June 28, 2025 • 36 mins
Markets hit new highs this week, but under the hood, things are anything but settled. Anthony and Piers unpack the Nasdaq’s breakout, Nvidia’s relentless rally, and why a historic rebound might be more than just a bounce.
They dig into Trump’s latest attack on Powell and the rise of a “shadow chair” theory already shifting rate expectations—and markets.
Plus, why Iran’s missile strike on a U.S. base sent oil crashing, not soaring. From data to geopolitics, this episode filters out the noise and finds the signal.
(00:00) Intro & Themes in Focus
(01:50) Market Resilience Amidst Turbulence
(08:12) Nvidia Back on Top
(13:18) Trump's Influence on Monetary Policy
(25:18) Geopolitical Tensions and Market Reactions
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
End of the week and another busyone indeed.
So this is actually hitting youryour inboxes or your your
earbuds on Saturday just to giveus time because we're recording
this pretty late on the Friday. But yeah, couple of things to
unpack We're going to talk aboutthe NASDAQ 100 has hit a fresh
record high this week and indeedall U.S. stocks higher.
(00:23):
So despite everything you're probably reading in mainstream
media and on Twitter or XI should say, things are actually
looking super positive. But why is that?
And we'll have a look at the thespeed of the recovery that we've
had and why. And then we have had Donald
Trump again shooting his shots at our our dear friend Jerome
(00:46):
Powell. And this time it actually did
move markets. So we were talking just the
other week about how it's almostlike traders seem to look
through the noise when it comes to Trump a lot of the time.
So why is it that these commentsand this idea of a shadow chair,
what is that? Who could that be?
(01:06):
What does that mean for markets and why did they react?
We're going to explain or attempt to.
And then finally, I thought justinteresting at the very
beginning of the week, you probably would have thought what
was an escalation because late Ithink on Monday UK time, Iran
started firing missiles at AUS base in Qatar.
And you would have thought, right, I'm long oil.
(01:27):
And in fact, you would have beenthe wrong side of the biggest
one day fall in nearly three years.
So go figure. But yeah, there's definitely a
rationale as to why traders saw it that way and a good some good
lessons or takeaways as how to interpret news and analysis in
that respect. But Piers, perhaps let's start
(01:48):
with the equity markets and there's, I know there's been a
couple of things happening with US commerce secretary saying
stuff and deals with China and data.
So what's been fueling this latest push up?
Yeah. So we are new all time highs
baby, NASDAQ and I would imagine, well the S&P 500 is
going to open in 5 minutes, lessthan 5 minutes time as I'm
(02:10):
talking and I would imagine it'sgoing to open at an all time
high. So backs back stocks back to the
top. I mean, European stocks had
already made new all time highs few weeks back.
So really this is the the the UStrying to play a bit of catch up
here. But yeah, I mean, I mean,
firstly, it's well, why did theysell off?
Obviously back in April was because of tariff risk.
(02:33):
And that tariff risk has gone away.
And that's because Trump's in deal mode.
And apparently, I mean, he says the China deal signed.
I mean that's it, zero detail other than that.
But he says, yeah, it's signed. I mean that I think the deadline
to get it done was is net in a couple of weeks time.
(02:54):
So I don't know what I don't understand that if they've
signed it well, then it's finalized and why aren't we
hearing the detail? So yeah, I think this is
connecting the dots. I think what's happened is
they've confirmed what they had previously confirmed, which was
the first phase, the light touchon specific parts, not on
overall trade deals. So they finalized the
(03:15):
understanding ahead of the July 9th deadline when the reciprocal
tariffs were take effect. Yeah.
So, I mean, look, I don't think anything's particularly changed
in that we've, I think markets have been in pretty positive
mood for weeks and that's off the basis that a deal's going to
get done, right. And so fine, it's kind of more
(03:36):
moving in that direction, which is obviously good.
And then? Also, Europe, don't forget
there. And this week, the Treasury
Department the US announcing a deal with G7 allies to exclude
U.S. companies for some taxes imposed by other countries in
exchange for removing the revenge tax proposal from
(03:59):
Trump's tax bill. Yeah.
So look that again, that indicates movement.
And so, you know, this is all positive continuation of the
positive sort of idea that this tariff thing isn't going to be
much of a thing. And So what are you, what are
you left with then? Well, you're left with an
underlying pretty resilient economy in the US.
(04:22):
You're left with, you know, Europe looking to kind of boost
fiscal spending around defence, which is a little bit of a sort
of fiscal stimulus in a way so that bats are positive.
Obviously, you got the geopolitical stuff that's
flaring up periodically, but thelatest flare up, we'll talk
about it in a minute. But you know, that's kind of
flared back down, right? So that's kind of gone away as
(04:45):
well. And so, you know, you're left
with the idea that the Fed are going to cut rates at least
twice. And then now finally, we'll talk
in detail. But you know, this Trump shadow
cabinet thing, does that mean a more accelerated rate cutting
agenda? All of these things are positive
for stocks, which is what's helping them along their way.
(05:07):
Yeah. And there were a few economic
data points probably supporting that narrative as we'll talk
about the shadow council potentially leading towards a
more dovish perspective of markets on future rates.
But couple here, 3 this week. Consumer spending grew in the
first quarter, weakest pace since the onset of the pandemic.
(05:29):
GDP slid at a downwardly revised0.5% annualized rate.
And then thirdly, recurring applications for unemployment
benefits rose to their highest since 2021.
So couple of things there. But one thing it was the, of
course, you had lots of Fed officials talking as well.
(05:50):
They seem to be making quite clear that look, as per pal,
like there's still a lot up in the air here.
We don't know if inflation's going to go up in any way
persistently. So, yeah, the Fed is sticking to
their guns. The markets decided to shift.
That's right. And you know, I think that some
(06:11):
of that data then, right, So let's dive in there.
So that initial jobless games thing worse since 2011 to 2021,
right And so that's a bit of a lead indicator I would say.
So that that gets reported and measured every week.
So potential kind of lead indicator that you're getting
more softening in the labor market, which suggests a slight
(06:32):
loss of momentum from a growth perspective, backed up by that
downwardly revised GDP figure, right.
So all this stuff is kind of indicating a potential slight
loss in momentum, which means great more cuts.
So you you kind of from a stock market point of view, again,
it's like the gold. Do we talk about this Goldilocks
scenario where, you know, the economy is just coming off the
(06:56):
boil a little bit, but not not too much that we freak out and
panic about, you know, sharp downturn, recession, right?
It's just kind of a a mild slow down.
And then you get the rate cuts coming in, in a more accelerated
agenda possibly, in which case, yeah, you get your stock markets
boosting higher. And when And look, we're going
to get it's the end of the quarter here, right?
(07:17):
This is the final trading day. Oh, no, sorry.
Monday, the 30th of June will bethe final day of the quarter.
So then we're into earnings season and you know, ultimately
for a stock market, you know, inthe end earning season is, is
what it's all about. And, and look, when you look at
the big, the big boys, the S&P 5hundreds and the Nasdaqs, then
their earnings are looking pretty strong.
(07:38):
And we're expecting like we're looking at their Q like.
So in Q1 revenues were up 9.6%. We're expect or sorry, earnings
profits were up 9.6% in Q1. We're expecting the same again
in Q2, meaning that profit growth is really solid.
