1 00:00:00,600 --> 00:00:03,640 John, were you monitoring the situation over the weekend? 2 00:00:04,720 --> 00:00:10,180 Like any good Twitter addict, I was aggressively monitoring the situation. 3 00:00:10,360 --> 00:00:10,720 No, not. 4 00:00:11,240 --> 00:00:14,980 And like I said at the beginning of this week's timestamp, 5 00:00:15,100 --> 00:00:17,800 some people are pros, some people do it for the love of the game, 6 00:00:18,020 --> 00:00:19,460 and I just do it for the love of the game. 7 00:00:20,660 --> 00:00:23,020 Whether they pay me or not, I'm going to monitor the situation. 8 00:00:25,140 --> 00:00:27,940 Well, the situation evolved over the weekend. 9 00:00:27,940 --> 00:00:37,600 And I guess we'll jump into last week we met. I was in Key West and we were about two days in, 10 00:00:37,860 --> 00:00:43,480 maybe, early Saturday morning, Sunday, two and a half days into this operation, 11 00:00:43,820 --> 00:00:49,980 Epic Fury into Iran. It has persisted and things have escalated pretty significantly. 12 00:00:50,240 --> 00:00:55,180 I guess we'll just start here. All focus is on oil and gas markets right now, or not all focus, 13 00:00:55,180 --> 00:01:01,060 But the predominant focus is on oil and gas markets. Obviously, the continuation of this 14 00:01:01,060 --> 00:01:07,140 operation or war, as many people are referring to it as, has led to the closure of the Strait of 15 00:01:07,140 --> 00:01:14,540 Vermeuse. There's been a bunch of critical oil and gas infrastructure hit both within Iran and 16 00:01:14,540 --> 00:01:20,600 within the Arabian Peninsula. UAE, Qatar, Saudi Arabia have had some of their 17 00:01:20,600 --> 00:01:27,480 oil infrastructure hit. I believe many refineries have been hit, and all this is going to have 18 00:01:27,480 --> 00:01:33,720 dire consequences on energy markets, which are the base of everything we do in the global economy. 19 00:01:33,920 --> 00:01:40,100 And so there will be knock-on effects throughout the global economy, and particularly on the price 20 00:01:40,100 --> 00:01:46,860 of goods, which I think it's safe to say they're not going to go lower from here. John, what was 21 00:01:46,860 --> 00:01:52,020 your reading of the situation over the weekend? Yeah. Well, I mean, you referred to it, but it's, 22 00:01:52,080 --> 00:01:57,420 it's not a war. It's a sparkling conflict currently, if you listen to our, our, our dear 23 00:01:57,420 --> 00:02:03,740 leaders in Washington, but yeah, it's, it's interesting. It's kind of a piece with the theme 24 00:02:03,740 --> 00:02:08,900 that we've talked about some on this show that you've talked about a bunch on TFTC and that 25 00:02:08,900 --> 00:02:12,060 has kind of informed a lot of the way that we've invested over the last five years at 1031, 26 00:02:12,060 --> 00:02:17,780 which is just the reemergence of the physical world into the economy. 27 00:02:18,020 --> 00:02:21,520 And whether it's supply chain snares in 2020 and 21, 28 00:02:21,680 --> 00:02:26,720 or a similar oil and gas price spike you saw after the Russia's invasion of Ukraine 29 00:02:26,720 --> 00:02:34,300 to the last few years, the need to aggressively to reshore and to ramp up power capacity for the HPC story. 30 00:02:34,580 --> 00:02:41,060 Like now, finally, again, one of the probably the biggest oil shock of the world has seen since I think 1983. 31 00:02:41,060 --> 00:02:43,400 It was the last time we got to move this big in one week. 32 00:02:43,920 --> 00:02:46,360 Some are pointing back to the Suez crisis even before that. 33 00:02:46,680 --> 00:02:56,340 So it's the latest iteration and entry in this series of our more frequent reminders now that the physical world gets a say. 34 00:02:56,340 --> 00:03:07,120 And we can't necessarily assume that the cost to make stuff and produce goods and get them around the world in a reasonable time frame is always going to be trending to zero. 35 00:03:07,120 --> 00:03:20,160 And, you know, the markets are trying to price that in this morning with oil almost hitting $120 a barrel last night, both Brent and WTI down a little this morning around 100, just above 100. 36 00:03:20,320 --> 00:03:28,420 Clearly, you know, a massive impact that I don't think anyone was really pricing in, certainly a year ago, certainly even a few months ago. 37 00:03:29,200 --> 00:03:33,360 And you can see this chart just captures well kind of what we're looking at. 38 00:03:33,360 --> 00:03:41,140 The Hormuz Strait around Iran and the Persian Gulf controls roughly 20% of the world's liquid petroleum products. 39 00:03:41,660 --> 00:03:48,860 Basically, traffic through there has ground to a standstill with Iran threatening to blow up tankers that are trying to pass through. 40 00:03:49,160 --> 00:03:55,700 Insurance contracts on various tankers and maritime vessels have gotten canceled. 41 00:03:55,960 --> 00:03:57,620 Maybe we'll see what the U.S. does with that. 42 00:03:57,620 --> 00:04:02,820 But all that is to say we're in a very, very sticky situation, to say the least. 43 00:04:02,820 --> 00:04:11,500 And we'll get into it here, but it's going to have this latest physical constraint of the physical world is going to have a lot of downstream impacts on every market. 