Oil at $100+, Fed Stays Put: Navigating Iran Conflict & Private Credit Pressures

In this episode, Jake breaks down the escalating geopolitical risks in the Middle East, including Iran's recent missile strikes on Qatar's Ras Laffan LNG facility—the world's largest—which have caused extensive damage, sparked fires, and driven natural gas and oil prices sharply higher (WTI nearing $100+). We explore the implications for global energy supply, emerging markets (especially Asia), and your portfolios.

Jake also recaps the Federal Reserve's latest decision: rates held steady at 3.5–3.75%, with markets coalescing around just one cut in 2026 amid softening labor data and potential inflationary pressures from commodities and lingering tariffs.

Disclaimer: 

Avidian Wealth Solutions is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  

Avidian is neither a law firm nor an accounting firm, and no portion of its services should be construed as legal or accounting advice. 

Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

This information contained herein may be dated.

Transcript

SPEAKER_01 0:00

Hi everyone and welcome back to the Ask AVidean podcast. This is Jake Orbitch, Chief Investment Officer with Avidian Wealth Solutions. Let's get started.

SPEAKER_00 0:08

Tonight, Iranian missiles hit the main energy hub of that nation. This is the world's largest liquefied natural gas export facility, and there is significant damage there. Today, the FOXD decided to leave our policy rate unchanged.

SPEAKER_02 0:23

It took six years to build, four billion dollars. It is big, it is grand. I have not seen any cockroaches.