And so, you know, if you're getting solid profit growth at a
corporate level, if you're getting a more accelerated rate
(08:00):
cut agenda from the Fed and the economy just losing a touch of
momentum, but not too bad, then that's a recipe for a nicely
climbing stock market. And within that, one of the ones
I saw was NVIDIA shares. They've they've stopped
Microsoft off once once more. It's almost like the the head
(08:22):
tortoise and the hair, isn't it?It's like video tends to come
and go. Microsoft suicide just plodding
along to final destination. But yeah, I saw that.
One thing you mentioned there that I read as well was NVIDIA
trades at 31.5 times expected 12month earnings.
For context below, it's 10 year average.
(08:43):
And actually, that's not that far from the Nasdaq's multiple
of 27 and in combination with big tech seemingly hasn't
dramatically pulled back on AI infrastructure.
China tensions seemingly don't seem to be impacting that
company. As to the extent perhaps that we
might have first thought. This week, we had the
(09:04):
shareholder meeting at NVIDIA. And of course, Denson Huang,
who's the best at doing this, was talking about how demand
remains really strong. So yeah, I think underneath
there, yeah, it's a pretty impressive chart I'm looking at
here at NVIDIA shares. It's extraordinary.
Yeah, that rally there, I mean, that is sharp.
(09:25):
And I was, I was, well, I was actually at Nomura this morning.
I was running a summer intern program for their markets
interns. And someone was trying to put
forward the case that big tech in the US, it's a bubble and
it's going to burst, right? And I was firstly saying, well,
that's a, that's a brave opinion.
(09:47):
But then I was kind of floating exactly what you're saying and
they were saying, oh, look, it'slike the tech bubble back in
2000. It's not from a valuation point
of view. You know, Nvidia's valuation,
It's not like it's not that it'sit's I mean, relatively normal
for a fast growing tech firm, right?
(10:07):
It's not outlandish in any way. And that's off the back of a 50%
rally, right? And still their multiples aren't
outlandish. So that that that rally we see
because look back in off the back of the obviously the the
Liberation Day stuff sell off inApril, NVIDIA traded down to
(10:28):
$94.00. It's now 156 like bang straight
line two months just and what did you say?
You were telling me the what wasthat in market cap dollar terms
that was that like 1 1/2 trillion dollars, it's added to
market cap in the space of like 4 weeks something?
Crazy. Yeah.
To become. Yeah.
(10:49):
I remember panicking topping up my SIP at and they were trading
at 100 and I was thinking oh I should have got in at 97.
You can never pick the bottom. That's a hello trade.
If you loaded up at a hundreds, yeah, you're.
Well, look, this is an investment advice, but.
(11:10):
The the. One thing here then just to
summise this segment is that, oh, I had a look at some
analysis interestingly that Bloomberg put out because as you
said, we're coming to the end ofthe calendar quarter.
So you tend to sort of get a lotof these pieces where they look
at the performance over a periodand look at that as as in
context to the history. And over the past 100 years,
(11:33):
it's 100 years, the S&P 500 has dropped 10% and rebounded.
So you mentioned the tariffs dropped 10% and rebounded to
gain with the same calendar quarter.
So it's got to do it in that same calendar quarter period.
It's only done that three times in the last 100 years what we've
(11:54):
just lived through. So I think it's because it's
almost like kind of feels like we've acclimatized now to this
extreme bolts of volatility. But this is 1 only the third
time in 100 years. This is one of those.
This quarter is quite exceptional then, so the S&P 500
has erased its losses and now isshooting toward the second
(12:15):
biggest percentage point recovery in history.
The only one that's beaten that?The 1929 Great Depression.
It's madness, isn't it? It is mad.
I mean, look, part part of that,part of that is the fact that
Liberation Day was two days intothe quarter.
(12:39):
So just from the, just from. The calendar.
Point of view, don't give me that.
Don't give me that it's been it has been a the mother of all by
the dips and actually when that dip was happening, I mean, even
I was definitely thinking this feels like the most dangerous by
the dip situation I've seen for a long time.
(13:04):
How wrong was that opinion? Because it's just been yeah, off
the springboard and and back through the stratosphere.
So yeah, the buy the dip mode isis still here.
OK, well, look, let's talk aboutthe the US dollar.
We've talked about this alone inrecent weeks, but one thing I
(13:24):
saw was the Bloomberg Dollar index fell to a three-year low.
And that move, obviously, it's not just happening on one
headline, but it did come amid President Trump saying may
replace Fed Chair Jerome Powell as soon as September.
His term doesn't officially finish till May 2020.
Sixth, there's a bit of nuance behind what this actually means.
(13:47):
But yeah, maybe we could just talk about this one.
And and the markets moved here. The dollar weakened, Treasury
yields dropped. People were accelerating their
rate cut bets in the short end of the market.
So why this time? I think it's quite a bit because
of this shadow cabinet idea. That's why the the, the setup
(14:11):
for Trump hasn't changed. He's got a trillion dollars of
debt that he needs to roll over and refinance in the next 12
months. Interest rates are, you know, 4
1/2 percent. It's very high.
It's going to be very expensive.And he really desperately wants
(14:31):
to roll over this debt at lower rates.
So he needs rate cuts. Powell's not having any of it.
And the problem is he can't sackPowell.
So the Supreme Court has ruled on that He can't get rid of
Powell before the end of his term.
The end of his term is not untilMay 2026, but he can't afford to
wait until May 2026 because he'sgot a roll over this debt
(14:53):
between now and then. So this is kind of his late
alert. He's tried the verbal tactic of
abuse and let's definitely use that word because that's what it
is. He's been abusing Powell,
calling him NUM, NUM skull. And I mean, like all the words
you can think of right calling for.
(15:14):
I think he was saying he wanted 100 basis point cuts.
Then it was 200 basis points. I think he's I think Trump's at
250 basis points of cuts that hewants now.
So, So what does he do? Well, he's this this kind of
shadow cabinet idea. And by the way, this isn't just
suddenly brand new thing, an idea that's come out this week.
The shadow cabinet thing has been an idea that's been in the
(15:37):
background for for a while. It's never, well, correct me if
I'm wrong, I don't know actually, I certainly never
happened in my time. I've never it's seen or I've
never seen a shadow cabinet scenario ever before.
Is that true? There is a, there's a times
shadow MPC that exists times in the UK.
(15:59):
And what that is, is former members, influential people,
economists at banks and they have a meeting a few days a week
before the actual official 1. And that's supposed to give you
a bit. It used to back in the day, give
you some signals. What I think here is this is
kind of an unofficial term, right, that we're using with the
shadow idea. I think it's genius.
(16:23):
Trump is doing I I. Agree.
The rules are saying he can't, he can't replace him and he's
accepting that. And whilst the stock market
we've just described is at record highs, remember before
there's obvious, there's the Taco trade.
Now what's the key component of the Taco trade?
While stocks need to tank, of which they were before, you
(16:44):
remember, then the yields moved and tweaked, getting more
expensive on that debt pile. And then he's flipped it and we
had the Taco trade, right, IE, you know, Trump chickened out
and the market reversed. Markets are, you know, are up
now. So that gives him confidence to
to, you know, pull out the numbskull.
