Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: War, geopolitics, tariffs. How is an investor supposed to navigate
Speaker 2: their way through an environment where the US bombs Iran's
Speaker 2: nuclear sites, Israeli drone attacks have taken place in the
Speaker 2: Middle East, as well as aircraft bombing raids. All of
Speaker 2: this comes after months of noisy tariff announcements and walking
Speaker 2: those back geopolitical wrangling. What are investors supposed to do
Speaker 2: when a war breaks out? I'm Barry Dheltson on today's
Speaker 2: edition of At the Money. We're going to discuss how
Speaker 2: to manage your way through war, tariffs and all manner
Speaker 2: of headline risks. To help us unpack all of this
Speaker 2: and what it means for your portfolio, let's bring in
Speaker 2: veteran markets journalist and CFA Sam Row. Sam's known for
Speaker 2: his clear, data driven insights into markets and the economy.
Speaker 2: He is a journalistic veteran who has worked at Forbes, Yahoo,
Speaker 2: Business Insider, and Axios. His sub stack ticker was named
Speaker 2: by the Society of Business Editors and Writers as the
Speaker 2: best in Business for twenty twenty two. So Sam, let's
Speaker 2: start with something you wrote recently. Quote the US stock
Speaker 2: market has a long history of demonstrating resilience in the
Speaker 2: face of major geopolitical risk events.
Speaker 3: Explain that, Yeah, I mean it's every couple of years
Speaker 3: or every couple of months. I think you and I,
Speaker 3: or you and your clients and me and my readers
Speaker 3: have the same kind of discussion. Some conflict breaks out
Speaker 3: fallatilly it comes to the markets. What are we supposed
Speaker 3: to do? And you know, of course, you know, as
Speaker 3: a human being, this is very scary. As someone who
Speaker 3: cares about or has friends and family connected to those events,
Speaker 3: it's really distressing. And then you put your investor hat
Speaker 3: on and think about, you know, what does history tell
Speaker 3: us here? Now, obviously every event is going to be
Speaker 3: slightly different, but history also tells us that the markets
Speaker 3: seem to eventually look past this. Even with what's going
Speaker 3: on in the Middle East right now. I think for
Speaker 3: as long as we've been alive, there's been some permutation
Speaker 3: of a Middle East conflict, and it's always been scary,
Speaker 3: and there's always you know, secondary effects in the financial markets,
Speaker 3: whether it's with oil prices or volatility and interest rates
Speaker 3: and currencies and all these sort of things. And I
Speaker 3: think for traders who are trying to weave in and
Speaker 3: out of this. It's a big deal, and you really
Speaker 3: should be paying close up a tension to every development here.
Speaker 3: But you know, as someone who has to get somewhere
Speaker 3: in terms of retirement and long term savings or if
Speaker 3: you're saving for your college, your kid's college fund or something,
Speaker 3: you have to wonder, you know, what does five years
Speaker 3: out look like, what does ten years out look like?
Speaker 3: What does even three years out look like? And you know,
Speaker 3: when you see some of these reviews of various geopolitical
Speaker 3: events in the past, there are some conflicts that go
Speaker 3: on for a very long time and may or may
Speaker 3: not have a sort of a longer term impact on
Speaker 3: the financial market. But for the most part, the market
Speaker 3: hits tend to be very brief. I think I saw
Speaker 3: something from Deutsche Bank recently that reviewed something like thirty
Speaker 3: geopolitical events of the last hundred years, and from the
Speaker 3: beginning of the event that triggered, you know, the conflict
Speaker 3: to the bottom of the S and B five hundred
Speaker 3: on average, and the median stretches about fifteen days.
Speaker 2: Fifteen trading days, essentially three weeks. So that's kind of interesting.
Speaker 2: You you said something not too long ago that I
Speaker 2: thought was intriguing, and I'm wondering if it was geared
Speaker 2: to investors or traders. Stocks usually look past geopolitical events,
Speaker 2: but these events shouldn't be ignored. How do you have
Speaker 2: it both ways?
Speaker 3: Absolutely? You know, I think I think one of the
Speaker 3: mistakes that a long term investor can make is to
Speaker 3: try to pretend like nothing else is happening in the world.
Speaker 3: I mean, of course, you know this stuff matters, and
Speaker 3: you know we're going to fall news in our personal
Speaker 3: lives and all that kind of stuff. But you know,
Speaker 3: sometimes we want to just ignore all this stuff, especially
Speaker 3: if we have, you know, fifteen twenty thirty years until
Speaker 3: we actually have to begin selling these stocks. But I
Speaker 3: don't know if that's totally healthy, because maybe the study
Speaker 3: says fifteen days till the market bottoms, but the study
Speaker 3: might also have a range of out comes where it
Speaker 3: might take three years till the market bottoms.
