Let's talk about Iran not shaking the markets and concerns.... - Belle of the Ranch

[TexasTowelie]

Well, howdy there Internet people. It's Belle again. So, today we're going to talk about Iran not shaking the markets and concerns.

As the oil price remains elevated and the market doesn't fall the way many are expecting, questions are starting to come in about what it means for everybody.

"Belle, I'm watching oil rise as steadily as the sun, and the stock markets are shrugging it off. I know you're focused on the military stuff because you can actually turn it into English. This week, I learned the MISO was something other than a soup, which is cool, but I'm dying to hear why you think the market is only down about 5%?”

My answer is pretty simple. But let's go over what the big names say first.

Bank of America Securities global economist Antonio Gabriel has a pretty simple explanation. "While a quick resolution to the conflict is certainly a possibility, we view the conflict extending into the second quarter as an equally likely outcome and a more protracted war cannot be ruled out. However, markets seem to be pricing a largely transitory shock.”

Okay. Investors are underestimating the potential for this to be a big shock. He went on to say, "In our view, markets are focusing mostly on inflation while more disruptive scenarios for global growth may be underpriced."

That part makes more sense. They're more worried about the danger they're familiar with. Younger investors may literally not be aware of how bad an oil supply shock can rattle the world.

The global commodity strategy head over at RBC Capital Markets seems to be predicting a longer fight. “Expanded US war aims as well as Iranian asymmetric capabilities and desire to restore deterrence could prolong the conflict well into the spring. We believe that we will exceed the Russia Ukraine oil price highs of $128 per barrel in 2022 if the war continues for another three to four weeks with minimal progress on maritime security and that we will surpass the 2008 peak of $146 per barrel if it extends for several more months.”

Okay. Well, I can say I'm pretty confident the markets won't ignore $130 or $140 per barrel oil and the accompanying inflation. People who were talking about Biden inflation will look back fondly on those days.

Why do I think the markets haven't reacted yet? Mainly my standard answer to explain the massive overvaluation in the market. The market is completely untethered from the underlying economics. That's why we're still sitting at a Buffett indicator of something around 215%.

But beyond that, there's a little bit of ignorance about the risk of a supply shock. There's still the tariffs. There's the Fed meeting right around the corner. There's a weak job market. The AI bubble getting even more bubbly, and persistent inflation, and the market is barely reacting.

Basically, there is too much to effectively price in. So, the market isn't really pricing in anything and is still just running on emotion, hoping it can outrun all of that. It might be worth remembering that even Usain Bolt tripped once or twice.

Anyway, it's just a thought. Y'all have a good day.