Weekly Market Wrap - The MOST important things

On this weeks show I spoke with Geopolitical expert Matt Gertken, PhD of BCA Research. Matt very generously jumped on a quick call to give us his latest thoughts on the Middle East turmoil.

There are signs of de-escalation but you have to look past the rhetoric. Both need an off-ramp but Trump needs it quickly. Iranian's also are gambling that they wont cause a global recession by disrupting the Hormuz strait. 

All covered here for you in under 30 minutes.

Transcript

SPEAKER_04 0:08

This is a disaster for the United States. It is a disaster for the whole world. The US and Israel have thrown the entire world into turmoil. Perhaps into World War III.

SPEAKER_02 0:23

If we do have a doubling of the oil price sustainably, that typically coincides with the recession. If we have a significant slowdown, persistent high headline inflation, the Republicans are going to get wiped out in the midterm election, meaning that they'll lose the Senate, not just the House, because they're definitely going to lose the House. They'll lose the Senate, and then also the odds of President Trump and the Republicans, like the odds of the Republicans winning in 2028 would fall pretty substantially.

SPEAKER_06 1:06

McNamara, uh who's a very controversial figure, but had a number of lessons that he learnt during that period, um a very guilty conscious perhaps. He's number one rule was empathize with your enemy. And it's very, very hard to see how President Trump is empathizing with the Iranians uh with his 15-point plan. It's not just the Americans that need an off-ramp here, so do the Iranians. It is March 27, 2026, and no surprise what's dominating financial markets global economy this week again. It is the war in Iran. So we're gonna focus on the most important thing. If we look at where we are at the moment, are we in de-escalation phase? There is talk that we are moving towards de-escalation. There's evidence of that.

SPEAKER_08 1:59

We have had very, very strong talk.

SPEAKER_06 2:02

The Iranians have been strategically quite clever, there's no doubt about it. They have prepared for war. In fairness, Trump gave them plenty of warning that it was coming. And their targets have been carefully selected as well. Looking at the United Arab Emirates, for example.

SPEAKER_07 2:19

Iran has uh a huge arsenal of short-range ballistic missiles and drones that it can use against the Gulf states. And the Gulf states present a target-rich environment. Uh it's easy to use those drones and those short-range ballistic missiles to do great damage to all of the countries in the Gulf, including Saudi Arabia.

SPEAKER_06 2:51

Why have the United Arab Emirates and Kuwait been the predominant targets of the Iranian regime? The basic reason is the US has bases there. You've got Dubai's Jebel Ali is a major US naval port. If you look at the map, you can see that Dubai uh UAE is very close to Iran, so geographically it's easy to hit it. The UAE has deep ties with the US, it has normalized relations with Israel, and it is very high profile. All those YouTubers, all those so-called influencers uh streaming the attacks all over the world. They basically were the Iranian Revolutionary Guards marketing team for the last couple of weeks. So you've got the ma so you've got a major global business hub, a major global tourism hub, massively disrupted. In terms of the good news, we can point towards there being a trickle of traffic allowed through Hormuz Strait. Um it is a trickle though. Talking about maybe six or seven uh tankers versus pre-war, there was 130 tankers a day going through uh the strait. But it's still what matters is the rate of change, not really the level. So it is pot it is positive. It's better than not in going through, and perhaps it this is an Iranian olive branch uh to the Americans. But in terms of the Iranian strategy, also, they have said repeatedly that they will look for the what the American president does as opposed to what he says, and you can have to have some type of sympathy uh for the Iranians there. Twice they were in negotiations, twice Trump um ended up bombing during negotiations. So, what what has uh what has been the military response? You've got 3,000 elite paratroopers uh the sec 82nd Airborne Division deploying to the region. Uh I think 2,200 Marines are due to arrive today. So that's a lot of personnel. That's actions that uh maybe inform the Iranians about what's actually going on.