But then, you know, you get to deflect some of this economic
(17:08):
slowdown. Those data points we've had this
week were quite negative. I'd just be like, you know,
that's obviously powerful because he's not taking action
here. Stock markets, you know, going
up. So I can be pretty heavy with
that. And then yeah, it just it allows
you to undermine the credibility, the influence of
Powell because as a market participant, I have to sell,
(17:31):
start pricing in earlier the newreplacement.
Exactly and. The new replacement, even though
he has not in the job for several months or her Powell
becomes a bit of a moot point then.
It doesn't matter what he says. So who are these other people
then? Well, so hang on then.
So let me go through the shortlist.
There's four that, that the media is the media shortlist.
(17:54):
There's not Trump's shortlist, right?
But I we're kind of assuming it's a pretty decent list.
But you know, I, I think that's right.
It's kind of that transition of a new Fed chair.
It's an uncertainty for the market, right?
Because right. Who is this person?
What's their background? Are they dovish?
Are they hawkish? You know, what do we do?
We expect the interest rate trajectory to change with a new
(18:19):
Fed chair. And normally you've got to wait
until they start the job and right then you kind of see, OK,
or they've been at the Fed before, like powers at the Fed
before becoming Fed chair. So it's a bit of a known
quantity there. But but I think this is great in
that it gives you that that kindof on ramp.
It's a bit weird. They're operating in parallel to
(18:41):
the actual Fed. So let's be clear, the shadow
Fed cannot change interest rates, but markets can start
pricing their pricing in the shadow Fed's rate trajectory
rather than the real Fed's rate trajectory because Powell's
going to rotate off. So I actually think it's really
clever, but he needs Trump now, needs the shadow Fed to be
(19:06):
really dovish. So who's he going to appoint?
Right. Just to be clear, it's not a
shadow council, it's a shadow chairman.
Yeah, sorry, that's right. Yeah.
So it's just one individual. So that's an important point,
right, Because that FOMC committee that sets interest
rates is that's a democratic situation.
You know, you can't have a new Fed come in and just they do
(19:27):
whatever they want. So that's to be factored in.
But right, who So who who does Trump want?
And so there's the the shortlistare Scott Besson, current
Treasury Secretary. You've got Kevin Walsh, who was,
well, I'll go through in a bit more detail on each in a second.
You've got Kevin Wash, You've then got another Kevin, Kevin
(19:48):
Hassett, and then you've got a guy called Christopher Waller.
He's your lineup now. Besant then.
So obviously we know about him. He's the Treasury Secretary.
What you might not know about him, he was a hedge fund manager
before he became Treasury Secretary.
He used to work for the Soros George Soros Fund, very
successful there at the Soros Fund to the point where he then
(20:11):
span out and set up his own fund.
Which was called or is called Key Square Capital.
OK, so that's his fund. Now.
What has his track record been like since he kind of went solo
and actually not particularly good to start with.
He launched it in 2015 and through till COVID kind of
underperformed. But post COVID he really came to
(20:32):
life. And actually in 20/22 he had a
29% return. Why?
Because he correctly bet that inflation would overshoot.
So he's kind of got this. He seems to be, he seems to have
a really insightful sort of way of predicting inflation.
You would say better than the Fed because the Fed cocks that
(20:53):
up entirely back in 2022, they just where they were talking
about it's going to be transitory.
They waited wait till too long to start hiking.
So Besson called it. And so maybe seems to have a
better handle on inflation, which I think's interesting.
But actually his funders, it hasn't done that well because of
that track record pre COVID where they underperformed.
(21:14):
He had, he had five billion under management in 2017, kind
of post launch, 5 billion. By the end of 2023, it was down
to 600 million, not from losses,but from people pulling their
money out. So, yeah, he's had a good year
in 20/22. He had a great career at Soros
Fund, but it's kind of been petering out.
(21:36):
So I think that's kind of it wasgood timing for him to kind of
take on that role of Treasury Secretary in Trump's
administration. So it could be an interesting
one. Obviously, Trump would have to
find a new Treasury Secretary ifBesant goes that way.
So that's that would be a headache.
These others then. Well, Kevin Walsh, the media
putting forward, I don't think this is going to happen.
So he served as Fed governor 2006 to 2011, OK, during the
(22:00):
financial crisis as well. He was one of the Fed governors.
But he's typically quite hawkish.
So for me, I mean, Trump is not going to appoint a generally
hawkish person. So I think you can eliminate
Kevin Walsh purely on that. Kevin Hassett then he's got he's
more in there. So a past chair of the Council
(22:22):
of Economic Advisers, you know, really hardcore economists,
right? So economic theory is this
thing. He's currently the National
Economic Council director. And he spent some time with the
Fed as an economist, so an economic adviser to the Fed
board. And he's quite tight with Trump,
quite tight with the inner circle.
(22:43):
So could be a potential pick. And then Christopher Waller, a
monetary economist, former SaintLouis Fed research chief, known
to be, well, he's been dovish inthe past, but actually was
hawkish when the inflation crisis began in 2022, seemed to
call that inflation spike early.But he's typically dovish.
(23:04):
So he could be an interesting one as well.
So yeah, I'd, I'd say it's it's,it's probably Hassett, Waller or
Besson in mine. Yeah, I'll, you know, if you're
watching the video version of this, I'll put a chart on the
screen and you can see here basically scores that are based
on a natural language processing.
(23:24):
So NLP to evaluate members, public comments on a scale of
dovishness to hawkishness and a headline of frequency.
And you can see there's one person sticks out on the far
left. Walla in isolation, absolutely
no friends at all is Walla quitedistinctly dovish.
(23:45):
And this is the context of the here and now.
So, like you said, may have beena bit of shifting in the past,
but presently SAT and, you know,it's such an interesting
intersection of politics and economics because if I was
Waller, you know, think what youmay have Trump, but this is my I
could, you know, this could be alittle side door here where I
can jump in and and fulfil my ambitions of becoming the Fed
(24:09):
chair. So what's the cost of that?
Well, it's the cost of like Elonpaid the cost, but it's, you
know, it's bad for the ambitious.
I think you're right. I think Waller that I actually
think he's probably the best pick for Trump in terms of Trump
getting what he wants. So installing that shadow Fed
(24:30):
chair, Waller, who then carries on being really dovish, but his
comments become much more marketimpactful because he's incoming
Fed chair. And then, yeah, the idea being
as soon as he gets in and, you know, heading up that FOMC, then
he really tries to set forth a much more accelerated rate
(24:50):
cutting agenda. So and look, that's that's why
the dollar is weakening. It has moved markets.
This that's why stocks are new highs, right?
It it's because markets are really starting to wake up to
the idea that this Trump could actually pull this off in terms
of getting yields down in order to, you know, refinance lower
(25:15):
interest rates. Cool.
OK, well, let's let's move on tothe last one.
And I think last episode in fact, we were talking about kind
of all of the the satellite images and things we could track
from Iranian infrastructure because at the time, if you
remember, it was pending that they were going to attack.
So one thing in retrospect that's a good take away from
(25:36):
that is when you have sources familiar with the matter
reported by the FT or Bloomberg,it's as good as gold like that's
going to happen. So that preparation needs to
take place at that point. You can never pin the exact time
of the strike because you don't have that level of intelligence,
but you can definitely start to synopsize of what could happen
(25:57):
and, you know, build out your scenarios and so on.
