:10):
back pre Liberation Day, the really extreme tariffs, he says
he's going to put tariffs on Columbia, and then he doesn't.
He basically says he's going to put tariffs on Mexico
and Canada because of fentanyl, which was ludicrous in the
first place. And then they basically announced these are the
people we're going to have on the border, and Trump says, okay,
(11:32):
no more tariffs, and then you read the small print
and discover these are exactly the same number of people
they had on the border before. So you know, there
is this sense that Trump does always checking out that
you can safely ignore him, and that the one time
people really did react negatively reacted to a geopolitical shock
(11:56):
the way you would expect, which is the Liberation Day tariffs,
which were pound for pound, possibly the single biggest policy
era of my career and just unbelievable, stupid, terrible thing
to have done. The lesson from that is, you might
be right in this is a terrible idea, but you
should also have realized this is such a terrible idea
(12:17):
that it's not going to happen. I'm not selling and
the people who and plenty of people made a lot
of money out of second guessing that one, and they
don't want to make the same mistake again. I'm nervous
about making such a reaction. It leads to over confidence.
Most Middle East conflagrations end up fine as far as
(12:40):
the supply of oil and the market is concerned. Every
so often there's a yong Kapoor war. We do know that,
as we were saying earlier, the risks of something really
terrible on the scale of the yon Kapoor War are
definitely lower. But there is this ability to forget that
every so often something might go wrong.
Speaker 3 (13:00):
Then something bad really does happen.
Speaker 2 (13:01):
There's also just the BTFD because people who have not
bought the dep have been keckt in the face really
hard for the last fifteen years, and that just you
know that psychology day is hard. So I think any
bias towards an excuse to buy or not to sale
is kind of embroduced.
Speaker 4 (13:20):
By the market BTFD and FOMO.
Speaker 1 (13:22):
Yeah, and John authors, What do you think might bring
that to an end? How long can it really go
on that every dip is bored? When you know, we've
looked over We've looked at the direction of flows from
the baby boomers, we've looked at the direction of flows
from foreign investors, et cetera. And they're all going the
(13:43):
other way. Yet you have this huge surge of retail
investors will come in and.
Speaker 3 (13:48):
Buy any old ap How what makes that end?
Speaker 4 (13:51):
I actually flipped through Malcolm Gladwell's The Tipping Point recently,
and basically it's quite a frustrating book if you're actually
carefully says that every so often you come to a
tipping point and look at these historical examples of tipping points.
He doesn't tell you how you can see them coming
in advance. Or quite why that was the particular tipping point.
Speaker 2 (14:13):
Glad, will you see.
Speaker 4 (14:15):
Like so, sort of if you look at the great
market bottom of nineteen eighty two, you can sort of
talk in general terms about why it happened. Paul Volka
was winning the winning the battle on inflation, Ronald Reagan
was doing what he was doing. The market was really
absurdly cheap by that point, seven times earnings or whatever
it was. There was no one moment that triggered anything.
(14:40):
It was just after about six or nine months you
notice that the market really was trending back upwards again. Similarly,
with the dot com bubble, there is no It's not
like the Lehman Brothers, where people knew there was a
troublem and then there was one clear catalyst to catapult
into serious crisis. There is no clear reason why the
dot com bubble burst when it did. It just did,
(15:04):
and you could tell it would burst at some point
because it was so absurdly overpriced. So you know, to
that extent, you know, valuation doesn't help you. It tells
you that there is a risk that something is going
to blow. It doesn't tell you anything at all about
the timing in terms of what might change things here.
(15:25):
If the small tail risk in Iran comes true, that
would be serious. That would be very serious. So meaning
if we actually do find that there is a conflict
involving American soldiers and sailors and Americans getting killed in
(15:48):
the straits of hor Moos, if we have more bombs
because it turns out they didn't actually take out what
they needed to take out in Foordo, and this time
some radiation leaks. I mean, these are things I don't
think will happen, but are more conceivable than they were
a few days ago. And some of these really alarming
things might make a difference if there is a tail
(16:08):
risk we can see coming, which I would take more seriously.