SPEAKER_08 4:57

With their worst nightmare. In the meantime, we'll just keep blowing them away, unimpeded, unstopped. Well, there's not a thing they can do about it. They can't do anything about it, you know, right?

SPEAKER_06 5:10

As an aside, there's been a lot of focus on Trump's 15-point plan, but less attention has been uh received in the Western media on Iran's response, on Iran's five-point plan. So what are they? I looking at three of them, no more assassinations, seems reasonable. Um reparations for the war at point number two, and this is the big one sovereignty over the Hermuz Strait. So that's that's definitely not going to happen uh given the potential huge disruption uh to energy supplies globally. But there's no mention of nuclear weapons in their five-point plan, which was the pretext that Trump gave uh for war, and the Israelis gave for war that there was imminent danger, imminent threat of attack. We're hearing imminent threat of a nuclear attack from uh Iran going back twenty-twenty-five years.

SPEAKER_09 6:03

If not stopped, Iran could produce a nuclear weapon in a very short time. It could be a year, it could be within a few months. They have the wherewithal, the stored up uh preserved knowledge to make a bomb very quickly, uh, if they wanted to do it. Iran is so dangerous, weeks away from having the fissile material for an entire arsenal of nuclear bombs. They're very close. They're six months away from being about 90 percent of having the rich uranium for an atom bomb. Iran is gearing up to have to produce 25 bombs, atomic bombs a year, 250 bombs in a decade. Ladies and gentlemen, time is running out. Iran will be capable of producing alone, without importing anything, nuclear bombs within three.

SPEAKER_06 6:50

So the critical point here is this point number three sovereignty over the Hormuz Strait. Iranians are potentially charging uh two million a ship. They're potentially strong arming uh oil companies to pay them fees for safe passage uh through the strait. And as a British MP recently said, uh there's nothing straight about the Hormuz Strait. And yes, it's split between Omani and Iranian waters, but that congestion zone, the strait itself, is on the Iranian side. And what has been revealed most strikingly, I think, is the inability of the so-called global superpower to disarm Iran, to uh reverse Iran's complete control over this extremely important waterway.

SPEAKER_00 7:44

Well, Iranian officials have responded to Trump's latest comments about negotiations with defiance in a news statement. A spokesman for the armed forces said Iran would never compromise with the United States.

SPEAKER_11 7:58

Do not call your defeat an agreement. The era of your promises is over. Today the world has two fronts, truth and falsehood, and every freedom-seeking person will not be deceived by the waves of your media. Has a level of your internal conflicts reached the point where you are negotiating with yourself?