One of the things here then was that it looked like, I mean, I
remember I got alerts on my watch and it was like Iran bombs
US base is all it says. And I was like, and I was like
quickly, like jump on my phone, what is going on here?
So I'll walk you through the headlines as they came out with
(26:19):
the time stamps. So 5:30 PM Monday, Iran started
firing missiles at AUS base in Qatar. 7 minutes later, oil
traders then took it upon themselves.
So within a matter of minutes essentially is the take away
started selling Yeah now. In your head.
(26:42):
You'd be like, right, Surely they've Iran's committed the
ultimate sin here. This is going to be all Hell's
going to break loose. Now they've attacked AUS base
and actually crude dropped over 7% and that was on the biggest
one day falls in nearly three years.
So I had a lot of questions frompeople asking me at the time,
(27:04):
like why and things like that because they're not following
this stuff so intently. But perhaps we could sort of
unpack a little bit of, yeah, what was going on, I mean.
Firstly, this is highly unusual.I, I can't actually really ever
remember a scenario like this where you know, essentially you
(27:25):
get then the next the retaliatory action that leads to
a sharp collapse in oil prices and, and I think.
So you got to go. You got to go deeper, right?
It does completely make sense when you piece it together
because this was one of the mosttelegraphed, one of the weakest
(27:48):
possible retaliations that couldhave possibly happened.
It was so weak and so telegraphed, as in they warned
the US well in advance. Then they sent 14 rockets.
Obviously the Rockets are going to get shot down and it's going
to cause 0 damage. So the point is it was Iran just
kind of ticking that box of we need to retaliate, you know,
(28:11):
we've been hit, we need to retaliate back.
But it was basically them saying, you know, we're going to
do the least we possibly can to obviously therefore avoid this
thing escalating. Because, look, if they'd have
gone much bigger and if bombs had hit the air base and
actually damage done and dare I say, kind of U.S. military
(28:33):
personnel casualties, well then,right, oil would have gone the
other way, right? But none of that happened.
And so it was just a token gesture, meaning that we could
start to be more confident that this was the end to the matter
and that it's not going to escalate.
And actually the opposite. This whole thing's going to
start to de escalate and the deal's going to get done.
(28:55):
So that that's what happened. Yeah.
Now. This is like a key difference.
I always try to explains people about difference between traders
who are on the sharp end of access to information via
technology often and access through monetary means to access
big data sets, advanced satellite imagery as compared to
(29:18):
your retail punter at home who'strying to trade this thing with
second hand information. Because yeah, I was looking at
one of these graphics of satellite images that were shot
of one of the the main air base in Qatar.
And actually, I used to see these all the time when I used
to work on my old desk. And it'd be you literally
looking at planes parked on the runway.
(29:38):
And if are they there? Are they not?
And you can track that stuff in pretty real time if you have
access to the right services. And you could see that basically
all of the entire place have been evacuated.
And so, yeah, there's this little hints that you get.
And I think I was, I guess standing back and looking
objectively and simplifying massively critical
(30:00):
infrastructure was avoided in a strategic retaliatory response.
Is the stray of Hormuz damaged or blocked or impeded?
No. Yeah.
And so that's that's the the theworst thing has not materialized
or the most obvious thing that you would have thought.
And so anything other than that is not as serious in terms of
(30:21):
the level of escalation to take it over and above.
So yeah, one thing I on the Straits of.
Hormuz sorry just to jump in there.
It's the the reason why oil wentup in the first place.
Was pricing. In a risk that there would be
some disruption in the Straits of Hormuz, which is where a huge
(30:42):
amount of that, you know, Kuwaiti, Iranian, Iraqi, Saudi
Arabian oil kind of get shipped through, right?
That, that was the risk. That's why oil went up pricing
in a higher likelihood. That happens.
Basically this episode, Iran could have chosen to retaliate
by disrupting the Straits of Hormuz.
(31:04):
They chose not to. They chose this tiny little
almost token gesture thing, meaning we could properly price
out the risk of a disrupted disruption event in the Straits
of Hormuz. So prices came back down because
we don't think that's going to happen though.
Constraints interesting because it also compromises their
relationship with one of their key allies, which is China, who
(31:24):
are also dependent of trade outside of just commodities.
So one thing then so a few I I kind of summarized in a piece I
did earlier in the week and maybe I could just go through
that to to conclude so a few take away lessons here 1 is
think with your financial markets hat on, not with your
normal consumer head on when you're reading watching the news
(31:46):
because it looked terrible what was unfolding and my oil was
going complete having the complete and different
interpretation situation. The other things are where does
information come from? Because I think a lot of people
naive think, yeah, I just look at my Bloomberg Terminal.
Bloomberg's the master of all universe of information flow and
(32:06):
data analytics. But I can tell you this for
sure, Bloomberg is not even worth switching on for this type
of information. It's just not built for it.
It's not really their domain, their niche.
If you like, this is where you go to like we said last week,
S&P Platts and you have very sophisticated real time
(32:27):
information metrics, visual cues, satellite imagery.
This is where you can track thatthat stuff.
And social media is surprisinglygood.
I was talking to some other trader friends.
They're all looking at social media as well to get signals and
signs of of things because you get a lot of on the ground
coverage that's unedited, not gone through an editorial
(32:48):
process. So it's much faster from speed
perspective. So that's 12 mark is a
forward-looking. So yeah, the missile strike, you
know, wasn't priced on a motion,it's priced on what traders
believe is going to happen next at the critical point.
So risk is falling as you described.
The next one is about if the Straits of Hormuz is deemed
(33:11):
safe, then the traders looking to pivot back to the the actual
underlying fundamentals of oil. At the moment, OPEC, a, you
know, increasing supply, there'san oversupply, there's weak
demand. We just said the US economy, if
anything is slowing, so oil should be lower.
This is almost like an artificially stimulated price
that's that fundamentally shouldbe lower.
(33:33):
So once risk premium is off, fundamentals are on, so to
speak, and you get this reversion back to the mean.
And then don't don't forget the.Oils, yeah, as you say, it's
been trending down for two years.
This is like a little one month sideshow as this Iranian thing
happens. Not even a month, sorry, what am
(33:54):
I talking about? A week where it's kind of
plipped higher and then it's back.
Basically we're back now, as yousaid, as you were, you know, and
that was a downtrend, so I thought.
This was going to turn into the Oasis warm up for for the for
the August tour in the UK. But yeah, then my my final point
was disentangling noise from consequence.
(34:17):
And what I mean from this was, yeah, cutting through that head,
those headlines, has the straight been blocked or
damaged? And understanding the greater
thing that's going on here, Iran's relationship with China,
I mentioned. But also think diplomatically
for Israel, if they're to start to be a catalyst to cause such a
consequence if the Strait of Hormuz gets blocked, that's a
(34:41):
major problem globally. Economically, the this, you
know, it's right up there. And that throws every part of
our conversation about future interest rates out the window.
Then 100%. So.
They're not going to, you know, you would think the probability
of them, you know, getting to that point of causing that type
of level of retaliation is, is is lower in terms of its
(35:04):
prospects. So yeah, main thing is, I guess
to conclude, I'd say on my side,curiosity over certainty and
insight over instinct. Nice.
Like it inside over instinct. I'm yeah, I'm going to use that.
As you did, you come up. With that, you've lifted that
(35:24):
off ChatGPT. Yes, hey, I'm just using the
tools available at my disposal. You can't blame me for that.