44 00:04:12,620 --> 00:04:16,840 Yeah, it's pretty crazy to see it all unfold. 45 00:04:16,960 --> 00:04:27,560 And we'll get into, I think, what we discussed last week, really tying it to the national security strategy and this being a roundabout way to put pressure on China. 46 00:04:27,560 --> 00:04:36,460 I think that is one of the predominant theses that is hitting the airwaves and hit the airwaves over the weekend is continuing to this week. 47 00:04:36,540 --> 00:04:37,280 We'll jump into that. 48 00:04:37,340 --> 00:04:49,560 But I think re-approaching a chart that we brought up last week that we should check in on is the 10-year yield, which is going up alongside oil and gas prices as well. 49 00:04:49,920 --> 00:04:56,220 But we'll get into the ramifications of the geopolitics of this all after touching on what's happening here domestically. 50 00:04:57,100 --> 00:05:02,020 Yeah. I mean, this is, you know, it's fair to say we are still, you can kind of see on the chart on 51 00:05:02,020 --> 00:05:06,220 the left, it's 10 year yield. And the right is price. This is WTI, the price of oil, which is 52 00:05:06,220 --> 00:05:10,780 even, I think, higher than what that screenshot captures right now. But you can kind of see them 53 00:05:10,780 --> 00:05:16,300 spiking in tandem. The 10 year is at the very least, you could say only kind of giving back 54 00:05:16,300 --> 00:05:20,240 some of the recent gains that it made. So we're just back to like, you know, mid February levels, 55 00:05:20,240 --> 00:05:25,620 but it's an interesting, it's interesting move for what should be theoretically the world's 56 00:05:25,620 --> 00:05:31,260 premier safe haven asset. And this is the bedrock of the global capital stack. This is historically 57 00:05:31,260 --> 00:05:36,460 up until the last few years, kind of where you go when things get hairy. And so to see the 10-year 58 00:05:36,460 --> 00:05:43,000 at least not getting an incremental bid on a conflict that is, I think, materially worse than 59 00:05:43,000 --> 00:05:46,700 consensus was pricing in a couple of weeks ago or was expecting a couple of weeks ago 60 00:05:46,700 --> 00:05:50,880 is a noteworthy move in and of itself. And you can kind of understand why that would be the case 61 00:05:50,880 --> 00:05:54,900 when you just look at what's going on with price of oil. And Marty, to your point, 62 00:05:54,900 --> 00:06:00,380 the likely knock-on effects of that on realized price inflation. However, you kind of want to 63 00:06:00,380 --> 00:06:04,800 define that term, whatever kind of hedonic adjustments you want to apply to it. Clearly, 64 00:06:04,940 --> 00:06:10,840 this applies massive structural upward pressure to realized inflation, which is a big problem for 65 00:06:10,840 --> 00:06:17,980 fixed income. And it's a big problem as well, given where debt to GDP sits on the US's existing 66 00:06:17,980 --> 00:06:24,080 debt stack. So I think the market is trying to work out right now what this would actually mean 67 00:06:24,080 --> 00:06:28,180 if we had sustained oil prices in these levels, what that would mean for inflation, what that 68 00:06:28,180 --> 00:06:33,940 would therefore mean for fixed income and for a government that already is struggling to manage 69 00:06:33,940 --> 00:06:42,020 its non-discretionary expenses, even with interest rates in the call it 4% ballpark on a blended basis. 70 00:06:42,780 --> 00:06:46,600 Yeah. And I think it's, what are your thoughts on how markets are reacting right now? Because 71 00:06:46,600 --> 00:06:50,900 I'm going to pull this up. I was listening to his spaces last night and I really don't think 72 00:06:50,900 --> 00:06:58,640 the market has digested the gravity of what's happening with Middle East oil infrastructure. 73 00:06:59,100 --> 00:07:03,760 And the one comment that was made in the spaces that I was in last night that really stuck out 74 00:07:03,760 --> 00:07:10,620 to me is that, I mean, you mentioned it earlier, but in 2022, when Russia and Ukraine began their 75 00:07:10,620 --> 00:07:17,420 war, there was just many people surmising that Russia's oil infrastructure would be a target 76 00:07:17,420 --> 00:07:36,010 of Ukraine and potentially European allies And just the fear of that infrastructure being a target led to WTI spiking above 130 And here we are in 2026 the Schrader is ground to a 77 00:07:36,010 --> 00:07:42,830 halt and very critical infrastructure within the Middle East, which is obviously one of the largest 78 00:07:42,830 --> 00:07:49,090 oil producing regions in the world, has actually been hit. There's talks, and again, fog of war, 79 00:07:49,150 --> 00:07:54,090 it's hard to discern what's actually going on, but there's plenty of, I think, verified videos 80 00:07:54,090 --> 00:08:01,070 of tankers being hit, oil deposits being hit in Iran and Tehran. And there's reports of many 81 00:08:01,070 --> 00:08:08,330 refineries being hit across the Middle East in Qatar, UAE, Kuwait. And I don't think people 82 00:08:08,330 --> 00:08:14,510 understand where the market hasn't digested the gravity of the refineries specifically being hit, 83 00:08:14,510 --> 00:08:19,570 because this is a key part of the oil and gas supply chain that you can't just, 84 00:08:20,090 --> 00:08:24,070 if you're going to have any part that you want to protect the most, it's probably the refineries. 