Speaker 2: Fifteen days is the average, but that doesn't necessarily mean
Speaker 2: each time it's going to be fifteen days exactly.
Speaker 3: So I think, you know, you definitely want to be
Speaker 3: mindful of the possibility that things can get worse, like
Speaker 3: even with what's happening right now. The markets seem to
Speaker 3: have bounced back pretty quickly all the time highs, all
Speaker 3: time highs. We're within reach of all time highs. But
Speaker 3: that doesn't mean, you know, there isn't going to be
Speaker 3: another flare up, you know, tomorrow, or next week or
Speaker 3: in a couple of months. So I think you have
Speaker 3: to be mindful of the fact that this stuff is
Speaker 3: going on in the world. And then you go back
Speaker 3: to the history and say, hey, the odds actually say
Speaker 3: people want de escalation. People would rather not have violence
Speaker 3: out there, and that involves all parties. And so as
Speaker 3: long as there are more people who would rather not
Speaker 3: have violence than one violence, I think there's some gravity
Speaker 3: toward the escalation and a pullback and violent activity.
Speaker 2: So let's delve into the history of we'll deal with
Speaker 2: tariffs in a little bit. Let's talk about war. There's
Speaker 2: a history of the last century of small wars, large wars,
Speaker 2: world wars. We have World War One and World War Two,
Speaker 2: we have the Korean War of Vietnam, Iraq in nineteen
Speaker 2: ninety one, and then Afghanistan and Iraq and three and
Speaker 2: today it's Imran, which seems to have been building. I
Speaker 2: don't know since nineteen seventy nine, when the hostages were
Speaker 2: taken following the Iranian Revolution. How should investors, not in
Speaker 2: their personal or family life, but as stewards of capital,
Speaker 2: contextualize the dangers of war and the dangers of being
Speaker 2: frightened out of the market because of war.
Speaker 3: You know, it's I was just having a conversation about
Speaker 3: this the other day about you know, this whole matter
Speaker 3: of you turn on the TV and someone will tell you, well,
Speaker 3: uncertainty is elevated today, uncertainty. It doesn't make sense that
Speaker 3: the market's so high because of all this uncertainty that's
Speaker 3: out there. Well, uncertainty just defines the nature of investing
Speaker 3: in the stock market. Right, if there was no uncertainty,
Speaker 3: you wouldn't get a great return.
Speaker 2: Right if you want, if you want certain returns, you
Speaker 2: can get four point something on the ten year treasury.
Speaker 3: Right exactly. But I was just thinking about, you know,
Speaker 3: the history of conflicts, especially you know, in the Middle East,
Speaker 3: and I remember when the Gulf War started in nineteen
Speaker 3: ninety and you know, I was eight years old and
Speaker 3: I was looking at the data and apparently that was
Speaker 3: a pretty rough time, both in the oil markets, and
Speaker 3: in the financial markets, and it was a tough time
Speaker 3: to to be an investor, you know, going through all
Speaker 3: this volatility, because you know, maybe this is it, maybe
Speaker 3: this is the end of of of all that. But
Speaker 3: then you know it's it's not long after that you
Speaker 3: realize that's actually an incredible time to start putting money
Speaker 3: into sam Rose five pointy. I wish my parents put
Speaker 3: money into a five twenty nine plant at that time,
Speaker 3: but they didn't. But again, you just look backwards and
Speaker 3: if there's any if there's a more powerful force than
Speaker 3: geopolitical tensions, it's going to be everyone's desire to want
Speaker 3: things to be better. And even from like a business perspective,
Speaker 3: you know, they want better technologies, they want things to
Speaker 3: be cheaper, they want things to be faster, and that
Speaker 3: force that's driving earnings and profits and productivity and the
Speaker 3: economy and employment and quality of life, standards of living
Speaker 3: and all this stuff, you know, will continue to be
Speaker 3: the dominant force in the markets. So I think that's
Speaker 3: what people miss. Like if you were to be able
Speaker 3: to if you could put all that into like a
Speaker 3: pie chart. Sure you have these flare ups and you know,
Speaker 3: geopolitical events, but the dominant forces, you know, remain.