I'm good on that note. All right, thanks very much
everyone, everyone for for listening.
(35:45):
I do know if you're watching this on YouTube and you've made
it through to the end, I think recently about 40% of the people
that watch are not subscribed. So make sure you hit that
subscribe button and we've got weekly content coming at you.
So let's go enjoy your weekend. See you later.
End of the week and another busyone indeed.
So this is actually hitting youryour inboxes or your your
earbuds on Saturday just to giveus time because we're recording
this pretty late on the Friday. But yeah, couple of things to
unpack We're going to talk aboutthe NASDAQ 100 has hit a fresh
record high this week and indeedall U.S. stocks higher.
(00:23):
So despite everything you're probably reading in mainstream
media and on Twitter or XI should say, things are actually
looking super positive. But why is that?
And we'll have a look at the thespeed of the recovery that we've
had and why. And then we have had Donald
Trump again shooting his shots at our our dear friend Jerome
(00:46):
Powell. And this time it actually did
move markets. So we were talking just the
other week about how it's almostlike traders seem to look
through the noise when it comes to Trump a lot of the time.
So why is it that these commentsand this idea of a shadow chair,
what is that? Who could that be?
(01:06):
What does that mean for markets and why did they react?
We're going to explain or attempt to.
And then finally, I thought justinteresting at the very
beginning of the week, you probably would have thought what
was an escalation because late Ithink on Monday UK time, Iran
started firing missiles at AUS base in Qatar.
And you would have thought, right, I'm long oil.
(01:27):
And in fact, you would have beenthe wrong side of the biggest
one day fall in nearly three years.
So go figure. But yeah, there's definitely a
rationale as to why traders saw it that way and a good some good
lessons or takeaways as how to interpret news and analysis in
that respect. But Piers, perhaps let's start
(01:48):
with the equity markets and there's, I know there's been a
couple of things happening with US commerce secretary saying
stuff and deals with China and data.
So what's been fueling this latest push up?
Yeah. So we are new all time highs
baby, NASDAQ and I would imagine, well the S&P 500 is
going to open in 5 minutes, lessthan 5 minutes time as I'm
(02:10):
talking and I would imagine it'sgoing to open at an all time
high. So backs back stocks back to the
top. I mean, European stocks had
already made new all time highs few weeks back.
So really this is the the the UStrying to play a bit of catch up
here. But yeah, I mean, I mean,
firstly, it's well, why did theysell off?
Obviously back in April was because of tariff risk.
(02:33):
And that tariff risk has gone away.
And that's because Trump's in deal mode.
And apparently, I mean, he says the China deal signed.
I mean that's it, zero detail other than that.
But he says, yeah, it's signed. I mean that I think the deadline
to get it done was is net in a couple of weeks time.
(02:54):
So I don't know what I don't understand that if they've
signed it well, then it's finalized and why aren't we
hearing the detail? So yeah, I think this is
connecting the dots. I think what's happened is
they've confirmed what they had previously confirmed, which was
the first phase, the light touchon specific parts, not on
overall trade deals. So they finalized the
(03:15):
understanding ahead of the July 9th deadline when the reciprocal
tariffs were take effect. Yeah.
So, I mean, look, I don't think anything's particularly changed
in that we've, I think markets have been in pretty positive
mood for weeks and that's off the basis that a deal's going to
get done, right. And so fine, it's kind of more
(03:36):
moving in that direction, which is obviously good.
And then? Also, Europe, don't forget
there. And this week, the Treasury
Department the US announcing a deal with G7 allies to exclude
U.S. companies for some taxes imposed by other countries in
exchange for removing the revenge tax proposal from
(03:59):
Trump's tax bill. Yeah.
So look that again, that indicates movement.
And so, you know, this is all positive continuation of the
positive sort of idea that this tariff thing isn't going to be
much of a thing. And So what are you, what are
you left with then? Well, you're left with an
underlying pretty resilient economy in the US.
(04:22):
You're left with, you know, Europe looking to kind of boost
fiscal spending around defence, which is a little bit of a sort
of fiscal stimulus in a way so that bats are positive.
Obviously, you got the geopolitical stuff that's
flaring up periodically, but thelatest flare up, we'll talk
about it in a minute. But you know, that's kind of
flared back down, right? So that's kind of gone away as
(04:45):
well. And so, you know, you're left
with the idea that the Fed are going to cut rates at least
twice. And then now finally, we'll talk
in detail. But you know, this Trump shadow
cabinet thing, does that mean a more accelerated rate cutting
agenda? All of these things are positive
for stocks, which is what's helping them along their way.
(05:07):
Yeah. And there were a few economic
data points probably supporting that narrative as we'll talk
about the shadow council potentially leading towards a
more dovish perspective of markets on future rates.
But couple here, 3 this week. Consumer spending grew in the
first quarter, weakest pace since the onset of the pandemic.
(05:29):
GDP slid at a downwardly revised0.5% annualized rate.
And then thirdly, recurring applications for unemployment
benefits rose to their highest since 2021.
So couple of things there. But one thing it was the, of
course, you had lots of Fed officials talking as well.
(05:50):
They seem to be making quite clear that look, as per pal,
like there's still a lot up in the air here.
We don't know if inflation's going to go up in any way
persistently. So, yeah, the Fed is sticking to
their guns. The markets decided to shift.
That's right. And you know, I think that some
(06:11):
of that data then, right, So let's dive in there.
So that initial jobless games thing worse since 2011 to 2021,
right And so that's a bit of a lead indicator I would say.
So that that gets reported and measured every week.
So potential kind of lead indicator that you're getting
more softening in the labor market, which suggests a slight
(06:32):
loss of momentum from a growth perspective, backed up by that
downwardly revised GDP figure, right.
So all this stuff is kind of indicating a potential slight
loss in momentum, which means great more cuts.
So you you kind of from a stock market point of view, again,
it's like the gold. Do we talk about this Goldilocks
scenario where, you know, the economy is just coming off the
(06:56):
boil a little bit, but not not too much that we freak out and
panic about, you know, sharp downturn, recession, right?
It's just kind of a a mild slow down.
And then you get the rate cuts coming in, in a more accelerated
agenda possibly, in which case, yeah, you get your stock markets
boosting higher. And when And look, we're going
to get it's the end of the quarter here, right?
(07:17):
This is the final trading day. Oh, no, sorry.
Monday, the 30th of June will bethe final day of the quarter.
So then we're into earnings season and you know, ultimately
for a stock market, you know, inthe end earning season is, is
what it's all about. And, and look, when you look at
the big, the big boys, the S&P 5hundreds and the Nasdaqs, then
their earnings are looking pretty strong.
(07:38):
And we're expecting like we're looking at their Q like.
So in Q1 revenues were up 9.6%. We're expect or sorry, earnings
profits were up 9.6% in Q1. We're expecting the same again
in Q2, meaning that profit growth is really solid.
And so, you know, if you're getting solid profit growth at a
corporate level, if you're getting a more accelerated rate
(08:00):
cut agenda from the Fed and the economy just losing a touch of
momentum, but not too bad, then that's a recipe for a nicely
climbing stock market. And within that, one of the ones
I saw was NVIDIA shares. They've they've stopped
Microsoft off once once more. It's almost like the the head
(08:22):
tortoise and the hair, isn't it?It's like video tends to come
and go. Microsoft suicide just plodding
along to final destination. But yeah, I saw that.