85 00:08:24,870 --> 00:08:26,990 Yeah, I mean, it's a fair point. 86 00:08:27,230 --> 00:08:32,670 Now, some of the, I think the retrace this morning was based on a pretty aggressive G7 87 00:08:32,670 --> 00:08:35,490 countries job owning big SPR release. 88 00:08:35,990 --> 00:08:41,090 So I think overnight as we got to 120, there was a headline leaked about strategic petroleum 89 00:08:41,090 --> 00:08:43,410 reserves getting tapped in major parts of the world. 90 00:08:44,230 --> 00:08:47,830 So that put, I think, maybe a little downward pressure on us for now. 91 00:08:47,930 --> 00:08:49,130 Like, we'll see if that can be sustained. 92 00:08:49,650 --> 00:08:53,610 And I think if you look, I don't have the charts at hand, but if you look at futures 93 00:08:53,610 --> 00:08:59,270 contracts, you know, several months out, I believe the implication, at least when I looked over the 94 00:08:59,270 --> 00:09:04,670 weekend and early this morning was the market is still effectively saying like this move will 95 00:09:04,670 --> 00:09:10,950 reverse in relatively short order of the next few months. So to the extent that that's the case, 96 00:09:10,950 --> 00:09:16,870 if that's your belief, I mean, I think that speaks to some level of skepticism that the conflict as 97 00:09:16,870 --> 00:09:22,570 it stands can be sustained, whether that's because the Iranian regime is about to collapse. You know, 98 00:09:22,570 --> 00:09:27,430 I put in the timestamp a couple of references to some data points that let's take them with a 99 00:09:27,430 --> 00:09:31,950 massive grain of salt, given your point on fog of war, but just data sets showing that perhaps 100 00:09:31,950 --> 00:09:36,750 the ballistic stockpile that Iran has access to is maybe dwindling pretty quickly. So maybe you 101 00:09:36,750 --> 00:09:41,090 take that view, maybe you take the taco view and just say, well, it's a midterm election year and 102 00:09:41,090 --> 00:09:45,890 there's just no way that Trump's going to let, you know, gas be five plus dollars a gallon 103 00:09:45,890 --> 00:09:52,030 around the country when he's trying to, you know, trying to hold on barely to a coalition. 104 00:09:52,030 --> 00:09:58,150 and keep his agenda intact. So that's a piece of it too, potentially. I don't know. I really don't, 105 00:09:58,210 --> 00:10:03,110 I don't envy anyone who professionally has to make a call specifically on the near-term 106 00:10:03,110 --> 00:10:08,390 directionality of the oil price. Although you could say in one way or another, we're all going 107 00:10:08,390 --> 00:10:11,730 to have to effectively make a call on that with various allocation decisions for our personal 108 00:10:11,730 --> 00:10:17,850 wealth and professionally at 1031. But there are a lot of crosswinds. And I definitely think it's 109 00:10:17,850 --> 00:10:22,550 it's fair to price in or to think about how the market might ultimately price in what you're 110 00:10:22,550 --> 00:10:27,590 talking about, that if this is more extended and if it's more structural, I mean, it can't be 111 00:10:27,590 --> 00:10:33,130 reversed with a simple, you know, true social post saying various things to get traders to 112 00:10:33,130 --> 00:10:38,090 move prices in the direction that Trump wants. You know, that could have meaningful structural 113 00:10:38,090 --> 00:10:43,330 implications for a lot of different things. And I think you alluded to the geopolitics question. 114 00:10:43,670 --> 00:10:46,710 We can maybe get into that if you want a little bit. But to the extent that you think 115 00:10:46,710 --> 00:10:53,550 that there's something more going on here than Trump being an impulsive moron that might speak 116 00:10:53,550 --> 00:10:58,890 to and might give you grounds to think that this isn't necessarily going to end next week. 117 00:10:59,450 --> 00:11:04,690 Yeah. And so let's jump into the geopolitical ramifications and run with the thesis that this 118 00:11:04,690 --> 00:11:13,210 is a way to curb China's acceleration towards becoming a global dominant player in the realm 119 00:11:13,210 --> 00:11:20,970 of geopolitics and economics. And I think the data that is coming out in terms of how dependent 120 00:11:20,970 --> 00:11:27,790 China is on oil coming from the straighter Hormuz in the Middle East specifically would point like, 121 00:11:27,910 --> 00:11:33,470 hey, if this is what they're trying to do, it could be effective. And so you prepped with this 122 00:11:33,470 --> 00:11:37,850 little phrase here, this little snippet here from an article that was released over the weekend, 123 00:11:37,990 --> 00:11:42,030 China, which has friendly relations with Iran and relies heavily on Middle Eastern supplies, 124 00:11:42,030 --> 00:11:46,210 is unhappy about the Islamic Republic's move to paralyze shipping to the strait and is