It's it's just possible. We only have two more weeks
left before the Liberation Day tariffs are due to come
back into effect. Allegedly everybody assumes, I think correctly that
that's not going to happen. But Donald Trump does need
(16:29):
an off ramp. He doesn't like what Rob Armstrong said
about him and what everybody else has been repeating. There
are risks there that are probably I did a chart
if any any listeners who have who have access to
the terminal if you go ant news trends, you can
go anty tariffs and then anti Iran, and tariffs were
(16:56):
already sliding down into irrelevance before before Iran took off.
And Iran is now gobbling up attention in a way,
in a greater way than Tariff's ever did three months ago.
So that is quite a big sign that if there
is something that's you know, like a cartoon character treading
on a treading on a rake and getting smashed in
the face, that's going to be the thing you're not
(17:17):
worried about that will hit you. Tariff's not the thing
you are desperately thinking about Iran.
Speaker 3 (17:23):
Yeah, that makes sense. What do you think it might be?
Speaker 2 (17:25):
John, I think, I mean the rotation they're still happening.
The things the US has kind of already peaked, and
I'm going to keep kind of slipping down that slot.
I mean, I think people will keep buying the debt.
But I mean, I can't remember if I mentioned this
and I did deploy mention it in the last podcast then,
but if you'd bought the British stocks or in the deer,
the Kasi quar teng bijit, and you bought US stocks,
(17:47):
at the same time as in the S and P
five hundred, you would know you have made exactly the
same amount of money and British pone totaled it on
terms and other ones, but Devidentry invested and that's because
the dollars got a lot weaker. Since then, the has
got a lot stronger, and I think that sort of
relative rotation is continuing and probably well continue. I do
also take the point about, you know, the sort of
(18:09):
feels as if there should be scope for some sort
of crash at some point, but yeah, I mean I
don't know if that will happen. Yeah, well no, I
don't even Yeah, in real terms, there's a sort of
real terms thing, you know, where like you know, inflation's
high and it's eating away of your returns. You're not
really noticing it because if you're measuring local currency, and
(18:31):
then maybe it's not feeling it's bad.
Speaker 4 (18:33):
I mean, it's it's interesting that you were just saying
that that the S and P hasn't got back.
Speaker 2 (18:38):
To its February That hasn't quite hasn't y, which.
Speaker 4 (18:40):
Gloriously happened on the day the White House tweeted a
mock up Time magazine cover of Donald Trump with the
crown on his head saying he was the King of
New York. So, if you wanted the curse of the
magazine cover, this is the case of somebody executing the
so the magazine cover on themselves. Other than that magazine cover,
(19:04):
which I really don't think was the recent people sold
stocks the next day. There wasn't any particular reason why
that day was the top. But so far it still
is the top. And that's whatever it is more than
four months ago now, So it's who knows okay?
Speaker 1 (19:18):
And what do we buy, either of you to hedge
ourselves from the.
Speaker 3 (19:23):
Difficulties around us.
Speaker 1 (19:25):
If we're worried about this going further, we're worried about
the chance of escalation, we're worried about all prices rising
apart from oial, what do we buy gold?
Speaker 4 (19:34):
Of course, well, you know nobody got fired for hedging
a risk by buying some gold, Notorrill. Well, Gordon Brown
still went on to be Prime Minister after a rather
badly timed gold sale a sale.
Speaker 3 (19:54):
But you know, in general, there is no camera out there,
is that? What about what about crypto? Would you buy
crypto a hedge against this bit?
Speaker 4 (20:02):
Joins this I certainly would.
Speaker 3 (20:06):
Yeah, prified.