Speaker 2: That makes a lot of sense. You mentioned oil earlier
Speaker 2: in the nineteen nineties, and especially in the nineteen seventies.
Speaker 2: Anytime we saw a Mid East tension, that always translated
Speaker 2: into higher oil prices, which then pushed into CPI inflation
Speaker 2: driving it higher. Are we in the same set of
Speaker 2: circumstances today? Ever since the new fracking technologies in the
Speaker 2: two thousands and the United States just cranking out oil
Speaker 2: for the past I don't know, ten twelve years at
Speaker 2: old time record rates. Does the US lesser dependence on
Speaker 2: Middle Eastern oil make it more or less likely that
Speaker 2: Middle East flare ups are not going to be as
Speaker 2: inflationary as they once were.
Speaker 3: I think it's going to be not as inflationary as
Speaker 3: they once were. One of my favorite metrics that's out
Speaker 3: there is energy consumption spending as a percentage of personal
Speaker 3: consumption expenditures, and that was somewhere that was floating around
Speaker 3: at about ten percent. Energy spending as a percentage of
Speaker 3: personal consumption household budgets, yeah, household budgets, Yeah, about ten
Speaker 3: percent in the late seventies, early eighties, and that's that
Speaker 3: steadily been declining and now it's closer to somewhere between
Speaker 3: three and four percent.
Speaker 2: That's amazing.
Speaker 3: Yeah, so energy, the direct spending on energy has has
Speaker 3: shrunk us significantly. And then past that, like you know,
Speaker 3: you know, the car you drive today is far more
Speaker 3: fuel efficient than the car you drove, you know, twenty
Speaker 3: years ago. So fuel economy has improved for you know,
Speaker 3: one of the biggest purchases of energy, which is gasoline
Speaker 3: for cars.
Speaker 2: To say nothing about hybrids and evs.
Speaker 3: Hybrids, evs. Your refrigerator is more energy efficient, the ac
Speaker 3: is more energy efficient. The the.
Speaker 2: We switched the natural gas from oil, I don't know
Speaker 2: ten years ago. It costs a fraction of what oil
Speaker 2: costs and and pollutes less. And you know, as much
Speaker 2: as people say natural gas is a problem, it's certainly
Speaker 2: much better than coal, right, and better than oil.
Speaker 3: Right right right. Having said that, it can certainly have
Speaker 3: a psychological effect on consumers, especially, we can spend all
Speaker 3: day talking about how I get, you know, twenty five
Speaker 3: miles per gallon now as opposed to fifteen when I
Speaker 3: first got my driver's license. But when you see gas
Speaker 3: prices go from two fifty to three twenty five in
Speaker 3: a very short period of time. That affects you because
Speaker 3: that's immediately coming out of you know, whatever your Starbucks
Speaker 3: budget might be.
Speaker 2: Huh, really interesting. So we've seen an argument pushing for
Speaker 2: home shoring. We'll bring these factories back to the US,
Speaker 2: We'll create all these new jobs. Is that realistic in
Speaker 2: the modern age of advanced automation, new technologies, artificial intelligence,
Speaker 2: and robotics. Are we really going to fill factories with
Speaker 2: workers or are we going to be filling new US
Speaker 2: based factories with a whole bunch of robots.
Speaker 3: Yeah? I think I think there's several ways to answer
Speaker 3: that question, and in every way it's going to be No,
Speaker 3: We're not going to have a ton of home shoring.
Speaker 3: We might have some at the margin. Everything happens at
Speaker 3: the margins, right, some people, some people who are saving
Speaker 3: you know, point zero zero one percentage point. You know,
Speaker 3: manufacturing China might figure out a way to move to
Speaker 3: the US. But for the most part, it's not gonna
Speaker 3: be that much cheaper to move your manufacturing to the
Speaker 3: US just because it was so expensive in China. You're
Speaker 3: gonna move to Vietnam, You're gonna move to Mexico, You're
Speaker 3: gonna move to Indonesia and all these other places where
Speaker 3: it might be more expensive than you know, China for instance,
Speaker 3: but it's still going to be cheaper than the US.
Speaker 3: So I think that's one of the unintended consequences of that.
Speaker 3: But as far as like what you're saying about AI
Speaker 3: and machinery and robotics and all this stuff, yeah, absolutely
Speaker 3: that's already happening. And so it's a question uh that
Speaker 3: like I don't know, I don't know if you can
Speaker 3: fight that, right, like, unless unless you decide that unless
Speaker 3: there's a po I'll see that decides that there's a
Speaker 3: limitation on how many robots you can have in your
Speaker 3: factories are or I mean it's this is not we're
Speaker 3: not even talking about production manufacturing anymore, or goods production.