pressing 125 00:11:46,210 --> 00:11:50,390 Tehran to allow safe passage for the vessels. According to the sources, the world's second 126 00:11:50,390 --> 00:11:57,750 largest economy gets about 45% of its oil from the strait. And that is but only one resource that 127 00:11:57,750 --> 00:12:02,810 China is sourcing from the Middle East. And they also get byproducts. And our good friend, 128 00:12:03,370 --> 00:12:10,150 Matt Pines, who is one of my favorite geopolitical analysts working at the intersection of Bitcoin, 129 00:12:10,150 --> 00:12:14,970 geopolitics, energy, AI, UFOs, if you're into that stuff. But he highlighted that 130 00:12:14,970 --> 00:12:22,670 the halt of Qatar's LNG production threatens 21% of global helium supply. So helium is a byproduct 131 00:12:22,670 --> 00:12:30,830 of LNG production, and helium is a raw input for the chip industry. And so this could seriously 132 00:12:30,830 --> 00:12:37,290 perturb the ability of Asia to produce chips at the pace that they would like. If you believe this 133 00:12:37,290 --> 00:12:43,170 playing into the AI race is a good way to slow down what the U.S. and the current Trump administration 134 00:12:43,170 --> 00:12:51,310 deems as its biggest foe in this race to win the AI war. Yeah, for sure. I mean, I think over the 135 00:12:51,310 --> 00:12:57,090 last year, and especially the last few weeks, it feels like you've had two camps emerging. 136 00:12:57,770 --> 00:13:04,290 If you're a professional situation monitor, there's the USD is dead, US can't win, 137 00:13:04,290 --> 00:13:09,150 China's going to eat our lunch. You know, I'll loosely attribute this to like kind of a Luke 138 00:13:09,150 --> 00:13:14,550 Grumman type of framework. I agree with much of what he says, but that's kind of one, you know, 139 00:13:14,690 --> 00:13:19,450 caricature of a viewpoint you see a lot on, let's say, financial Twitter and financial press. 140 00:13:19,630 --> 00:13:22,650 There's another side which kind of takes the opposite view. We can call it kind of the Brent 141 00:13:22,650 --> 00:13:27,730 Johnson framework, maybe the dollar milkshake theory that, you know, the U.S. is top dog, 142 00:13:27,830 --> 00:13:31,270 going to remain top dog. The dollar's network effect is so entrenched. We have all these 143 00:13:31,270 --> 00:13:35,310 different levers we haven't pulled yet. And, you know, the U S will come out on top kind of 144 00:13:35,310 --> 00:13:40,410 regardless of what happens. And I think there's like, there's elements of truth to both. Actually, 145 00:13:40,510 --> 00:13:44,670 I like listening to both of those guys. I think they both have a lot of interesting things to say, 146 00:13:44,750 --> 00:13:51,930 but I think these couple headlines like highlight the way that I have found it to be most useful to 147 00:13:51,930 --> 00:13:58,430 like conceptualize all this stuff is just, it's the U S and China, both, both have strengths and 148 00:13:58,430 --> 00:14:02,570 weaknesses. They both have significant leverage points and they both have significant constraints. 149 00:14:02,890 --> 00:14:09,350 And we saw last year China really subtly flex some of its leverage points, specifically as it relates 150 00:14:09,350 --> 00:14:15,150 to critical minerals and rare earth materials that the U.S. is very short on. Those are significant 151 00:14:15,150 --> 00:14:21,030 for defense. We have a lot of defense applications that have effectively been outsourced to China or 152 00:14:21,030 --> 00:14:25,890 like Chinese levered supply chains. And there are materials that China has kind of a chokehold on 153 00:14:25,890 --> 00:14:32,650 that are critical for building up the HPC and the AI infrastructure that we need to do to stay ahead 154 00:14:32,650 --> 00:14:37,990 on that game and effectively to do the run at hot agenda that Trump wants to do. On the flip side, 155 00:14:38,570 --> 00:14:42,030 the US has leverage points too, right? We are the world's biggest energy producer, 156 00:14:42,270 --> 00:14:46,570 or at least among them, we are energy independent in a way that China's not right now, as you just 157 00:14:46,570 --> 00:14:53,530 highlighted with the prior headline. We do have an advantage on oil. And the other piece that I 158 00:14:53,530 --> 00:15:07,240 think people don emphasize enough is yes TSMC is responsible for leading edge semiconductors and that are critical for actually manufacturing the semis that flow into all these AI applications 159 00:15:07,240 --> 00:15:08,480 and data centers that are being built out. 160 00:15:08,480 --> 00:15:11,400 But the US and like US adjacent countries 161 00:15:11,400 --> 00:15:14,280 have a chokehold on the machines, 162 00:15:14,520 --> 00:15:16,140 effectively the machines that make the machines, right? 163 00:15:16,460 --> 00:15:20,640 So the semiconductor CapEx industry 164 00:15:20,640 --> 00:15:22,680 is basically for players. 