SPEAKER_01 0:30

All right. Questions. Probably because spring break's going on here in Texas, as most of you probably know, especially if you have kids in school. Last week was spring break for the majority of our state. This week I think we got some schools that are still straggling back in. So had a nice trip out to Colorado. Really enjoyed it, but did not leave, did not let the markets leave my site. I was the guy down at the bottom of the hotel at uh 6 or 7 a.m. every morning, just keeping up, catching up with news stories, catching up with what markets are doing, uh, really mainly just to get there because they cut off the free coffee at 8 o'clock, one of the nicest hotels in Telluride does not serve free coffee after 8 a.m. So just make a note of that. Um however, this week uh still got the rodeo going on, really exciting stuff. Um, but a lot of things have happened over the last couple weeks, and so I thought it would be helpful just to kind of get back uh and get connected. Obviously, geopolitical risk has continued to tick higher and higher. We have a conflict or war in Iran. Uh, hard to really understand exactly what's going on on the ground because there's not really much news coming directly out of Iran, so we just kind of have to piece things together and see what's happening uh, you know, in the data side of things with commodity markets. Um, obviously, uh just recently we had some new attacks on some LNG facilities in gutter, um, which definitely is going to send and is sending the price of natural gas uh significantly higher today, along with oil. Uh, so additional production capacity being blocked into that country for probably a little bit longer than everybody expected. Uh, that has nothing to do with the straight and the shipping, uh, straight of her moves of the shipping uh side of things. Uh, that's just actually being able to put uh LNG on ships, and so that's definitely got uh commodity markets uh worried. Uh you can see you know natural resource commodities like oil and gas uh trading higher, but you can also see uh you know other kind of uh commodities, industrial commodities trading lower. And I think that kind of makes sense because when you have less energy uh supply, you're you're less able to uh turn those industrial commodities into products, or it's more costly to do so. We've also had uh a Fed rate uh announcement last uh last night or yesterday afternoon. Uh we're gonna talk about that and what that might have or what impact those two things might have on inflation over uh the rest of the year. Um and then we're gonna spend some time talking about private credit. Uh private credit wars, actually, I think is what we're starting to see uh form up in the market. You've got a lot of suppliers of private credit, a lot of really well-known household brand names, and they're starting to go at each other. And so we'll see, you know, what we're we'll we'll talk about what we're observing and you know what's the real impact that you might actually see in your accounts if you've allocated to private credit. Uh, and then we'll touch on some other things. Uh we always like to leave you guys with a note on diversification and you know, not get too focused on any individual item. Okay, so what's going on in Iran? And I think we just talked about this when Andre Kostas, one of our portfolio managers, head of investment relations, was on uh a couple weeks ago. Um, obviously that war is still ongoing. I think we're in week three. Uh week three means that there's been steady attacks uh from the U.S., from Israel. Uh what we saw over the last few days is that other NATO nations have decided not to escalate or not to participate in this war. So it's going to be, seems like at least for this foreseeable future, the U.S. and Israel uh against Iran. Iran continues to lash out at its neighbors. Uh so we're seeing uh most recently attacks on uh gutter LNG facilities. Um, you know, from a damage perspective, it's unclear uh what damage was actually done physically. However, I think one of the things that we need to note is that those facilities, largely, if not completely, had already been shut down uh because of the risk to those facilities, right? So that supply was already locked in. And if anybody that's worked in the oil industry knows that there's not just a big light switch that you turn these facilities off and on, uh these facilities takes these types of facilities take uh days, weeks, and sometimes you know even up to a month to turn back on once they've been shut down. There's a number of different things that have to happen, and obviously it has to be done in a safe way. Uh, however, that is under normal circumstances uh when there's been damage to a facility, uh that that time is is going to be stretched out uh even longer. And so where we're at today is that that production, that uh liquefied natural gas is likely going to be shut shut in. And you can see that in the commodities markets as well, in the futures markets. Obviously, spot prices are spiking up. That's where you're seeing the you know plus hundred dollar oil. But if you look out a few months, you know, kind of middle of the summer, even towards the later end of the, you know, the later half of this year, uh, you still see elevated prices, um, you know, probably to the tune of$10 to$15 versus where they were before this conflict started. Uh so that is what the market there is telling us that even if this conflict ended today or within the next week or so, uh, you would still have a recovery process, right? Inventories have been drawn down, reserves have been drawn down, and it's going to take a while for that uh that you know come those commodity markets to come back uh to equilibrium. So, what does that mean in terms of the impact to things in our portfolio? Again, our clients, they typically don't have a lot of commodity exposure directly, but they do own securities that that you know either use commodities or produce commodities, uh, and also countries that you know have some more exposure to commodity shortages. So, what we've seen in our portfolios, really emerging markets, uh which were doing quite well up until this conflict, uh, are taking probably the