One thing you mentioned there that I read as well was NVIDIA
trades at 31.5 times expected 12month earnings.
For context below, it's 10 year average.
(08:43):
And actually, that's not that far from the Nasdaq's multiple
of 27 and in combination with big tech seemingly hasn't
dramatically pulled back on AI infrastructure.
China tensions seemingly don't seem to be impacting that
company. As to the extent perhaps that we
might have first thought. This week, we had the
(09:04):
shareholder meeting at NVIDIA. And of course, Denson Huang,
who's the best at doing this, was talking about how demand
remains really strong. So yeah, I think underneath
there, yeah, it's a pretty impressive chart I'm looking at
here at NVIDIA shares. It's extraordinary.
Yeah, that rally there, I mean, that is sharp.
(09:25):
And I was, I was, well, I was actually at Nomura this morning.
I was running a summer intern program for their markets
interns. And someone was trying to put
forward the case that big tech in the US, it's a bubble and
it's going to burst, right? And I was firstly saying, well,
that's a, that's a brave opinion.
(09:47):
But then I was kind of floating exactly what you're saying and
they were saying, oh, look, it'slike the tech bubble back in
2000. It's not from a valuation point
of view. You know, Nvidia's valuation,
It's not like it's not that it'sit's I mean, relatively normal
for a fast growing tech firm, right?
(10:07):
It's not outlandish in any way. And that's off the back of a 50%
rally, right? And still their multiples aren't
outlandish. So that that that rally we see
because look back in off the back of the obviously the the
Liberation Day stuff sell off inApril, NVIDIA traded down to
(10:28):
$94.00. It's now 156 like bang straight
line two months just and what did you say?
You were telling me the what wasthat in market cap dollar terms
that was that like 1 1/2 trillion dollars, it's added to
market cap in the space of like 4 weeks something?
Crazy. Yeah.
To become. Yeah.
(10:49):
I remember panicking topping up my SIP at and they were trading
at 100 and I was thinking oh I should have got in at 97.
You can never pick the bottom. That's a hello trade.
If you loaded up at a hundreds, yeah, you're.
Well, look, this is an investment advice, but.
(11:10):
The the. One thing here then just to
summise this segment is that, oh, I had a look at some
analysis interestingly that Bloomberg put out because as you
said, we're coming to the end ofthe calendar quarter.
So you tend to sort of get a lotof these pieces where they look
at the performance over a periodand look at that as as in
context to the history. And over the past 100 years,
(11:33):
it's 100 years, the S&P 500 has dropped 10% and rebounded.
So you mentioned the tariffs dropped 10% and rebounded to
gain with the same calendar quarter.
So it's got to do it in that same calendar quarter period.
It's only done that three times in the last 100 years what we've
(11:54):
just lived through. So I think it's because it's
almost like kind of feels like we've acclimatized now to this
extreme bolts of volatility. But this is 1 only the third
time in 100 years. This is one of those.
This quarter is quite exceptional then, so the S&P 500
has erased its losses and now isshooting toward the second
(12:15):
biggest percentage point recovery in history.
The only one that's beaten that?The 1929 Great Depression.
It's madness, isn't it? It is mad.
I mean, look, part part of that,part of that is the fact that
Liberation Day was two days intothe quarter.
(12:39):
So just from the, just from. The calendar.
Point of view, don't give me that.
Don't give me that it's been it has been a the mother of all by
the dips and actually when that dip was happening, I mean, even
I was definitely thinking this feels like the most dangerous by
the dip situation I've seen for a long time.
(13:04):
How wrong was that opinion? Because it's just been yeah, off
the springboard and and back through the stratosphere.
So yeah, the buy the dip mode isis still here.
OK, well, look, let's talk aboutthe the US dollar.
We've talked about this alone inrecent weeks, but one thing I
(13:24):
saw was the Bloomberg Dollar index fell to a three-year low.
And that move, obviously, it's not just happening on one
headline, but it did come amid President Trump saying may
replace Fed Chair Jerome Powell as soon as September.
His term doesn't officially finish till May 2020.
Sixth, there's a bit of nuance behind what this actually means.
(13:47):
But yeah, maybe we could just talk about this one.
And and the markets moved here. The dollar weakened, Treasury
yields dropped. People were accelerating their
rate cut bets in the short end of the market.
So why this time? I think it's quite a bit because
of this shadow cabinet idea. That's why the the, the setup
(14:11):
for Trump hasn't changed. He's got a trillion dollars of
debt that he needs to roll over and refinance in the next 12
months. Interest rates are, you know, 4
1/2 percent. It's very high.
It's going to be very expensive.And he really desperately wants
(14:31):
to roll over this debt at lower rates.
So he needs rate cuts. Powell's not having any of it.
And the problem is he can't sackPowell.
So the Supreme Court has ruled on that He can't get rid of
Powell before the end of his term.
The end of his term is not untilMay 2026, but he can't afford to
wait until May 2026 because he'sgot a roll over this debt
(14:53):
between now and then. So this is kind of his late
alert. He's tried the verbal tactic of
abuse and let's definitely use that word because that's what it
is. He's been abusing Powell,
calling him NUM, NUM skull. And I mean, like all the words
you can think of right calling for.
(15:14):
I think he was saying he wanted 100 basis point cuts.
Then it was 200 basis points. I think he's I think Trump's at
250 basis points of cuts that hewants now.
So, So what does he do? Well, he's this this kind of
shadow cabinet idea. And by the way, this isn't just
suddenly brand new thing, an idea that's come out this week.
The shadow cabinet thing has been an idea that's been in the
(15:37):
background for for a while. It's never, well, correct me if
I'm wrong, I don't know actually, I certainly never
happened in my time. I've never it's seen or I've
never seen a shadow cabinet scenario ever before.
Is that true? There is a, there's a times
shadow MPC that exists times in the UK.
(15:59):
And what that is, is former members, influential people,
economists at banks and they have a meeting a few days a week
before the actual official 1. And that's supposed to give you
a bit. It used to back in the day, give
you some signals. What I think here is this is
kind of an unofficial term, right, that we're using with the
shadow idea. I think it's genius.
(16:23):
Trump is doing I I. Agree.
The rules are saying he can't, he can't replace him and he's
accepting that. And whilst the stock market
we've just described is at record highs, remember before
there's obvious, there's the Taco trade.
Now what's the key component of the Taco trade?
While stocks need to tank, of which they were before, you
(16:44):
remember, then the yields moved and tweaked, getting more
expensive on that debt pile. And then he's flipped it and we
had the Taco trade, right, IE, you know, Trump chickened out
and the market reversed. Markets are, you know, are up
now. So that gives him confidence to
to, you know, pull out the numbskull.
But then, you know, you get to deflect some of this economic
(17:08):
slowdown. Those data points we've had this
week were quite negative. I'd just be like, you know,
that's obviously powerful because he's not taking action
here. Stock markets, you know, going
up. So I can be pretty heavy with
that. And then yeah, it just it allows
you to undermine the credibility, the influence of
Powell because as a market participant, I have to sell,
(17:31):
start pricing in earlier the newreplacement.
Exactly and. The new replacement, even though
he has not in the job for several months or her Powell
becomes a bit of a moot point then.