165 00:15:22,860 --> 00:15:25,720 It's Applied Materials, LAM Research, KLA, 166 00:15:25,720 --> 00:15:30,600 all of which are in US and then ASML, which basically has monopoly on lithography. And that's 167 00:15:30,600 --> 00:15:34,400 in the Netherlands, but effectively like kind of is under, you know, US dominion, basically, 168 00:15:34,400 --> 00:15:41,440 all of these guys have either admitted to or it's constantly speculated that they have kill switches 169 00:15:41,440 --> 00:15:45,820 built into their machines that you know, if China were to ever set foot on Taiwan, 170 00:15:46,260 --> 00:15:50,480 basically, you just kind of brick TSMC by turning all these off remotely, technicians never go there 171 00:15:50,480 --> 00:15:55,280 again. And that kind of becomes a stalemate. So I think Pines what Pines is getting out here too, 172 00:15:55,280 --> 00:16:00,460 is it highlights an interesting like element where we also have some subtle leverage and a subtle 173 00:16:00,460 --> 00:16:05,160 like potential way to push buttons on the semi story and i think it's all just like to tie that 174 00:16:05,160 --> 00:16:09,360 kind of back to what we were talking about before um there is this like chess match being played 175 00:16:09,360 --> 00:16:13,280 the u.s does have moves we are not without weaknesses but we're also not without strengths 176 00:16:13,280 --> 00:16:18,820 and i think that's a lot of what you're seeing with closing down the straightforward moves you 177 00:16:18,820 --> 00:16:24,060 know if you were to put your tinfoil hat on you could say i i do think that the guys at the pentagon 178 00:16:24,060 --> 00:16:30,400 Many of them, you know, maybe may have something to be desired in terms of intellect, but I think there's a lot of high IQ there as well. 179 00:16:30,480 --> 00:16:37,580 And I got to think that they thought through the asymmetric impacts of closing down the Strait of Hormuz if that happened for China relative to the US. 180 00:16:37,700 --> 00:16:42,180 And so I think that is just like the framework that we need to bring to anything that's happening here. 181 00:16:42,400 --> 00:16:46,200 Not that like China is an entire like skeleton key for all of it. 182 00:16:46,200 --> 00:16:51,840 but that chess match to me is, is makes a lot more sense of everything you're seeing than, 183 00:16:52,000 --> 00:16:56,580 you know, it's all about Israel or it's all about Trump being a complete moron or, you know, 184 00:16:56,580 --> 00:17:01,320 some other thing. Like to me, this is like the most obvious existential conflict in the world 185 00:17:01,320 --> 00:17:05,540 right now. And I think in one way or another, it colors everything we're seeing. And you just pull 186 00:17:05,540 --> 00:17:10,180 up this great tweet that I recommend everyone go read just about kind of those, those strategic 187 00:17:10,180 --> 00:17:15,760 objectives and the way Trump may be thinking about them. Yeah. This is from Nel Haji who I've had the 188 00:17:15,760 --> 00:17:22,280 pleasure of having him on as a recurring guest on TFTC since I think going back to 2020. And I think 189 00:17:22,280 --> 00:17:27,380 Anas, through my conversations with him over the years, it's become clear to me that he is one of 190 00:17:27,380 --> 00:17:34,420 the sort of top experts in the realm of oil and gas globally. And to your point, he's co-signing 191 00:17:34,420 --> 00:17:41,300 that message here. And I think if we're talking about the game theory of us all and the leverage 192 00:17:41,300 --> 00:17:48,120 that the United States and what we can surmise the Trump administration thinks we have right now. 193 00:17:48,220 --> 00:17:54,740 It's like, hey, we need to cripple China in this war for AI and economic dominance globally 194 00:17:54,740 --> 00:18:00,020 if we're going into a more multipolar reality, which is certainly going to accelerate from here, 195 00:18:00,440 --> 00:18:06,340 considering this little sparkle of an operation, sprinkling of an operation over in Iran. 196 00:18:06,340 --> 00:18:13,740 But it's essentially like the U.S. can stomach some short-term pain in the form of higher oil and gas prices. 197 00:18:14,080 --> 00:18:20,360 And Trump came out on True Social last night and basically said that, hey, yes, there's going to be some short-term pain that's going to play out in the long run. 198 00:18:20,360 --> 00:18:38,560 And essentially the thesis is if we can cripple the supply lines to critical fuels and resources necessary for large manufacturing in Asia, we're going to be fine in the long run in the United States. 199 00:18:38,560 --> 00:18:47,840 Because as you mentioned, we have a ton of natural resources ourselves here, not only in the United States, but to the north of us in Canada, to the south of us in Mexico. 200 00:18:47,840 --> 00:18:57,740 And we mentioned it last week, but Venezuela being sort of the first takeout with their heavy crude and locking that down with our heavy crude refineries in the Gulf. 201 00:18:58,220 --> 00:19:09,620 It seems like from an energy perspective, we can be inoculated from any problems that may persist after this disruption in the Middle East because we have the resources on our continent. 