biggest hit. And uh likely the, you know, or I guess what we're seeing is the Asia emerging markets or and really just Asia countries in general are taking the biggest hits uh when it comes to these commodity shortages. Uh again, commodities coming through the Strait of Ramuth are are the main energy supplier for countries like Japan, countries like China, um, and the emerging market countries as well. Uh and India also, uh big uh user of commodities that come through, not necessarily buying all of its oil from Iran, although it I believe it does secure some of its supply from Iran, but really, you know, Gutter, Saudi Arabia, all those uh countries, uh that capacity is locked in. And so India has taken quite a hit. Um they also have some challenges. A lot of India uh citizens or Indian citizens uh will actually work in some of those Middle East countries and send a lot of capital back uh to their families. Um and that, you know, those those uh jobs likely will be disrupted uh at least temporarily if uh if oil production is shut down and then even consumption uh may come uh you know may come down in some of those countries. That's definitely not good for uh India uh for the individuals that go to those countries to to work and have jobs and send money back home. Uh so India is definitely uh a little bit more in the crosshairs than some of the other uh emerging market countries. Um however, don't want to spend too much time on that. Obviously, South Korea taking a big hit as well. Um South Korea, I'd say, you know, from an energy perspective, obviously is is almost completely dependent on foreign energy, um, but also has you know some exposure into the SaaS pocalyp side of things and and where they sit in the AI story. So kind of getting hit from both sides uh as well. Um we also had a Fed rate pause. Um so Fed met uh yesterday afternoon, uh Wednesday afternoon, uh decided to keep rates where they were, three and a half to three seventy five, I think is where we're at. Um and so kept rates where they were. No surprise to the markets. Uh I think what you're just starting to see though is you're starting to see the Fed uh you know participants uh coalesce around that one cut uh this year expectation. Um why why is that the case? Well, number one, we've got a new Fed chair coming in, so I don't think anybody's trying to make any big bets uh before that change takes place. Uh but obviously if you go back to the dual mandate of the Fed, it's inflation and then it's employment. Um obviously the employment side of things is is continuing to you know deteriorate is probably a strong, uh too strong of a word, but continue continuing to be a little bit less uh positive, meaning that you know uh job creation has slowed a little bit. Uh, and we've also seen uh you know some layoffs in in pockets, and we've obviously got uh you know potentially more layoffs that are either AI related or just economically related uh for efficiency gains. So the labor market uh is softening uh and we're also seeing hourly earnings come down, um, you know, kind of to the tune of being right in line, uh hourly earnings growth being right in line with inflation. So the labor market is softening. So on one hand, the Fed has you know some ammunition to say, okay, well, we see this softening, we can cut rates into that. However, on the inflation side of things, uh, given the recent spike in commodity prices, uh, that has follow-on effects to inflation. Um, obviously commodities is not part of core inflation, but commodities do go into a number of products that are part of that core inflation basket. Uh and I think there's some apprehension from the Fed that those commodity prices will have some follow-on effects uh that are additive to what we've seen from in the, you know, in the way of tariffs uh that have come over the last uh 2025 and still have impacts in 2026. Uh so you got commodity impacts plus tariff impacts. So I think that's got the Fed thinking that maybe inflation uh has the potential to resurge. Um, although we do try to keep a wide aperture and look at all the influences on inflation. So one of the, I would say, uh dampening aspects that we potentially could see on inflation is is housing and shelter costs. Uh obviously we we know that you know the the housing market uh as it relates to single family homes still you know substantially undersupplied. However, on the multifamily side, that's going to be apartments. Uh we've we we do know that there is a significant supply build, and that supply build has you know kind of peaked, I think, in 2025. Uh so that has the potential to allow for some either stabilization in rents or maybe even some softening uh in rents at that as that supply is absorbed by the market. And so that has a potential of you know kind of softening that shelter cost. Uh when we work at it when we work with our private market data suppliers, they can look at their own properties. They have also confirmed that they are seeing you know some softening in rents in pockets, you know, obviously real estate's always local. Uh they've seen some softening in rents uh or or just you know smaller increases that they're able to uh achieve. So that's a typically a lagged effect on CPI. Uh CPI does not capture rents directly, it captures more of a survey-based metric. Uh, and so it takes a little bit of time for that data to come through. So you do have some balancing effects there. Uh consumption, you know, typically um volatility in the markets, uh, negative wealth effects that we've seen so far this year with the markets, you know, kind of being a little bit negative. Um, that does have the impact to, or that does have the potential to negatively impact consumption. And so that would uh uh be additional, you know, an additional headwind to inflation. Um, but obviously those are things that we're still waiting to play out in the data. And so that's uh you know, that's definitely something that uh we're keeping a close eye on. But I think the Fed is also kind of saying, okay, we're gonna take a wait and see a data dependent uh approach here. Uh so let's uh switch gears. So if um you know if you talk to somebody that's trying to market private assets, uh, I think the recent