Speaker 2 (20:11):
Oh, I'm going to say something, really, I think bitcoin
is fine as a small, sort of small allocation of
your gold allocation. I like Charlie's Charlie Morrissey's approach to
the whole bold thing. A lot of gold makes me
a little Dasha beckcoin. But that's mostly for avoiding the
fear of missing out element.
Speaker 1 (20:31):
Just for the record, Just for the record, John number
one does not hold any bitcoin.
Speaker 3 (20:35):
Number two, have you got any bitcoin?
Speaker 4 (20:37):
No?
Speaker 3 (20:39):
Well, there you go.
Speaker 1 (20:39):
I am the only one of us with any bitcoin,
and I'm the one that gets all the flag.
Speaker 4 (20:44):
I mean, it's it's it's a question of opportunity cost.
I'm also a big fan of Charlie morris that, you know,
who actually really tries much harder to put some kind
of a sensible fundamental fair value on both bitcoin and
golden Whether or not he's I thoroughly respect the fact
that he's trying to do it. What is interesting about
(21:07):
bitcoin in the last few days is that it has
behaved exactly the opposite of how it's supposed to or
how if you go back to the founding the white paper,
how it's supposed to in that it's behaved like an
extreme speculative risk asset. It dips really sharply when we
(21:27):
find out that Israel has attacked Iran, and it dips
again very sharply, going back below one hundred thousand after
the Americans drop the bomb on Iran. I haven't checked
it this morning so far, but it's.
Speaker 1 (21:43):
That tells you that it is an extreme speculative asset.
Speaker 3 (21:47):
I mean, could that be the answer? That's question.
Speaker 4 (21:49):
That's part of it. The other slightly conspiratorial explanation I've
seen is that because people the kind of people who
the US bitcoin a lot of the kind of people
who are trying to avoid sanctions, when something like this happens,
they might well feel the need to take some profits
from their bitcoin because they're in because.
Speaker 3 (22:13):
Well, I hope they're going to pay their capital gains taxes.
Speaker 4 (22:17):
I mean, that's I have no names in everything that
that's actually plausible to me, that that that that that
that explanation, but it's it's worked terribly as a hedge
against the two really bad news headlines of the last
couple of weeks. Oh, very surprisingly badly.
Speaker 1 (22:33):
Okay, perfect, John number one, John number two, thank you
so much for that that was really interesting and now
everyone knows, of course, exactly what to do.
Speaker 3 (22:41):
Super helpful.
Speaker 1 (22:44):
Thanks for listening to this week's Marin Drogs Money Debrief.
If you like I show, rate, review, and subscribe wherever
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Stag and John number two is John author.
Speaker 3 (22:59):
At Author's Very Good.
Speaker 1 (23:01):
This episode was produced by some Asadi and Moses and
sound designed by Blake Maple's Questions and comments on this
show and all our shows are always welcome. Our show
email is Merinmoney at Bloomberg dot net
Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Merrin
Talks Money Market Wrap, where we talk about the biggest
moves in the markets this week and what is driving them.
(00:23):
I'm Marin Sumset, web editor at Large for Bloomberg UK Wealth.
Speaker 2 (00:27):
Now joined Steavik, senior reporter for Bloomberg and Money Distilled newsletter.
Speaker 1 (00:31):
Orthor okay, now, John, We're recording our Markets round up
a little bit early this week for two reasons. Well,
I'd say first it is Monday, June the twenty third
Brexit day, but that's not the reason for recording early.
Speaker 3 (00:44):
It could be, but it's not the first. The great
John Authors is in London.
Speaker 1 (00:47):
John, of course, the senior editor for Market's in a
Bloomberg opinion columnist is Bloomberg newsletter Points of Return is
a must read. You must read it after you have
read the Merrin Talks Money and the Money Distilled newsletter.
But it's a great for the week and the past life.
He's chief Market's commentator at the FT said we knew
each other there too, of course, So first of all,
welcome John.
Speaker 3 (01:08):
Good to have you with us.
Speaker 4 (01:09):
It's great to be great to be back in London.