202 00:19:09,620 --> 00:19:11,120 Yeah, for sure. 203 00:19:11,120 --> 00:19:19,160 to take the other side to, you know, the more U.S. bear side. Some of our constraints, you know, 204 00:19:19,180 --> 00:19:25,300 show up more on the financial sector. And we mentioned our overall indebtedness and the state 205 00:19:25,300 --> 00:19:29,380 of the treasury market right now. I think we also got, you know, some interesting headlines last week 206 00:19:29,380 --> 00:19:33,100 that maybe got a little blurred by everything that was going on in the Middle East and perhaps 207 00:19:33,100 --> 00:19:38,880 rightfully so. But, you know, the private credit situation has been we've been documenting it in 208 00:19:38,880 --> 00:19:42,080 timestamp, and you've been talking about it a lot on the show, you know, you're seeing more and more 209 00:19:42,080 --> 00:19:46,620 signs of what Jamie Dimon called cockroaches in the system. And last week, we got some pretty 210 00:19:46,620 --> 00:19:51,480 notable headlines of Blackstone and BlackRock both having pretty big redemptions out of two of the 211 00:19:51,480 --> 00:19:55,640 biggest private credit funds in the world. BlackRock actually had to end up gating theirs, 212 00:19:55,720 --> 00:19:59,040 and they got, you can see down at the bottom right there is the first quarter in which that 213 00:19:59,040 --> 00:20:04,500 particular fund saw withdrawal requests exceeding 5% of assets. Blackstone allowed full withdrawals, 214 00:20:04,500 --> 00:20:08,960 but it's, you know, 8% of the asset base. So pretty significant in both cases, especially 215 00:20:08,960 --> 00:20:14,380 given what, you know, how both of those are blue chips in the alternative asset management industry. 216 00:20:14,920 --> 00:20:19,460 And these are highly scaled funds, right? Like it's not some, you know, tiny $100 million 217 00:20:19,460 --> 00:20:23,460 vehicle somewhere. Like these are pretty meaningful headline funds and big numbers. 218 00:20:24,400 --> 00:20:29,660 And I think you can kind of see on the next chart too, just the alternative complex over 219 00:20:29,660 --> 00:20:36,300 the last six months, you know, down 20, 30, 40% plus 50% from highs from recent highs last year, 220 00:20:36,720 --> 00:20:41,460 kind of showing you there, there's increasing consternation for a variety of reasons that 221 00:20:41,460 --> 00:20:45,800 we've talked about in prior episodes around this complex, which increasingly, you know, 222 00:20:45,800 --> 00:20:50,280 has, has played more and more of a role in retiree portfolios, whether directly or indirectly, 223 00:20:50,280 --> 00:20:54,660 you know, whether it's people kind of investing in them through different platforms or more often, 224 00:20:54,660 --> 00:21:02,360 pension funds, just allocating major slugs into them. On the assumption that this is high quality 225 00:21:02,360 --> 00:21:08,720 credit, that it's always going to be money good or very likely money good. And that may well still 226 00:21:08,720 --> 00:21:13,420 be true. Not trying to sit here and call, this is the big one, this is the start of 08. But 227 00:21:13,420 --> 00:21:21,500 clearly there's pressure in the complex. And if you scroll down one more, we also saw last week 228 00:21:21,500 --> 00:21:26,660 unexpected softness in the jobs market. And this is even really before you see any potential, 229 00:21:27,020 --> 00:21:31,900 you know, almost none of this had anything to do with like AI layoffs as far as the sectors that 230 00:21:31,900 --> 00:21:35,640 were hit. But, you know, you could, you could, so you could read that as everyone should calm 231 00:21:35,640 --> 00:21:40,040 down about AI, or you could read that as you're seeing pain start even before the hurricane really 232 00:21:40,040 --> 00:21:44,780 kind of makes landfall. So you look at all those things kind of in tandem and it's like, yeah, 233 00:21:44,780 --> 00:21:48,380 we may have a great position from an energy perspective. We may have buttons we can push 234 00:21:48,380 --> 00:21:52,480 on the semi-side and certain materials. And, you know, that can bring China to the table in one way 235 00:21:52,480 --> 00:21:58,360 or another. But the flip side is, you know, the financial situation, the state of American financial 236 00:21:58,360 --> 00:22:03,700 markets and what would be required to offset some of this, right, puts us in a position where, 237 00:22:03,700 --> 00:22:08,060 you know, we may have a shot clock on how much pain we can actually take and how long 238 00:22:08,060 --> 00:22:12,920 oil can actually be at, you know, 100 plus dollars a barrel, particularly given what that could do to 239 00:22:12,920 --> 00:22:17,100 the treasury market. So, you know, that's, we should acknowledge on the other side that that's 240 00:22:17,100 --> 00:22:19,640 a major dynamic that is gonna bear watching 241 00:22:19,640 --> 00:22:21,200 as we try over the next few weeks 242 00:22:21,200 --> 00:22:23,780 to do whatever it is that we're doing in the Middle East. 243 00:22:23,780 --> 00:22:25,140 Yeah, and I mean, 244 00:22:26,140 --> 00:22:39,350 I think the tenure is gonna be the most important thing right Because why is this private credit private equity why is the stress emerging And I think if you been reading the tea leaves and just looking back the last six years I mean 245 00:22:39,450 --> 00:22:46,770 post-COVID 2020, 2021, you had the stimulus, you had the ZERP, you know, zero interest rate policy 246 00:22:46,770 --> 00:22:54,030 persist for a few years there. And a lot of these funds raised a ton of money and then loaded that 247 00:22:54,030 --> 00:22:59,130 money into companies at peak valuations that were bolstered up by the money printing. 