conflict in Iran, the war in Iran, uh was a a welcome uh little change in in news flow because the news flow has been overwhelmingly negative for private markets and really focused on one particular asset asset class, which is private credit. And I think it's even worth probably mentioning that you're starting to see I would call it private credit wars, where you know, over the past uh you know couple of years, call it 2022 to 2025, uh I think most suppliers of private credit, most sponsors of private credit funds were just happy to be in the market. Uh everybody was seeing inflows. Um, really hard to differentiate, you know, a top-tier fund from a you know kind of less uh less so fund or a mid-tier fund. Um however, you know, typically we what you hear is when the tide goes out, you find out who's swimming naked. Uh and that's likely going to be the case with private credit over the next year or maybe even two years. Uh so what are we seeing in the private credit markets? So, number one, private credit, uh they do tend to lend to companies that are SaaS-oriented companies. That was something that attracted a lot of attention to the asset class over the last few years. However, those companies have come under pressure. Uh, their earnings of SaaS companies are obviously uh potential, have the potential to be disrupted uh with AI technology. However, that's you know still uncertain. I think there's apprehension about that, but there's not agreement about that uh particular angle uh today. And some companies likely will be disrupted. Some companies will probably be able to take advantage of AI and actually strengthen their their software models, and so that's kind of TBD, but I think what that introduces, that trend introduces into the market is uncertainty, and you're seeing that borne out in equity prices, you're also seeing that borne out in the prices of loans that have been made to those portfolios. Now, I think one thing is is worthwhile mentioning uh when we look at our private credit portfolios and we've invested in a number of different sponsors, you do see some of those loans held at discounts to par, right? So some of those loans are priced at a level that implies that there's going to be some losses. I think just pointing out something though, for a private credit sponsor to lose money on a loan that they've made that's typically senior or at the very top of the capital stack, uh, for them to lose money on that loan, the equity has to be completely wiped out. And what we've seen in public markets and other you know areas where we can observe the value of these companies is that the equity has not been wiped out yet. So there's some you know, discounts, the companies are trading at discounts, but they're not trading at zero. And so just kind of keep that fact in mind uh for a loan to lose money in the private market space, typically the equity has to be fully wiped out. Uh, the reason I think this is worth mentioning is because when most of these companies are are lent to, they're being lent to at you know kind of a 35 to 40 percent loan to value ratio, meaning that there's a good chunk of equity that has to disappear before that loan takes a hit. Now, what we're starting to see, a couple of the of the news stories that have come out, the most recent one I think was JP Morgan uh and Jamie Diamond saying that they're gonna they're gonna back away from lending to private credit sponsors, they're gonna back away, or or they may force repricing of uh portfolios of private loans that they have lent to as a lender to a fund of private loans, which is an interesting development. Um, you know, one of the travels that I did, so after spring break, I was able to go to a conference in New York as a private uh asset conference. I'm not gonna name the name of the sponsor, um, but in the uh in travels to that conference, I did walk by the new JP Morgan uh tower, JP Morgan Building, it probably has a better name than that. Uh, it is an it is an architectural marvel. I would highly recommend anybody visiting you know the kind of the midtown area in New York, uh, if you're if you're you know able to just do a quick walk, walk by that building, it is it is astounding. However, the day that I was walking by that building, uh it was fairly cloudy, and so standing at the foot of that building, you would look up, you could not see the top. And so it clearly reminded me of sort of like a villain's tower, right? And out of every comic book, out of every superhero movie, you know, you can see the tower that the villain you know lives in, and he's up at the top floor controlling the world or controlling his evil empire, um, but there's typically clouds surrounding that building. So that's that's the impression that I got, which was you know kind of very timely because it was about the same time that news was coming out that JP Morgan uh was going to be backing away uh or or forcing higher discounts uh to some of the portfolios that they've lent to. Now, one of the things I think that is interesting is you know, JP Morgan has has obviously been in the press uh several times over the last few months. Uh I I wouldn't say bashing private credit, but uh definitely using the term cockroaches. Um and so you know there's there's definitely concerns uh and I think it's worth taking uh their opinions uh at uh with a little bit of grain of salt because they're a competitor in that space, but also you know, the the comments aren't coming without merit, right? There's definitely some loans that are challenged in those portfolios. So what I thought was helpful is just to think through, you know, what is a really uh, you know, kind of a bear case uh scenario to think of for a private credit portfolio, and then what could that do for returns? So most investors that have owned private credit over the last couple of years have experienced, you know, pretty good results, very low volatility uh returns, you know, in the 9, 10, 11, 12% range going back 20, you know, 2021, 2022, 3, 4, 5. Uh so fairly healthy returns with pretty minimal risk. Uh and that's typically, you know, uh the result of an expanding economy. You know, typically firms are growing their earnings, they're able to