Speaker 3 (01:11):
Also there's the second reason for this.
Speaker 1 (01:13):
We felt we needed to get some analysis on the
markets out immediately, because of course global markets are reacting,
or not actually reacting as much as you might think
they would, to America's decision to get directly involved in
the Israel Iran war. President Trump border strikes on nuclear
facilities Iran over the weekend. So we are going to
get into what that decision and the possibility of retaliation
(01:34):
from Iran means for oil, for the dollar, and possibly
for crypto, among other things. So here we go, John
and John. This is going to be very trying as
a conversation for me, isn't it?
Speaker 3 (01:46):
John and John?
Speaker 1 (01:47):
I just said we're going to be looking at the
market reaction, but so far there isn't really that much.
I mean, John number one, My John number one, John Seffeck,
you published a piece this morning.
Speaker 3 (01:57):
Why is the market shrugged off? Escalator? What is the
answer to that? This is scary stuff.
Speaker 2 (02:03):
So the US came in because they're the ones who've
got the bombs that are big enough to kind of
blow up the nuclear labs that Iran has got. But
that is all they want to do. My best guess
is basically the market doesn't actually see this as an escalation,
and it's hoping that it won't go beyond this, because
(02:24):
although everyone keeps saying that Iran could close the Strait
of Horn Moves, if it does that, that really is
a double edged sword because you know, a lot of
the world's energy goes through there. But the problem is
that actually that's also how Iran gets its oil into
the world, and Iran needs the money. It's also how
you know, China kind of relies on it to Kata
(02:47):
relies on it, and they are both. I mean, Iran
doesn't really have allies, but it does have people who
it hasn't annoyed in China, and Kata are among those.
So basically, if it shuts that off, risks alienating the
few people who would still support it, and also the
US would then it'll take action to actually do something
(03:07):
about it as well. So you're dragging the US for
the end of the war again. So I guess the
thing is that that is as far as I can
what could. That's why markets are basically shrugging this off
because the either get it escalates from here what it doesn't,
and the chances of it escalating, they will seem lower
than the chances of it actually escalating.
Speaker 3 (03:28):
Okay, yeah, is that how you see? John?
Speaker 4 (03:31):
I didn't catch anything in there that I that I
didn't agree with. I mean that the whole point of
risk management is that sometimes what's likely to happen doesn't.
But plainly, for the reasons John just set out, the
odds are that we don't get a serious escalation from here.
Iran has already been very badly weakened. As John said,
(03:54):
if you close the streets of Hormos, you annoy China,
which is basically by far, I mean more than half
of their oil exports go to China. They really need
to keep China being friendly. And it's also not so
much of an all or nothing thing. Closing the streets
of straight to four moods. There are two sections which
(04:15):
are only two miles wide. But it would be an
indicate invitation for the American fleet to come in and
sink the Iranian navy, which they probably would do. That
obviously would be an escalation. It would raise the risks
that you actually saw some US combat deaths, which makes
(04:35):
escalation bad. I'm not saying this is good, but it's
just that Iran can see this coming and that in
terms of the implications for the flow of oil and
the price of oil, which is what really matters, the
odds are high that oil is just not going to
go anywhere that the market can't handle. Also, you have
(04:56):
the underlying backdrop is that oil demand is on the
low side and oil supply is on the high side
or moves depending on whose estimates you believe. Has you know,
twenty percent of oil experts go through that strait. So
you can't shrug it off just like that. But if
there was a time to have a big one off
(05:20):
threat to oil supply, this is quite an easy one
for the market to deal with. That's the exact opposite
of three and a half years ago when Russia invaded
Ukraine when supply was weak and demand was increasing quite
rapidly in the wake of you know, the as the
world woke up after the pandemic, and that helped create
(05:40):
that spike then in the old price.
