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You're listening to Strictly Business
Podcast with Lindsay Williams.

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We knew it was going to happen, it has
happened, but the trick now is to work out

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what's next.

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I'm talking, of course, about the Iran
invasion by Israel and the United States

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of America.

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With me from 91 in London is head of
multi-asset income, and that's John

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Stockford.

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John, we did know it was coming because of
the build-up of the ships all around that

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region.

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but as I said The reaction of the markets
was fairly predictable, but how much more

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predictability will there be?

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It's suddenly a little bit more uncertain
than it was right at the beginning.

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Yeah, I think that's true to an extent.

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I mean, I think we are quite used to sort
of geopolitical shocks that have a market

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impact and then,

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you know, they tend to fade with time.

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This one, though, I think people maybe
were expecting it.

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to be over after a day or so.

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So rather like the sort of Venezuelan
operation.

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But actually, it sounds as though it may
go on for a bit longer.

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I think Iran has more to throw back than
Venezuela did.

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And they obviously have proxies and so
forth.

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And so I think there's a sense that they
want to, you know,

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finish or at least finish the job to a
level that they can declare victory or

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Trump can declare victory.

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And walk away.

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And clearly, it's escalated to some extent
in terms of drawing in, you know,

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neighbors.

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And there are question marks about, you
know,

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how long aerial defensive systems can
continue to repel missiles,

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given there's a limited supply of
defensive missiles.

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So yeah, I mean, I think there's a lot of
uncertainty in the market.

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So at the moment, the market's repricing
for that.

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But But I guess at some point we would
still expect it to be.

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you know, the market will settle down and
then reverse and probably get most of the

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way

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back to where it started in a few months.

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One of the things you can do, of course,

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is put up a giant graph in your office and
you can show geopolitical events and

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overlay the

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performance of the market.

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And what you'll invariably see is
geopolitical event number one market dips

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and then either rapidly rises or rises
back

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over a period, but then goes higher.

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And that will happen, I suppose.

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But it's a question of how quick it's
going to be and how deep the little dip is

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going to be.

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And it's interesting because it's suddenly
got a bit worse with the Nasdaq down a

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couple of percent and oil prices having
shot up another

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7% to around $83 a barrel.

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And this is the thing.

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Every single report I read, hastily put
together probably, is focusing on the

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Strait of Hormuz.

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And that really is very important because
it's 20% of the world's energy goes

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through there.

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And if oil goes to, I don't know, 90 to
100 for a while, then the Fed and all the

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other central banks might have a little
bit of a

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problem.

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Yeah, again, I think that's right.

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So it's not just oil.

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It's also liquefied natural gas, which,
you know, is important across the world,

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particularly as a sort of feedstock for
electricity.

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And so, you know, the price of that shot
up too.

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The big buyers there are Asia and Europe.

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Europe obviously no longer can get.

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its gas easily from its neighbour in
Russia.

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So, you know, you're sort of seeing, I
think,

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a bigger risk premium being built into
European stocks, Asian stocks, and so on.

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US also, but I think there are winners and
losers.

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So defence stocks, energy stocks, etc.

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And we've obviously seen some backing up
in bond yields, which reflects, you know,

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concerns about a lasting boost to

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inflation.

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Again, I think typically these things get
overdone.

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For us, I think it's more about what was
the situation before this happened?

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How long is it going to last?

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And how much of it in the impact might be
lasting.

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But generally, I think focus on looking
for opportunities that get created by this

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either things

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that have sold off too much, or things
that have rallied, you know, quickly and

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maybe too far that are So.

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in line with the thesis that you had to
start with.

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And there we're sort of focused, I think,
on, you know, what's happening in terms of

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global activity,

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what's happening broadly in terms of
global inflation rates.

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But in particular, we came into this
pretty cautiously position because we

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think a lot of

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equities in particular and corporate bonds
have been priced for no risk and

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perfection.

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And maybe this is a reminder that there is
a bit of a risk, but we think there are

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other bigger risks out there in terms of

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you know valuation of of ai in general
sort of speculation across a range of

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markets and so we're we're

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sort of thinking more about how we want to
be positioned for that in the medium term

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and then we'll see what opportunities

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this noise or volatility gives us.

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That's not to diminish its importance for
people in the region, but in terms of

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market impact,

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our central view is it's unpleasant, but
it won't last.

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Exactly.

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The unpleasantness is going to make a
comment that you're now probably from the

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school of the big chart on the office wall
saying this is what happened last time.

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There was a similar geopolitical event
down and then up again.

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It's also interesting you use the phrase
priced to perfection,

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because this might be a kick in the
backside for the markets to say it's not

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perfect,

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there'll be a bit of a sell-off and that
will give people the chance to sort of

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recalibrate and say, yeah, they were too
risky up there.

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The line of least resistant was to the
downside.

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And we got the excuse to sell off given to
us by the Iran situation.

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But you're lurking in the wings, are you,
at 91?

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Yeah, I would say so.

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So as I said, we were fairly defensively
positioned.

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So net-net, we're probably looking for
opportunities to buy weakness in bonds and

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to a lesser extent in

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equity markets.

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And I guess, you know, we're not rushing
in because it does look like this might

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last a week or two or possibly a month.

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We don't think it can last too long just
because, you know, there is, I think,

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a limit to the level of defense that the
Gulf states and Israel and the US can

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maintain.

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And, you know, Trump's going to want to
declare victory and they're not going to

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want to go down the sort of forever war
route.