pay their debts. Uh, and so that's you know, everything is is great, right? So now 2025 or the back half of 25 and 2026, we're going through a little bit of a different environment. We're starting to see some of those companies that we, you know, may have had really uh positive uh growth expectations. Some of those growth expectations are coming down or turning negative. Um and so you're gonna start to see some corrections in these portfolios. Some of these portfolios, or I would say most of them, have already been marked down, you know, a handful of percentages, call it three to five percent uh at the end of 20 uh 25, December 2025. These portfolios typically don't price every day, but they price you know once a month or once a quarter. And so they've already been marked down a few percent uh to reflect some of those discounts in the market. So if you think about like what's a really bad scenario, if we go back to some of the you know historical loss scenarios, GFC or COVID, um, when there was stress in the markets, you know, uh a high level of defaults is probably you know mid to uh mid to low double digits, right? So if 10% of your portfolio defaults or 10% of the companies that you lent to default, that's a a pretty significant or pretty large number, right? So if you take that number, 10 to 15 percent, and you said, okay, well, when a when a company defaults on their loan, it doesn't mean that you lose everything, right? As the debt holder, you're entitled to the asset of that company. So the equity holders obviously do get wiped out, but the debt holders they get to recover something. So a reasonably conservative recovery rate is probably in the range of two-thirds, right? So you got 10 to 15 percent of a portfolio, you know, in some type of default, and this is again bare case scenario in a real substantial uh economic contraction. So you got 10 to 15 percent in default, recovery of two-thirds of your assets, so you're losing, you know, maybe three to five percent of capital, right? And that's loans that have probably been paying uh, you know, for the most part, paying over the last couple years. Some of that discount is already priced in. Like I said, most of these portfolios are discounted, you know, at the nav level about three to five percent. Uh, so some of that's already been absorbed. And then if you spread that loss of you know, additional three to five percent over a couple years, you're looking at uh maybe a two percent headwind uh in values this year, maybe another two percent headwind in values next year. Uh those portfolios, though, the companies that are not uh defaulted are obviously still earning a positive return, typically in the range of you know eight to ten percent. And so you take that eight percent on the low end, you subtract out your two percent per year, you're still you still tend to be in a positive earnings scenario. Um, but your positive earnings uh coming off the back of some really good years probably sound a little bit more like cash level returns. So maybe you got some soft years. So if if your experience as the investor in these funds over the past three or four years has been pretty good, you know, low to mid-double digit returns, maybe some high single-digit returns, but we're with really low volatility, you may have a couple years that you know are kind of more mid single-digit returns, um, still with modest volatility, but a little bit higher volatility. Uh, and that's you know, I think a fairly conservative expectation of the experience that might be going uh in with these funds, right? So just kind of keep that in mind as we go through like the news stories that are trying to uh you know paint this asset class as you know significantly under pressure. There's there's some truth to those stories, but the magnitude of pressure, the amount of you know potential loss, uh is still fairly in, at least in our view, going to be fairly well contained and may not even result in a negative return year uh for these portfolios, given that they are well diversified across hundreds of loans, different sectors across the economy. They're not 100% you know software loans uh in the portfolio. So they do have you know good diversification built in. So with that in mind, obviously, again, as the tide goes out, we're gonna see the funds that that have structured themselves with the best protections, the best underwriting, uh, you know, the best operations. Uh, we're gonna see those funds hopefully rise to the top. And and I expect that, you know, and and hope that uh the the funds that we've selected for our clients are are in that basket so far. Everything that we see uh confirms that expectation. Um, but obviously there's there's more time we'll tell the full story. Uh I think it's always good to look at, okay, well, what's the impact of that in the total portfolio context? And do we still have diversified portfolios? So obviously when we build private portfolios for our clients, they're a diversification tool that we use to complement the public assets, to complement the public equities and fixed income. But we typically don't see an all-your eggs in one basket approach when it even comes to privates, right? So we have private credit is a stable, you know, kind of foundational component of a lot of our private portfolios, you know, good low-risk returns, the attractive, you know, premiums over public market uh counterparts. But then we also look at other asset classes, real estate, infrastructure, private equity. All those asset classes, uh, you know, they go through their own times of challenge and they go through their own kind of times of of boom or or uh you know better returns. And what we saw, you know, I think private real estate's a good example. Private real estate went through some weak times. Uh, not surprisingly, when you go from zero interest rates to 5% interest rates on cash, right? That pressures the return of real estate because real estate uh you know projects and real estate um uh properties they do tend to borrow. And so when rates increase, your cash flows decrease, there's less left over for equity holders, and it also makes it more difficult to pay uh to pay your debts back in full. And so real