Speaker 1 (05:42):
The other thing you might add to that is when
we use this twenty percent number and had verified twenty
percent here or there, but as twenty percent of the
world's oil flows, so the fact that the US, for example,
is now energy independent thanks to share to the great
game changer. The idea that oil should have a very
big geopolitical risk premium attached to it might have changed
(06:05):
over the last decade.
Speaker 4 (06:05):
Even it's certainly weakened. There's this concept of the oil burden.
You take a look at the cost the total expenditure
on oil as a proportion of GDP, and it's far
lower than it was in the seventies. Because we're a
less energy intense economy, there are far more services. The
(06:27):
industries that do make things generally do so in a
much more energy efficient manner. Doesn't mean that you can
ignore it, but the kind of it's hard even to
imagine anything that could create the same shock, same level
of inconvenience to global industry that happened with the embargo
(06:49):
of seventy three.
Speaker 3 (06:50):
Yeah.
Speaker 1 (06:50):
I do want to clarify there, because people tend to
sometimes deliberately by sent to down this kind of thing.
What you mean is that oil, the expense of oil
is a lower percentage of GDP, not that the US
or the UK and the country used less oil than
they did previously. It's not an absolute it's precisely speaking
about here.
Speaker 3 (07:07):
I just want to be clear on.
Speaker 4 (07:08):
That, but in percentages it's much less, much less significant
than it was.
Speaker 1 (07:12):
Okay, so oil seems relatively relatively stable. Ish cure markets
have barely reacted Iver John.
Speaker 2 (07:21):
Again number one. Sorry, I guess that's just that's downstreamly oil. Really,
I mean, that's what I mean. I suppose breaking it down,
this has happened because the world or you know, the
US and the bits of the world of we around
certainly don't want a nuclear armed Iran. And that's why
the US went in and did this one off thing.
It's not like I know a lot of people, I
(07:43):
think sometimes with malintentions, have tried to draw a parallel
between this and Iraq. There's nothing like it. The you know,
the US is not looking to occupy Iran or even
regime change. And see why Israel would want regime change.
But that's a different issue. So it's as far as
the US is in is in this they want to
make sure that Iran can't get a nuclear weapon, and
(08:06):
so if and also I think the other thing I
have to remember is that Donald Trump's you know, base,
one of the reasons Donald Trump was popular with his base.
And also, you know, between twenty sixteen twenty twenty he
must avoid geting the US involved in any significant wars,
which was an unusual feat for a president, and he
kind of wants to maintain that streak. So the chances,
(08:28):
you know, that leans heavily against the US getting any
more involved in this war, which is another reason why
Iran will probably unless the regime is completely desperate, will
be thinking it would be better if we don't close
the streets of hor moves, because we don't want to
escalate to the point where we drag the US in.
So again, it's just sort of buzzed down to this
(08:49):
thing where there is from from an equity market, in
Visu's point of view, there is not really any point
on worrying about this until it does get worse. So
like why doing your portfolio today, which kind of me explained,
I'll give you.
Speaker 1 (09:03):
I'll give you that, But I would have still thought
that as geopolitical tension around the world rams up and
up and up and up, there would come a point
when whether you whether the oil price is rising or not,
whether there's an obvious feed through to inflation or not,
whether there's an obvious feed through into corporate earnings or not,
you might get to a point where ever, we're just
(09:23):
not to feel nervous and think to themselves, you know what.
I can't really pin down where it's making me feel
scared here, but I think I might hold fewer expensive equities,
and I might hold a little bit more gold, and
I might just you know, maybe a little cash for
now because it looks a little scary out that. And
that's the thing that surprises me. I would have expected
by now the market to stop shrugging off absolutely everything.
(09:45):
And you make a great case, but this doesn't really matter.
Maybe it's fine, who knows, let's get hysterical.
Speaker 3 (09:51):
But you know, over the last.
Speaker 1 (09:52):
Six months have been thing after thing after thing after
thing after thing, and everyone's thought, oh, well, you know,
maybe it's fine. I would have thought by now have
moved into you know, maybe it is fine territory.