SPEAKER_06 8:13

We do actually have data on the number of drones and missile attacks launched from Iran since the war started, and that is instructive as well in terms of Iran's tactics. I mentioned that the UAE and Kuwait have been targeted. In terms of looking, I have my map here, the very famous map of the region, so we can see that Saudi Arabia obviously has the highest proportion of crude petroleum product exports. So as a percentage of global consumption, energy energy consumption from the Middle East, from the Gulf region, we have Saudi Arabia making up 7.6%. Next is Iraq making up 3.5%, we have Kuwait, 2.3%, UAE, United Arab Emirates 3.6%, then we have uh Iran itself 1.7%. So interestingly, a small relative poor proportion uh of that 20% of global crude and petroleum products coming through the strait, Bahrain 0.4%, and Qatar uh one percent. So why is Iran targeting Kuwait? Why is it targeting UAE specifically? It's because of the US base, the c and Qatar that clear alignment uh with the United States. In terms of the daily uh missile count, we can see that on the twenty-eighth of February, uh March first, over three hundred drones, ballistic and cruise missiles hit the United Arab Emirates. And in the recent days, uh perhaps weeks, this has ceased. So there seems to have been a change in tactics, okay, uh, from Iran. It's interesting to look at the makeup of the targets over the last month. On the first of March, Iran sent almost a thousand individual strikes on Gulf nations, including the United Arab Emirates, Kuwait, these were the prime targets. And but there's been a shift now in terms of less targeting of the Gulf states, although UAE and Kuwait remain the main targets, uh, and more targeting of Israel. So the Israeli contact numbers have been uh pretty consistent throughout and increased uh recently. So, but despite all the rhetoric, there's been a noticeable uh decline in joint attacks by Israel, US also on Iran. So the daily event count has dropped from 100 to below 40. So while the rhetoric is really ramping up, both sides have reduced their attack numbers and declined in terms of their own military activity. We need to watch for the different types of attacks over the next few days and weeks ahead. And that will tell us the mindset of the Iranian uh leadership in terms of if Iran if Iran continues to target shipping and energy infrastructure, this is escalation. It will be considered that they're not really ready to negotiate. However, if Iran restricts its uh attacks to just military targets, non-economic or symbolic targets, then it's likely that they've entered this de-escalation phase of the contract conflict. There is a narrative out there that Iran has nothing to lose, and you know, uh it's this religious ideology where they're just going to go for broke and they've nothing to lose. That is uh lazy narrative in my opinion, because if this blockade, if this if this closure of the Hormos Strait leads to a global recession, which is becoming more and more likely, there will be huge consequences uh for the Iranians. I mean, uh let's be honest, China isn't gonna love it, India isn't gonna love it, is you know, bottom line here, as I said with the statistics there, per the individual countries in the Middle East. Middle East exports are absolutely crucial uh to the global economy, to the health of the global economy. I have to admit that I might be overbaking the de-escalation side of things as well, because an index that I stumbled across was the Dirty Tanker Index, and this index tracks the costs of shipping crude oil. Uh normally it rises when demand is strong, but right now it's spiking while actual shipping is collapsing. And you might say, well, why is that? It's because there's massive fear, uh uncertainty, ships just won't enter the region, and insurance is being pulled, routes are disrupted. So even though tankers exist, they're effectively uh unavailable. And that's creating this artificial uh scarcity and prices are exploding. So global oil supply is beginning to fracture. Uh and when this dirty tanker index behaves like this, it's not about demand anymore, it's really about fear. So watching that as a leading indicator as well uh will be important. In terms of the market reaction, again, we said last week that we were surprised uh with how equity markets have held up. So if we look at traditional measures of equity market volatility, we can talk about the VIX index or the so-called fear index. That's been very subdued uh relative to other periods of stress in financial markets is still under 30, as far as I know. But credit spreads are widening. So this is the compensation that investors will look for for getting more exposure to more risky elements uh of say the bond market. So the spread between, say, German government bonds and a German corporate or a French corporate or another European corporate. So investors, active investors, active managers will be looking for entry points here if they can see that credit spreads are widening as the market uh reacts and starts pricing in some of this extended risk. Um it's important as well, the old lot of discussion about safe havens and why has gold not worked and and what even defense, you can look at defensive ETFs had initially had a very good rally, but then have sold off. Okay, and that's been very surprising as well. You imagine defense stocks would have done extremely well in this environment. But what's really jumped out for me is that you cannot analyze assets in a vacuum, you have to understand their momentum and their price action in the previous uh 12 months. So you look at gold, just blew through 3,000, 4,000. These defense stocks were on an absolute tear since the uh Ukrainian war, the Russian invasion of Ukraine. But there could have been some profit taking here. Interestingly enough, the dollar has been the safe haven of choice. Um, we look at the US economy. I think the US economy is kind of like Muhammad Ali uh doing the rope a dope on George Foreman during the rumble in the jungle. Everybody thinks they're down and out, uh, but he just slips off the rope and lands that uh overhand right, and George Foreman is on his backside. The U The US economy is like Muhammad Ali, extremely resilient, tough. Everything you throw at it, it's come back and back. But this may be the proverbial straw that breaks the camel's back. Will the rope adopt continue? Uh, there is evidence of a of a stroke of a slowing US uh job market. We know that the capex situation with AI does that hasn't gone away, you know. That's still there. Uh savings rate is is depleted post-pandemic. Rising energy price, higher for longer uh central bank in the United States could be hugely problematic for the US economy. Where are the stresses? There's no shortages of stresses. We've got valuations were uh extreme even before all of this. Is it the end of the CapEx capital expenditure boom with AI, private credit? I'll come back to that in a second. Geopolitics everywhere, world on fire. The market climbs a wall of worry, they tell us. It's a particularly steep wall of worry at the moment. Does it mean you jump off the wall? Absolutely not. But maybe you locate a ledge somewhere and just rest on it for a little while. That's the analogy, perhaps. So, what about Europe? So moving away from the United States, and let's look at Europe. There is a higher stagflationary risk in Europe. There's no doubt about it. What is stagflation? Stagflation is a rising inflationary environment. So the rate of change, marginal rate change of inflation is rising, and we get a slowing growth. So it's stag, stagnant growth, inflation, rising inflation. And that's a pretty miserable existence because you have no growth, real wages are probably declining, and the cost of everything is going up. So and it's tricky to find assets that perform well in that environment. What's escalating things in Europe is that pre-this US-Israeli war on Iran, roughly 12% of European Union's petroleum imports uh originated in the Persian Gulf. Roughly 8% of its gas imports originated in the Persian Gulf. So Europe is a net importer of oil and gas, whereas the United States is a net exporter. So you can imagine there's some real tensions now between the European leaders, and I I know that there's some meeting today in the G between the G7 uh regarding the Russian invasion of Ukraine and also it's it's gas, the Russian literally gas, the Russian invasion of Ukraine, that hasn't gone away. You know, that's still going on. But it's amazing the media just focus in on uh the next big thing, the next big idea, the next distraction as such. But that war is still raging on, and we have this war in the Middle East as well. Bottom line is a spike in energy prices disproportionately hits the European region harder, and that's higher inflation and weaker growth. It is a real shame because European markets had finally begun to recover. There was funds coming from the United States, there was money leaving the United States, um, de-risking perhaps on a valuation basis into European markets. But that's going to become a more challenged story, in my view. Now we can look at some of the economic indicators. So, how do we try and look around corners? There's leading indicators. So the leading indicator is something like purchasing managers index, that's where they survey these senior purchasing managers in these huge companies and they ask them questions about their future purchasing expectations, expectations about the economy, and we can see that there is contraction in uh the European PMIs. So before the war, uh Eurozone purchasing managers index was heading towards 52. That's an expansion. Over 50 expansion on a simple basis, under 50 is contraction. This has now declined to 50.5 in March and likely to go lower into a contraction phase. So the Americans aren't the only ones that detest rising petrol or gas prices, as they say in the United States, right?