estate went through some challenges over the last couple years. Uh, I would say that the headwinds to real estate are abating. Uh, you know, obviously the headwinds to interest rates, interest rates are still a little bit more elevated uh than we'd like them, but they've come down a decent amount, uh, and they are also looking to have some stability, at least in the near term. And so for real estate, that's at least not a headwind, right? It could be a potential tailwind. I think it's probably a little bit more neutral now, but the headwind has been removed. And the other headwind to real estate, uh, again, going back to that zero interest rate environment, a lot of projects got approved. It was very easy to pencil in projects that looked profitable because you were working with very low cost of capital. Uh, that resulted in a lot of inventory being delivered to the market, especially in the multifamily housing space, but even in some cases in the industrial space, uh resulted in a lot of inventory being delivered. Obviously, rates increase, those projects don't pencil in, the development of that new inventory uh declined substantially, and so 2026 we're again seeing that headwind of too much inventory being delivered with not enough people to consume it. That headwind is also looking to be removed, right? So whether it's you know, whether we call that the environment for real estate uh significant tailwinds or just the removal of headwinds, I think the uh the the ice is thawing for real estate. Um, so it's definitely looking better you know going forward than it does look uh than it than it does going backward. Uh infrastructure, another asset class that we've uh allocated to for a number of years, um, has some you know merits in terms of historical returns, very attractive historical returns, but also has some merits in terms of inflation inflation protection, stability of cash flow, uh certainty of contracts. Uh that asset class continues to be attractive. And the one thing that I think you guys have all probably heard about now, so infrastructure does involve building out of data centers. Data centers, if done correctly, if contracted correctly, uh can result in some pretty good, you know, growing cash flows that have a lot of certainty around them for many years in the future, uh, based on just how they're structured. They're typically take or pay contracts, they typically last, you know, 10 to 20 years, if not longer. Uh, and so those aspects make uh infrastructure generally, you know, a little bit more above average attractiveness. But then you also got to think about the traditional infrastructure asset classes, you know, pipelines, uh roads, bridges, and tollways, airports, you know, those assets are likely because there's so much uh attention and capital being directed uh to the data center world, um, those areas are probably gonna be a little bit light on capital deployment, which means that if there is some softening or some slowdown in the build-out of data centers, those assets, those traditional infrastructure investments will be ready to go. There's probably a lot of shovel ready projects there as well. Uh so just kind of keep that in mind when we look at portfolios, we don't we expect to have a diversified approach. When real estate was struggling, private credit was doing really well. Private credit slows down, some of these other asset classes will come in and fill the gap, right? So that is the true meaning of diversification. We don't want all of our asset classes, we don't want all of our funds working exactly the same and outperforming at the same period of time. That would not be a diversified portfolio. So we always know that there's something uh working in the portfolio. We always know that there's an opportunity, uh opportunities present ourselves, and we continue to be looking for those opportunities. Um, last before we sign off, just wanted to kind of reiterate we did make some updates to our tactical portfolios. Again, we do keep an eye uh on markets, even when things are getting volatile, even when people will have to travel out of the office, we're still keeping an eye on what where the opportunities are. Um, a couple weeks ago made some adjustments. We actually reduced our overweight to value. Um, so value, you guys remember at the start of the year, was uh showing some of the most significant discounts uh that we had seen in in this investor's lifetime, but also had some catalysts, some tailwinds where we're starting to see, you know, towards the end of 2025, uh some of the the companies that are investing heavily and taking on debt in the uh build out of these data centers, the market was starting to reject uh that thesis or at least reject that debt formation a little bit more. And so that kind of gave a little bit of a catalyst for value to start performing. Uh so we added to our value overweight earlier this year. Uh value had done quite well in the first couple of months of the year. So we we saw those uh spreads compress a little bit. And so we took a little bit of that value overweight off the table. We actually added momentum back to the portfolio. You guys might recall we removed them momentum uh sometime towards the end of 2025, uh, mainly because the uh the cost of those momentum stocks, the the winners, were priced at such a premium that we said it's it's really hard to see that premium continue continue to build and really just takes one crack in that story uh for that premium to be eroded. And so we did see that crack form. So now that momentum stocks have kind of you know come down to earth a little bit more, we think it we thought it was a good time to get back into that uh that style of investing. So you'll see those two things show up if you're a user of our model portfolios. Um that's about all we have for today, you guys. Uh hope you enjoyed the conversation. Uh really interesting uh stuff to keep uh tuned into. Um we'll be back in a couple weeks to see what's going on with Iran. We'll talk about our portfolios again. If you guys have enjoyed this podcast, please hit that like button, share, uh, subscribe, and if you want to find out more, just come visit us at avidianwealth.com. Stay diversified.