Speaker 3 (10:03):
But call me a bersamuster. I don't know.
Speaker 4 (10:05):
Okay, if I could invoke, continuing the the coterie of
people connected to the Financial Times, our our old colleague
Rob Armstrong, who has suddenly become much more famous after
he came up with this acron taco always chickens out.
Speaker 1 (10:24):
Damn it, John, Why didn't one of us come up
with that and we'd be more famous.
Speaker 4 (10:28):
That did bother me has crossed my mind. That being said,
I'm quite happy not to have Rob's inbox at the moment,
which might not might be even more of a frenetic
read than mine.
Speaker 3 (10:43):
Do you know we can fix that for you. We
can talk about crypto.
Speaker 4 (10:48):
Anyway. Carry on the point is that the taco trade
had some considerable validity to it. That's how it went
viral because on the tariff's liberation Day tariffs with China,
his threatened to fire j. Powell from the FED. You know,
he made a number of threats, and if you look
(11:10):
back pre Liberation Day, the really extreme tariffs, he says
he's going to put tariffs on Columbia, and then he doesn't.
He basically says he's going to put tariffs on Mexico
and Canada because of fentanyl, which was ludicrous in the
first place. And then they basically announced these are the
people we're going to have on the border, and Trump says, okay,
(11:32):
no more tariffs, and then you read the small print
and discover these are exactly the same number of people
they had on the border before. So you know, there
is this sense that Trump does always checking out that
you can safely ignore him, and that the one time
people really did react negatively reacted to a geopolitical shock
(11:56):
the way you would expect, which is the Liberation Day tariffs,
which were pound for pound, possibly the single biggest policy
era of my career and just unbelievable, stupid, terrible thing
to have done. The lesson from that is, you might
be right in this is a terrible idea, but you
should also have realized this is such a terrible idea
(12:17):
that it's not going to happen. I'm not selling and
the people who and plenty of people made a lot
of money out of second guessing that one, and they
don't want to make the same mistake again. I'm nervous
about making such a reaction. It leads to over confidence.
Most Middle East conflagrations end up fine as far as
(12:40):
the supply of oil and the market is concerned. Every
so often there's a yong Kapoor war. We do know that,
as we were saying earlier, the risks of something really
terrible on the scale of the yon Kapoor War are
definitely lower. But there is this ability to forget that
every so often something might go wrong.
Speaker 3 (13:00):
Then something bad really does happen.
Speaker 2 (13:01):
There's also just the BTFD because people who have not
bought the dep have been keckt in the face really
hard for the last fifteen years, and that just you
know that psychology day is hard. So I think any
bias towards an excuse to buy or not to sale
is kind of embroduced.
Speaker 4 (13:20):
By the market BTFD and FOMO.
Speaker 1 (13:22):
Yeah, and John authors, What do you think might bring
that to an end? How long can it really go
on that every dip is bored? When you know, we've
looked over We've looked at the direction of flows from
the baby boomers, we've looked at the direction of flows
from foreign investors, et cetera. And they're all going the
(13:43):
other way. Yet you have this huge surge of retail
investors will come in and.
Speaker 3 (13:48):
Buy any old ap How what makes that end?
Speaker 4 (13:51):
I actually flipped through Malcolm Gladwell's The Tipping Point recently,
and basically it's quite a frustrating book if you're actually
carefully says that every so often you come to a
tipping point and look at these historical examples of tipping points.
He doesn't tell you how you can see them coming
in advance. Or quite why that was the particular tipping point.
Speaker 2 (14:13):
Glad, will you see.
Speaker 4 (14:15):
Like so, sort of if you look at the great
market bottom of nineteen eighty two, you can sort of
talk in general terms about why it happened. Paul Volka
was winning the winning the battle on inflation, Ronald Reagan
was doing what he was doing. The market was really
absurdly cheap by that point, seven times earnings or whatever
it was. There was no one moment that triggered anything.