248 00:22:59,910 --> 00:23:05,130 And now here we are in 2026, and a lot of these private equity funds and a lot of the 249 00:23:05,130 --> 00:23:08,530 private credit deals that were done are medium durations. 250 00:23:08,530 --> 00:23:14,350 You have like five to seven year loans that were underwritten in 2021, 2022. 251 00:23:14,770 --> 00:23:18,130 Now you're seeing the first big refinancing waves. 252 00:23:19,310 --> 00:23:21,670 Are the companies as profitable as they were back then? 253 00:23:21,730 --> 00:23:22,490 Are they cash flowing? 254 00:23:22,490 --> 00:23:27,110 maybe, but you had to refi at significantly higher rates. And I think the market's beginning 255 00:23:27,110 --> 00:23:33,310 to see that. And I'm not sure if you caught it, but Steve Eisman had a forensic accountant on his 256 00:23:33,310 --> 00:23:38,270 show last week, a gentleman named Tom Grober, I've actually been in contact with, going to have him 257 00:23:38,270 --> 00:23:42,630 on TFTC at some point here in the next couple of weeks. But he highlighted that a lot of these 258 00:23:42,630 --> 00:23:49,110 private equity funds have taken the Warren Buffett route, or at least have tried to, and acquired 259 00:23:49,110 --> 00:23:55,970 a bunch of insurers and reinsurers and have been funneling some of the premiums that have been 260 00:23:55,970 --> 00:24:01,810 generated from those insurance properties that they've acquired and pushing it into these private 261 00:24:01,810 --> 00:24:06,850 credit and private equity deals. And to your point about retirees having a lot of exposure to this, 262 00:24:06,910 --> 00:24:10,810 it's in multiple ways, not only to the funds directly, but a lot of these insurance companies 263 00:24:10,810 --> 00:24:17,770 providing annuities for retirees. And if these private equity funds are taking those premiums 264 00:24:17,770 --> 00:24:23,270 for those annuities and putting it into risky private equity bets that need to be refied. 265 00:24:23,410 --> 00:24:27,970 This could be pretty cataclysmic from a financial perspective here in the United States. 266 00:24:28,730 --> 00:24:34,170 Yeah, there's a good, we referenced a couple weeks ago, the Citrini AI report that kind of 267 00:24:34,170 --> 00:24:39,150 broke markets for a couple of days a few weeks ago. There's a good kind of summary of that, 268 00:24:39,270 --> 00:24:43,350 the state of play there in that report, if anyone wants to go back and read that. And it's definitely 269 00:24:43,350 --> 00:24:47,670 some, some, some bear juice, but worth, worth looking at to kind of be aware of where the 270 00:24:47,670 --> 00:24:52,270 bodies might be and where the moving pieces are. But all it is to me just adds up to like the, 271 00:24:52,270 --> 00:24:56,790 the thing that I ended the start of the timestamp with this week was just, you know, if you're 272 00:24:56,790 --> 00:25:03,030 whoever you are, whatever you're doing, if you're expecting, if you're banking on a decline in the 273 00:25:03,030 --> 00:25:07,030 size of the Fed balance sheet with all these things going on, right. And it's not that any 274 00:25:07,030 --> 00:25:11,530 one of these things would necessarily cause like the quote unquote big print, not even necessarily 275 00:25:11,530 --> 00:25:17,610 thing that's coming, but they stack, right? The need to radically reframe the global trade order 276 00:25:17,610 --> 00:25:22,610 to endure whatever pain we're going to have to endure to do what we want to do vis-a-vis China 277 00:25:22,610 --> 00:25:28,370 to potentially fight and launch new kinetic conflicts around the globe as the private equity 278 00:25:28,370 --> 00:25:34,130 and private credit complex melts down as jobs get softer or whatever. To do all that and think that 279 00:25:34,130 --> 00:25:38,530 you're going to shrink the Fed balance sheet back to like pre-2020 or pre-08 levels. I mean, 280 00:25:38,530 --> 00:25:41,290 And as the Morgan Freeman gift says, good luck. 281 00:25:42,530 --> 00:25:43,690 Good luck, right? 282 00:25:44,290 --> 00:25:45,850 That's what I tweeted out over the week. 283 00:25:45,930 --> 00:25:47,250 I'm getting like double whammy. 284 00:25:47,650 --> 00:25:51,390 Black Swan, I think, calling the private credit, private equity. 285 00:25:52,470 --> 00:25:56,770 Stress of Black Swan is a bit of a stretch because you can't really see Black Swans. 286 00:25:56,770 --> 00:25:58,910 It's the whole point of them. 287 00:25:59,110 --> 00:26:07,030 And if you're paying attention and you're logical, thinking about where rates are and where a lot of that, when that capital was deployed and where rates were then, 288 00:26:07,030 --> 00:26:12,030 You could see this refinancing wave hitting and causing a lot of stress, and people have been talking about it. 289 00:26:12,050 --> 00:26:17,870 So it's a stretch to call that a black swan, but I think what's happening in the Middle East is certainly a black swan, 290 00:26:17,970 --> 00:26:26,970 particularly the refineries getting hit and the oil and gas supply chain being as hindered as it has been in the last two weeks. 