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I think, you know, that was something that
he was pretty clear on when he ran for

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office.

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So he's talked about four or five weeks
and some things are happening, you know,

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on a faster timeline than they expected.

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So our best guess is it probably isn't
over in a week.

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The other thing that might curtail it is
if the stock market really starts to move

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or the bond market really starts to move.

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You know, we've seen that there's limited
appetite in the White House for economic

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pain.

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And so, yeah, that could be another thing.

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So I think the Iranians are going to want
to hold on and not see a regime change, I

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think,

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and hope they can outlast Trump.

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Trump's going to want to basically
neutralize them as far as possible and

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then declare victory.

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And so we may end up in a position where,
you know, it's the same regime in power,

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but with less ability to project.

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And Trump saying...

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job done, whether the Israelis and others
agree with that, we'll wait and see,

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and what it means for the longer term
stability in the Gulf and so on again.

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But I think for major markets, we're all
waiting for, okay, Trump to declare

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victory, essentially.

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Yes, there is the chance, of course, that
there's going to be a struggle, a power

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struggle that could go on for quite a
while in Iran.

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I'm talking about politically now, maybe
there's someone coming in to continue with

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this strong arm sort of regime,

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and they...

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crack down even more than they have been
doing so quite recently.

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They threaten the West with the Strait of
Hormuz being blocked or tankers being

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firebombed or whatever it is that they're
going to do.

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And there also could be a power struggle
with other factions within the country.

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So also instability.

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And markets don't like instability,
certainly not in that region.

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And one other thing I have to ask you, do
you ever think that maybe the Trump allies

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in the Middle East,

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some say you get fed up with him and
Netanyahu and say, We're not allies with

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Israel.

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We're fed up with your golf courses and
your crypto ventures and your wars.

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And we're going to go back to our roots.

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There's lots of things out there for
conspiracy theorists.

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Yeah, I mean, I think there are a lot of
moving parts.

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And these things are easier to start than
to, you know, end in a way that you plan.

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I guess we tend to take the view that, you
know, the regime is pretty well embedded.

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There's opposition, but it's not.

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necessarily joined up.

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And there is a power structure that is
quite repressive.

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And to some extent, Trump, I don't think
is particularly interested in democracy,

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if you look at what happened in Venezuela.

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So, you know, I think he'd be quite happy
if either the existing regime or, you

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know,

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some internal coup happened,

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and you end up with an autocratic set of
leaders with whom he feels he can do a

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deal.

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You know, I think he'll be looking to say,
OK,

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in exchange for not pursuing your nuclear
ambitions and not projecting terror in the

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region,

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you know, we'll start to relieve
sanctions, etc.

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So I'm cynical.

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He's particularly interested in the
welfare of the Iranian people.

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I just think he's keen to do to do a deal.

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That's what he does.

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Whatever that deal may be.

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A very final question.

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At what stage do you as head of
multi-asset income at 91 in London sit

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down with the team and say, wait a second,
this is getting serious.

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The oil price has now averaged 87 over the
last three weeks.

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It doesn't look as though it's going to
end.

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Oil is going to potentially go to 100.

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There's only three months worth of stocks
worldwide.

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So inflation is going to start to rise and
you sit down and you do a bit of shifting

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in your portfolios.

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Yeah, I mean, as I said, we're relatively
defensively positioned, so we can add

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risk.

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So I think we're in quite a good place to
be.

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I would say, in addition, fortunately,

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we went into this with the world fairly
well supplied with oil and also, you know,

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OPEC willing to sort of continue to step
up production.

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Although obviously that's to some extent
impacted by the potential or the actual

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closure of the Straits of

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Hormuz.

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So it's not.

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entirely straightforward.

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China, you know, for what it's worth,
they've got about 100 days, I think, of

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oil in reserves.

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They've been very diligent in building
reserves.

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So, yeah, I mean, I think it's the longer
it drags on, the more damage it will do.

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But our base case is the US doesn't want a
ground war like Iraq.

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And even in the case of Iraq, you know,
you did have fairly quickly, oil went up a

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long way,

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but then it did come.

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back most of the way.

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So, you know, it was probably the first
three to six months, you know, the Ukraine

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invasion, actually,

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that was a pretty short lived impact on
energy prices, it was pretty severe, but

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it was pretty,

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pretty short lived, and so on.

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So I think, you know, history suggests
that these things are painful,

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but they're probably an opportunity to
look for things that are hit hard, unless

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something, you know,

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really Thank you.

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has changed that is material but i think
in many cases you shoot first and ask

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questions later i think uh

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you know that's in most cases i mean
clearly you were asking about the gcc

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whatever the the gulf you know i think
business models there

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might be more permanently damaged or at
least temporarily damaged in terms of

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people's

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willingness to fly with those airlines
holiday there and live and work in the

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region that's definitely something and
that's a

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consideration I think, for those
countries.

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But also, yes, they're probably going to.

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want to put pressure on Trump to make this
quick.

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But they probably also don't want Iran to
be left with an offensive capability,

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given it's shown its capacity to fire at
its neighbours.

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So yeah, we shall see.

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It's unpleasant, but it's fascinating.

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And thanks very much for walking us
through it.

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John Stockford is head of multi-asset
income at 91 in London.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors.

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and do not reflect the policy, position,
or opinion of any other agency,

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organization, employer,

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or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
reflective of the position of any other

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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change, revision,

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and rethinking at any time.

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perpetuity.