(14:40):
It was just after about six or nine months you
notice that the market really was trending back upwards again. Similarly,
with the dot com bubble, there is no It's not
like the Lehman Brothers, where people knew there was a
troublem and then there was one clear catalyst to catapult
into serious crisis. There is no clear reason why the
dot com bubble burst when it did. It just did,
(15:04):
and you could tell it would burst at some point
because it was so absurdly overpriced. So you know, to
that extent, you know, valuation doesn't help you. It tells
you that there is a risk that something is going
to blow. It doesn't tell you anything at all about
the timing in terms of what might change things here.
(15:25):
If the small tail risk in Iran comes true, that
would be serious. That would be very serious. So meaning
if we actually do find that there is a conflict
involving American soldiers and sailors and Americans getting killed in
(15:48):
the straits of hor Moos, if we have more bombs
because it turns out they didn't actually take out what
they needed to take out in Foordo, and this time
some radiation leaks. I mean, these are things I don't
think will happen, but are more conceivable than they were
a few days ago. And some of these really alarming
things might make a difference if there is a tail
(16:08):
risk we can see coming, which I would take more seriously.
It's it's just possible. We only have two more weeks
left before the Liberation Day tariffs are due to come
back into effect. Allegedly everybody assumes, I think correctly that
that's not going to happen. But Donald Trump does need
(16:29):
an off ramp. He doesn't like what Rob Armstrong said
about him and what everybody else has been repeating. There
are risks there that are probably I did a chart
if any any listeners who have who have access to
the terminal if you go ant news trends, you can
go anty tariffs and then anti Iran, and tariffs were
(16:56):
already sliding down into irrelevance before before Iran took off.
And Iran is now gobbling up attention in a way,
in a greater way than Tariff's ever did three months ago.
So that is quite a big sign that if there
is something that's you know, like a cartoon character treading
on a treading on a rake and getting smashed in
the face, that's going to be the thing you're not
(17:17):
worried about that will hit you. Tariff's not the thing
you are desperately thinking about Iran.
Speaker 3 (17:23):
Yeah, that makes sense. What do you think it might be?
Speaker 2 (17:25):
John, I think, I mean the rotation they're still happening.
The things the US has kind of already peaked, and
I'm going to keep kind of slipping down that slot.
I mean, I think people will keep buying the debt.
But I mean, I can't remember if I mentioned this
and I did deploy mention it in the last podcast then,
but if you'd bought the British stocks or in the deer,
the Kasi quar teng bijit, and you bought US stocks,
(17:47):
at the same time as in the S and P
five hundred, you would know you have made exactly the
same amount of money and British pone totaled it on
terms and other ones, but Devidentry invested and that's because
the dollars got a lot weaker. Since then, the has
got a lot stronger, and I think that sort of
relative rotation is continuing and probably well continue. I do
also take the point about, you know, the sort of
(18:09):
feels as if there should be scope for some sort
of crash at some point, but yeah, I mean I
don't know if that will happen. Yeah, well no, I
don't even Yeah, in real terms, there's a sort of
real terms thing, you know, where like you know, inflation's
high and it's eating away of your returns. You're not
really noticing it because if you're measuring local currency, and
(18:31):
then maybe it's not feeling it's bad.
Speaker 4 (18:33):
I mean, it's it's interesting that you were just saying
that that the S and P hasn't got back.
Speaker 2 (18:38):
To its February That hasn't quite hasn't y, which.
Speaker 4 (18:40):
Gloriously happened on the day the White House tweeted a
mock up Time magazine cover of Donald Trump with the
crown on his head saying he was the King of
New York. So, if you wanted the curse of the
magazine cover, this is the case of somebody executing the
so the magazine cover on themselves. Other than that magazine cover,
(19:04):
which I really don't think was the recent people sold
stocks the next day. There wasn't any particular reason why
that day was the top. But so far it still
is the top. And that's whatever it is more than
four months ago now, So it's who knows okay?