It doesn't matter what he says. So who are these other people
then? Well, so hang on then.
So let me go through the shortlist.
There's four that, that the media is the media shortlist.
(17:54):
There's not Trump's shortlist, right?
But I we're kind of assuming it's a pretty decent list.
But you know, I, I think that's right.
It's kind of that transition of a new Fed chair.
It's an uncertainty for the market, right?
Because right. Who is this person?
What's their background? Are they dovish?
Are they hawkish? You know, what do we do?
We expect the interest rate trajectory to change with a new
(18:19):
Fed chair. And normally you've got to wait
until they start the job and right then you kind of see, OK,
or they've been at the Fed before, like powers at the Fed
before becoming Fed chair. So it's a bit of a known
quantity there. But but I think this is great in
that it gives you that that kindof on ramp.
It's a bit weird. They're operating in parallel to
(18:41):
the actual Fed. So let's be clear, the shadow
Fed cannot change interest rates, but markets can start
pricing their pricing in the shadow Fed's rate trajectory
rather than the real Fed's rate trajectory because Powell's
going to rotate off. So I actually think it's really
clever, but he needs Trump now, needs the shadow Fed to be
(19:06):
really dovish. So who's he going to appoint?
Right. Just to be clear, it's not a
shadow council, it's a shadow chairman.
Yeah, sorry, that's right. Yeah.
So it's just one individual. So that's an important point,
right, Because that FOMC committee that sets interest
rates is that's a democratic situation.
You know, you can't have a new Fed come in and just they do
(19:27):
whatever they want. So that's to be factored in.
But right, who So who who does Trump want?
And so there's the the shortlistare Scott Besson, current
Treasury Secretary. You've got Kevin Walsh, who was,
well, I'll go through in a bit more detail on each in a second.
You've got Kevin Wash, You've then got another Kevin, Kevin
(19:48):
Hassett, and then you've got a guy called Christopher Waller.
He's your lineup now. Besant then.
So obviously we know about him. He's the Treasury Secretary.
What you might not know about him, he was a hedge fund manager
before he became Treasury Secretary.
He used to work for the Soros George Soros Fund, very
successful there at the Soros Fund to the point where he then
(20:11):
span out and set up his own fund.
Which was called or is called Key Square Capital.
OK, so that's his fund. Now.
What has his track record been like since he kind of went solo
and actually not particularly good to start with.
He launched it in 2015 and through till COVID kind of
underperformed. But post COVID he really came to
(20:32):
life. And actually in 20/22 he had a
29% return. Why?
Because he correctly bet that inflation would overshoot.
So he's kind of got this. He seems to be, he seems to have
a really insightful sort of way of predicting inflation.
You would say better than the Fed because the Fed cocks that
(20:53):
up entirely back in 2022, they just where they were talking
about it's going to be transitory.
They waited wait till too long to start hiking.
So Besson called it. And so maybe seems to have a
better handle on inflation, which I think's interesting.
But actually his funders, it hasn't done that well because of
that track record pre COVID where they underperformed.
(21:14):
He had, he had five billion under management in 2017, kind
of post launch, 5 billion. By the end of 2023, it was down
to 600 million, not from losses,but from people pulling their
money out. So, yeah, he's had a good year
in 20/22. He had a great career at Soros
Fund, but it's kind of been petering out.
(21:36):
So I think that's kind of it wasgood timing for him to kind of
take on that role of Treasury Secretary in Trump's
administration. So it could be an interesting
one. Obviously, Trump would have to
find a new Treasury Secretary ifBesant goes that way.
So that's that would be a headache.
These others then. Well, Kevin Walsh, the media
putting forward, I don't think this is going to happen.
So he served as Fed governor 2006 to 2011, OK, during the
(22:00):
financial crisis as well. He was one of the Fed governors.
But he's typically quite hawkish.
So for me, I mean, Trump is not going to appoint a generally
hawkish person. So I think you can eliminate
Kevin Walsh purely on that. Kevin Hassett then he's got he's
more in there. So a past chair of the Council
(22:22):
of Economic Advisers, you know, really hardcore economists,
right? So economic theory is this
thing. He's currently the National
Economic Council director. And he spent some time with the
Fed as an economist, so an economic adviser to the Fed
board. And he's quite tight with Trump,
quite tight with the inner circle.
(22:43):
So could be a potential pick. And then Christopher Waller, a
monetary economist, former SaintLouis Fed research chief, known
to be, well, he's been dovish inthe past, but actually was
hawkish when the inflation crisis began in 2022, seemed to
call that inflation spike early.But he's typically dovish.
(23:04):
So he could be an interesting one as well.
So yeah, I'd, I'd say it's it's,it's probably Hassett, Waller or
Besson in mine. Yeah, I'll, you know, if you're
watching the video version of this, I'll put a chart on the
screen and you can see here basically scores that are based
on a natural language processing.
(23:24):
So NLP to evaluate members, public comments on a scale of
dovishness to hawkishness and a headline of frequency.
And you can see there's one person sticks out on the far
left. Walla in isolation, absolutely
no friends at all is Walla quitedistinctly dovish.
(23:45):
And this is the context of the here and now.
So, like you said, may have beena bit of shifting in the past,
but presently SAT and, you know,it's such an interesting
intersection of politics and economics because if I was
Waller, you know, think what youmay have Trump, but this is my I
could, you know, this could be alittle side door here where I
can jump in and and fulfil my ambitions of becoming the Fed
(24:09):
chair. So what's the cost of that?
Well, it's the cost of like Elonpaid the cost, but it's, you
know, it's bad for the ambitious.
I think you're right. I think Waller that I actually
think he's probably the best pick for Trump in terms of Trump
getting what he wants. So installing that shadow Fed
(24:30):
chair, Waller, who then carries on being really dovish, but his
comments become much more marketimpactful because he's incoming
Fed chair. And then, yeah, the idea being
as soon as he gets in and, you know, heading up that FOMC, then
he really tries to set forth a much more accelerated rate
(24:50):
cutting agenda. So and look, that's that's why
the dollar is weakening. It has moved markets.
This that's why stocks are new highs, right?
It it's because markets are really starting to wake up to
the idea that this Trump could actually pull this off in terms
of getting yields down in order to, you know, refinance lower
(25:15):
interest rates. Cool.
OK, well, let's let's move on tothe last one.
And I think last episode in fact, we were talking about kind
of all of the the satellite images and things we could track
from Iranian infrastructure because at the time, if you
remember, it was pending that they were going to attack.
So one thing in retrospect that's a good take away from
(25:36):
that is when you have sources familiar with the matter
reported by the FT or Bloomberg,it's as good as gold like that's
going to happen. So that preparation needs to
take place at that point. You can never pin the exact time
of the strike because you don't have that level of intelligence,
but you can definitely start to synopsize of what could happen
(25:57):
and, you know, build out your scenarios and so on.
One of the things here then was that it looked like, I mean, I
remember I got alerts on my watch and it was like Iran bombs
US base is all it says. And I was like, and I was like
quickly, like jump on my phone, what is going on here?
So I'll walk you through the headlines as they came out with
(26:19):
the time stamps. So 5:30 PM Monday, Iran started
firing missiles at AUS base in Qatar. 7 minutes later, oil
traders then took it upon themselves.