291 00:26:26,970 --> 00:26:44,190 But if you have these inflationary pressures being driven by the energy supply chain disruptions, and on top of that, you have the stress in the private equity and private credit markets that they're going to have to print. 292 00:26:44,530 --> 00:26:45,450 There's no way. 293 00:26:45,790 --> 00:26:46,990 There's no way out of it. 294 00:26:46,990 --> 00:27:00,350 And that's where things get hairy if the Trump administration can't thread the needle with this conflict in the Middle East and quell markets sufficiently and sufficiently enough. 295 00:27:00,450 --> 00:27:09,750 And in a timely manner, you could have a situation where you have private credit faltering, needing a bailout and inflation ripping at the same time. 296 00:27:09,810 --> 00:27:12,190 And you need to print money as that's going on. 297 00:27:12,650 --> 00:27:14,710 And that's not a good situation. 298 00:27:14,710 --> 00:27:22,090 and with that we can get to how does bitcoin fit into all of this we're pumping pumping is a stretch 299 00:27:22,090 --> 00:27:30,750 we're up today we're above 69 000 yeah after falling to 67 high 66 is over the weekend yeah 300 00:27:30,750 --> 00:27:36,110 maybe we can then tie it all back and close on this but i put this chart in here this just shows 301 00:27:36,110 --> 00:27:42,030 march 4th of last year kind of date kind of pick drawn out of a hat but well before liberation day 302 00:27:42,030 --> 00:27:48,350 going into this big dip that you can see kind of early in the chart is Liberation Day. And then, 303 00:27:48,430 --> 00:27:52,150 you know, a couple up to a couple months after that, somewhat confusingly, gold gets the orange 304 00:27:52,150 --> 00:27:56,590 line. So we'll, you know, we know we've won when Bitcoin automatically gets the orange line. But 305 00:27:56,590 --> 00:28:00,290 the top blue line that you ultimately see there on the right, that that's Bitcoin from last year. 306 00:28:00,450 --> 00:28:05,290 And if anyone was around at the time, you kind of remember around Inauguration Day, we peaked, 307 00:28:05,350 --> 00:28:10,690 and then we just dumped for like two months for like no obvious reason. Eventually, the equity 308 00:28:10,690 --> 00:28:14,330 indices started to catch up to, but then Liberation Day happened. And that was basically 309 00:28:14,330 --> 00:28:22,610 the bottom tick, right? The bad news happened and then Bitcoin started to recover a lot more 310 00:28:22,610 --> 00:28:27,350 strongly than anything else. And I'm not going to say that we are in a perfect analog to that, 311 00:28:27,350 --> 00:28:33,190 but the price action over the last couple of weeks increasingly reminds me of that. We had 312 00:28:33,190 --> 00:28:39,110 a dump for months on no obvious negative catalysts other than liquidity turning over. 313 00:28:39,110 --> 00:28:48,630 In the last couple of weeks, you know, we mentioned it last week after on the Iran, the initial Iran headlines, you know, we dumped a little bit and then started to just kind of like recover pretty quickly. 314 00:28:48,630 --> 00:28:54,410 And we pumped last week over to over almost 74 K retraced, whatever. 315 00:28:54,650 --> 00:28:57,710 But like my point is, as you look at it, it's early days. 316 00:28:57,710 --> 00:29:02,330 But if you were going to call for a bottom at some point, like this is what you'd want to see. 317 00:29:02,410 --> 00:29:05,290 Right. You'd want to see us consolidating in a range. 318 00:29:05,290 --> 00:29:10,910 not, you know, oil went to 120 last night and Bitcoin like went down a little bit and then came 319 00:29:10,910 --> 00:29:16,870 back up right now to 69K. Like this is the kind of action you'd want to see when bad news and 320 00:29:16,870 --> 00:29:21,830 increasingly bad news no longer causes like dumps to new levels. So it's just worth keeping an eye on. 321 00:29:21,830 --> 00:29:26,510 And I don't, I'm not going to tell you that the world is now pricing in the big print or 322 00:29:26,510 --> 00:29:30,330 everything we just talked about that, you know, the Fed balance sheet needs to expand to accommodate 323 00:29:30,330 --> 00:29:34,290 what's going on. I'm not going to say that's exactly what's happening here, but it is nonetheless 324 00:29:34,290 --> 00:29:38,670 less like extremely interesting price action that anyone who's interested in any asset class, 325 00:29:38,890 --> 00:29:42,670 I think should be, you know, your eyebrows should be raising when you see something like this. 326 00:29:43,230 --> 00:29:47,270 Yeah, completely agree. Interesting times. May you live in interesting times, John Arnold, 327 00:29:47,410 --> 00:29:50,890 the real John Arnold. It's certainly working out so far. 328 00:29:51,350 --> 00:29:53,490 All right. This was great. We'll be back next week.