Speaker 1 (19:18):
And what do we buy, either of you to hedge
ourselves from the.
Speaker 3 (19:23):
Difficulties around us.
Speaker 1 (19:25):
If we're worried about this going further, we're worried about
the chance of escalation, we're worried about all prices rising
apart from oial, what do we buy gold?
Speaker 4 (19:34):
Of course, well, you know nobody got fired for hedging
a risk by buying some gold, Notorrill. Well, Gordon Brown
still went on to be Prime Minister after a rather
badly timed gold sale a sale.
Speaker 3 (19:54):
But you know, in general, there is no camera out there,
is that? What about what about crypto? Would you buy
crypto a hedge against this bit?
Speaker 4 (20:02):
Joins this I certainly would.
Speaker 3 (20:06):
Yeah, prified.
Speaker 2 (20:11):
Oh, I'm going to say something, really, I think bitcoin
is fine as a small, sort of small allocation of
your gold allocation. I like Charlie's Charlie Morrissey's approach to
the whole bold thing. A lot of gold makes me
a little Dasha beckcoin. But that's mostly for avoiding the
fear of missing out element.
Speaker 1 (20:31):
Just for the record, Just for the record, John number
one does not hold any bitcoin.
Speaker 3 (20:35):
Number two, have you got any bitcoin?
Speaker 4 (20:37):
No?
Speaker 3 (20:39):
Well, there you go.
Speaker 1 (20:39):
I am the only one of us with any bitcoin,
and I'm the one that gets all the flag.
Speaker 4 (20:44):
I mean, it's it's it's a question of opportunity cost.
I'm also a big fan of Charlie morris that, you know,
who actually really tries much harder to put some kind
of a sensible fundamental fair value on both bitcoin and
golden Whether or not he's I thoroughly respect the fact
that he's trying to do it. What is interesting about
(21:07):
bitcoin in the last few days is that it has
behaved exactly the opposite of how it's supposed to or
how if you go back to the founding the white paper,
how it's supposed to in that it's behaved like an
extreme speculative risk asset. It dips really sharply when we
(21:27):
find out that Israel has attacked Iran, and it dips
again very sharply, going back below one hundred thousand after
the Americans drop the bomb on Iran. I haven't checked
it this morning so far, but it's.
Speaker 1 (21:43):
That tells you that it is an extreme speculative asset.
Speaker 3 (21:47):
I mean, could that be the answer? That's question.
Speaker 4 (21:49):
That's part of it. The other slightly conspiratorial explanation I've
seen is that because people the kind of people who
the US bitcoin a lot of the kind of people
who are trying to avoid sanctions, when something like this happens,
they might well feel the need to take some profits
from their bitcoin because they're in because.
Speaker 3 (22:13):
Well, I hope they're going to pay their capital gains taxes.
Speaker 4 (22:17):
I mean, that's I have no names in everything that
that's actually plausible to me, that that that that that
that explanation, but it's it's worked terribly as a hedge
against the two really bad news headlines of the last
couple of weeks. Oh, very surprisingly badly.
Speaker 1 (22:33):
Okay, perfect, John number one, John number two, thank you
so much for that that was really interesting and now
everyone knows, of course, exactly what to do.
Speaker 3 (22:41):
Super helpful.
Speaker 1 (22:44):
Thanks for listening to this week's Marin Drogs Money Debrief.
If you like I show, rate, review, and subscribe wherever
you listen to podcasts. Also be sure to follow me
and John and John on X or Twitter. I'm at
marys w John is John Number one is John Underscores
Stag and John number two is John author.
Speaker 3 (22:59):
At Author's Very Good.
Speaker 1 (23:01):
This episode was produced by some Asadi and Moses and
sound designed by Blake Maple's Questions and comments on this
show and all our shows are always welcome. Our show
email is Merinmoney at Bloomberg dot net
Host
Merryn Somerset Webb
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