So within a matter of minutes essentially is the take away
started selling Yeah now. In your head.
(26:42):
You'd be like, right, Surely they've Iran's committed the
ultimate sin here. This is going to be all Hell's
going to break loose. Now they've attacked AUS base
and actually crude dropped over 7% and that was on the biggest
one day falls in nearly three years.
So I had a lot of questions frompeople asking me at the time,
(27:04):
like why and things like that because they're not following
this stuff so intently. But perhaps we could sort of
unpack a little bit of, yeah, what was going on, I mean.
Firstly, this is highly unusual.I, I can't actually really ever
remember a scenario like this where you know, essentially you
(27:25):
get then the next the retaliatory action that leads to
a sharp collapse in oil prices and, and I think.
So you got to go. You got to go deeper, right?
It does completely make sense when you piece it together
because this was one of the mosttelegraphed, one of the weakest
(27:48):
possible retaliations that couldhave possibly happened.
It was so weak and so telegraphed, as in they warned
the US well in advance. Then they sent 14 rockets.
Obviously the Rockets are going to get shot down and it's going
to cause 0 damage. So the point is it was Iran just
kind of ticking that box of we need to retaliate, you know,
(28:11):
we've been hit, we need to retaliate back.
But it was basically them saying, you know, we're going to
do the least we possibly can to obviously therefore avoid this
thing escalating. Because, look, if they'd have
gone much bigger and if bombs had hit the air base and
actually damage done and dare I say, kind of U.S. military
(28:33):
personnel casualties, well then,right, oil would have gone the
other way, right? But none of that happened.
And so it was just a token gesture, meaning that we could
start to be more confident that this was the end to the matter
and that it's not going to escalate.
And actually the opposite. This whole thing's going to
start to de escalate and the deal's going to get done.
(28:55):
So that that's what happened. Yeah.
Now. This is like a key difference.
I always try to explains people about difference between traders
who are on the sharp end of access to information via
technology often and access through monetary means to access
big data sets, advanced satellite imagery as compared to
(29:18):
your retail punter at home who'strying to trade this thing with
second hand information. Because yeah, I was looking at
one of these graphics of satellite images that were shot
of one of the the main air base in Qatar.
And actually, I used to see these all the time when I used
to work on my old desk. And it'd be you literally
looking at planes parked on the runway.
(29:38):
And if are they there? Are they not?
And you can track that stuff in pretty real time if you have
access to the right services. And you could see that basically
all of the entire place have been evacuated.
And so, yeah, there's this little hints that you get.
And I think I was, I guess standing back and looking
objectively and simplifying massively critical
(30:00):
infrastructure was avoided in a strategic retaliatory response.
Is the stray of Hormuz damaged or blocked or impeded?
No. Yeah.
And so that's that's the the theworst thing has not materialized
or the most obvious thing that you would have thought.
And so anything other than that is not as serious in terms of
(30:21):
the level of escalation to take it over and above.
So yeah, one thing I on the Straits of.
Hormuz sorry just to jump in there.
It's the the reason why oil wentup in the first place.
Was pricing. In a risk that there would be
some disruption in the Straits of Hormuz, which is where a huge
(30:42):
amount of that, you know, Kuwaiti, Iranian, Iraqi, Saudi
Arabian oil kind of get shipped through, right?
That, that was the risk. That's why oil went up pricing
in a higher likelihood. That happens.
Basically this episode, Iran could have chosen to retaliate
by disrupting the Straits of Hormuz.
(31:04):
They chose not to. They chose this tiny little
almost token gesture thing, meaning we could properly price
out the risk of a disrupted disruption event in the Straits
of Hormuz. So prices came back down because
we don't think that's going to happen though.
Constraints interesting because it also compromises their
relationship with one of their key allies, which is China, who
(31:24):
are also dependent of trade outside of just commodities.
So one thing then so a few I I kind of summarized in a piece I
did earlier in the week and maybe I could just go through
that to to conclude so a few take away lessons here 1 is
think with your financial markets hat on, not with your
normal consumer head on when you're reading watching the news
(31:46):
because it looked terrible what was unfolding and my oil was
going complete having the complete and different
interpretation situation. The other things are where does
information come from? Because I think a lot of people
naive think, yeah, I just look at my Bloomberg Terminal.
Bloomberg's the master of all universe of information flow and
(32:06):
data analytics. But I can tell you this for
sure, Bloomberg is not even worth switching on for this type
of information. It's just not built for it.
It's not really their domain, their niche.
If you like, this is where you go to like we said last week,
S&P Platts and you have very sophisticated real time
(32:27):
information metrics, visual cues, satellite imagery.
This is where you can track thatthat stuff.
And social media is surprisinglygood.
I was talking to some other trader friends.
They're all looking at social media as well to get signals and
signs of of things because you get a lot of on the ground
coverage that's unedited, not gone through an editorial
(32:48):
process. So it's much faster from speed
perspective. So that's 12 mark is a
forward-looking. So yeah, the missile strike, you
know, wasn't priced on a motion,it's priced on what traders
believe is going to happen next at the critical point.
So risk is falling as you described.
The next one is about if the Straits of Hormuz is deemed
(33:11):
safe, then the traders looking to pivot back to the the actual
underlying fundamentals of oil. At the moment, OPEC, a, you
know, increasing supply, there'san oversupply, there's weak
demand. We just said the US economy, if
anything is slowing, so oil should be lower.
This is almost like an artificially stimulated price
that's that fundamentally shouldbe lower.
(33:33):
So once risk premium is off, fundamentals are on, so to
speak, and you get this reversion back to the mean.
And then don't don't forget the.Oils, yeah, as you say, it's
been trending down for two years.
This is like a little one month sideshow as this Iranian thing
happens. Not even a month, sorry, what am
(33:54):
I talking about? A week where it's kind of
plipped higher and then it's back.
Basically we're back now, as yousaid, as you were, you know, and
that was a downtrend, so I thought.
This was going to turn into the Oasis warm up for for the for
the August tour in the UK. But yeah, then my my final point
was disentangling noise from consequence.
(34:17):
And what I mean from this was, yeah, cutting through that head,
those headlines, has the straight been blocked or
damaged? And understanding the greater
thing that's going on here, Iran's relationship with China,
I mentioned. But also think diplomatically
for Israel, if they're to start to be a catalyst to cause such a
consequence if the Strait of Hormuz gets blocked, that's a
(34:41):
major problem globally. Economically, the this, you
know, it's right up there. And that throws every part of
our conversation about future interest rates out the window.
Then 100%. So.
They're not going to, you know, you would think the probability
of them, you know, getting to that point of causing that type
of level of retaliation is, is is lower in terms of its
(35:04):
prospects. So yeah, main thing is, I guess
to conclude, I'd say on my side,curiosity over certainty and
insight over instinct. Nice.
Like it inside over instinct. I'm yeah, I'm going to use that.
As you did, you come up. With that, you've lifted that
(35:24):
off ChatGPT. Yes, hey, I'm just using the
tools available at my disposal. You can't blame me for that.
I'm good on that note. All right, thanks very much
everyone, everyone for for listening.
(35:45):
I do know if you're watching this on YouTube and you've made
it through to the end, I think recently about 40% of the people
that watch are not subscribed. So make sure you hit that
subscribe button and we've got weekly content coming at you.
So let's go enjoy your weekend. See you later.
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