SPEAKER_10 19:21

If you could say something to President Trump and he was gonna hear you right now, what would it be? You are a worthless pile of and you voted for him how many times? Three times. That was my bad. Apparently, I'm an idiot.

SPEAKER_06 19:39

The Eurozone consumer confidence has also slipped across the three major economies like France, Italy, and Germany. So a statistic I have here is the cost of a 50-litre tank of diesel in Germany has risen by over 21 euros compared to the week before the war. So how does this play out? Likely rising inflation as the put through of energy costs hit everything else. Look at the monetary policy backdrop. Look at this central bank. The European Central Bank has cut interest rates very aggressively eight times in the last two years. So now we're going from a situation where they were talking about another interest rate cut to potentially higher rates. Okay, so potentially pricing in the market has already priced in two more two rate hikes uh in Europe. So what does this do to European government bonds? What does this do to European stocks and the outlook there? It's it's trickier. The European, the EMU, uh MSCI stock price in euros is down nearly 9% uh from its peak in February 25, where that uh move away from United States stock market was happening. There is evidence of a sectoral um reallocation towards defensive sectors like uh healthcare and materials, uh, and a move from the more industrial uh base. There's no doubt about it that Iran will be fully aware of the European Achilles heel, and this is a key point, as is President Trump. But Mr. Trump has his own Achilles heel, and it's all about the midterm elections that are coming up in November in the United States. This is incredibly important. In October 2025, polymarket odds of a Republican retaining the House and retaining the Senate were almost forty percent, with the Democrats at half that, they were at twenty per cent. So now today, March twenty seventh, twenty twenty six, looking at these odds completely flipped, with the Republicans retaining the House and the Senate at fifteen per cent, and the Democrats retaining both, not just the House, and retaining the Senate going above fifty percent. So that is an incredible flip. And we can see more evidence of Trump losing former allies.

SPEAKER_03 22:04

There's no plan here. This has been mishandled at the minimum. It was probably ill-conceived, regardless of how it was handled. And what does Trump do to the people that are against the war? He tries to annihilate them.

SPEAKER_06 22:19

Why we're even paying attention to this guy is because he is influential. Whether you like him or not, you're hard to like his politics, but he has a very influential following, and the likes of him turning against Trump is very instructive. So I'm going to finish up by listening to two individuals. The first is Professor Steve Keane. So Steve Keane is somebody that I have been watching for a long time. He was one of the few voices that predicted the 2008 financial crisis. 2005 himself, another famous forecaster of the financial crisis, was the former Indian central banker Rajam Rajaran. And two very well respected individuals. Definitely one that you need to tune into. Next week, there's going to be a focus on geopolitics. Surprise, surprise. But we're going to look at full interview with Matt Gertkin, BCA Research, and also a name that would be very familiar to a lot of Irish listeners, Dr. Constantine Gurjeff. So Constantine would have been very prolific during Ireland's financial crisis a number of years ago. So really interesting conversation with both of those experts in geopolitics in trying to understand the broader structural drivers behind what's going on in this crazy upside-on world. If you're wondering what's behind me, there's the bull. I know it's it's kind of weird looking with the horns, but anyway, uh for people that have listening to this, I would suggest maybe looking at it on YouTube or Spotify video also, because you get to see the clips and it's a bit more of an enjoyable experience. The second person to close this off is a former chief of MI6. Sat down and gave a recent interview with uh the Economist, I believe, podcast, and you know, no fan of the Ayatollah or the Iranian regime, but just calls it the way he sees it, and we like that on the show. Hope you enjoyed the show. Have a great weekend, and tune in next week for Geopolitics Special and our Market Rap again. Thanks for listening, thanks for supporting the show. Please spread the word. I should say to finish up that all the information here is for educational purposes and entertainment purposes only. Does not constitute financial advice. I am a financial advisor, I am a certified financial planner and a trust and estate practitioner. I run a wealth management firm here in Dublin, but uh this is not financial advice because every person's circumstances are unique to them, and I am completely unaware of each listener's risk tolerances, attitude to risk capacity for loss, etc. etc. So please consult your financial advisor, please uh get expert advice before you make any decision or risk any of your hard won capital in these uncertain markets. Hope you found it useful. Take care, thank you.

SPEAKER_05 25:40

But the reality is that um uh the US underestimated the task. And um I think as of about two weeks ago lost the initiative to Iran. In practice, the Iranian regime has been more resilient than I think anyone would have expected. Uh they uh took some good decisions actually, uh as as early as last June about dispersing their military capability and delegating the authority for the use of those weapons, which has given them uh significant extra resilience against this incredibly powerful um air campaign.

SPEAKER_01 26:23

I've always been a non-orthodox economist. I've always criticized the mainstream and tried to look to alternative, what I regard as more realistic ways of modeling the economy. And I discovered the work of Hyman Minsky in what he called the financial instability hypothesis, which is what I did my PhD on, and that argued that capitalism was prone to debt crises caused by private debt. So that's what I focused upon. Then in 2005, I took a look at the level of private debt both in Australia and America and realized that the level of private debt compared to GDP was growing at an exponential rate. It had to stop growing at some point, and when it did, credit would go from being adding to demand to subtracting for demand, and I expected to be a huge financial crisis as a result of it.