Speaker 3: We're also talking about services, right everyone in the service.
Speaker 3: It's like AI has gotten to the point where it's
Speaker 3: not just affecting the assembly line. It's affecting people who
Speaker 3: go into an office and you know, go to meetings
Speaker 3: and strategize for their you know, their marketing departments or
Speaker 3: you know, if they work in banking, you know, suddenly
Speaker 3: you can cut a couple steps out of you know,
Speaker 3: putting numbers into an Excel spreadsheet.
Speaker 2: Really really interesting. So last question, how can investors balance
Speaker 2: staying invested against all of these geopolitical risks, war risks,
Speaker 2: trade war risks, tariffs, and just unexpected escalations. How do
Speaker 2: they balance the need to stay invested through this against
Speaker 2: the potential downside risks of all these headline.
Speaker 3: You got to study the history, and you got to
Speaker 3: look at the data, and you got to remember how
Speaker 3: bad things were at various points in history. Me personally,
Speaker 3: I like to keep a journal when bad things happen.
Speaker 3: I wish I had done this more actively during the
Speaker 3: financial crisis, but I didn't. I certainly did during COVID
Speaker 3: and something that I mean, you know, you can sort
Speaker 3: of get this by proxy through reading a really deep
Speaker 3: account of various historical events. But reading my own memories
Speaker 3: or my own real time accounts of something like COVID
Speaker 3: reminded me that it always feels like the end of
Speaker 3: the world, and it lasts so much longer than you expected. Like,
Speaker 3: you know, I have you know, fifty pages here where
Speaker 3: it's just like day after day after day. You know,
Speaker 3: we live in a new era where we're never going
Speaker 3: to be in the same office again, We're never going
Speaker 3: to meet anybody ever again, and all these kinds of things,
Speaker 3: And you know, it's something I like to do every
Speaker 3: once in a while, especially when things are calm.
Speaker 2: Right.
Speaker 3: It's one thing to be in the middle of a
Speaker 3: crisis and then study the history of crises and it's
Speaker 3: like no, no, no, no, no, this time it's different. But when
Speaker 3: things are calm, that's probably actually the best time to
Speaker 3: go back and remember things like, well, here here's another
Speaker 3: I'm sorry to sort of keeping. Oh no, I'm interested
Speaker 3: digress a little bit. I got a notification on Facebook
Speaker 3: saying that, uh, I think it was exactly fifteen years
Speaker 3: ago I submitted an idea for fixing the deep Water
Speaker 3: Horizon disaster. I don't know if you're if people remember this, but.
Speaker 2: That was Bpmico and Feinberg oversaw this. Yeah, yeah, I
Speaker 2: recall that.
Speaker 3: Yeah yeah, Gulf of Mexico and oil wall blows up
Speaker 3: and it's spewing oil into the Gulf of Mexico. Do
Speaker 3: you remember how long it was spewing oil into the gulf?
Speaker 3: Sixty days some crazy three months? Yeah, ninety days, wow,
Speaker 3: three months that they were eventually able to put a
Speaker 3: cap in it. And it took I think it took
Speaker 3: another two or three months to officially say this thing
Speaker 3: was sealed. Right, It's insane how long this went on.
Speaker 3: Four But you know, everyone's memory is gonna be, oh, well,
Speaker 3: it was something in the past. It's like I remember
Speaker 3: it being three months. Oh, I remember being it could
Speaker 3: have lasted longer than two weeks.
Speaker 2: But when you're in the moment in the humans live
Speaker 2: in the here and now, and when it's happening, especially
Speaker 2: day after day after day. It's funny you mentioned journaling
Speaker 2: during these things. I was essentially ended up writing Bail
Speaker 2: Out Nation in real time in public on the blog.
Speaker 2: I recall having a conversation with my trading desk back then,
Speaker 2: who were just like exhausted from the volatility. Everybody was
Speaker 2: making money, but it was exhausting. And there's this fantastic
Speaker 2: line in Apocalypse Now. Do you remember the Charlie Don't
Speaker 2: Surf scene where Dval goes up to Martin Sheen and
Speaker 2: he says, with this wistfulness, you know, Sun, someday this
Speaker 2: war's gonna end, like disappointed, and when you're in the
Speaker 2: middle of it, it feels like it's never going to end.
Speaker 2: Financial crisis is never going to end. Deep Water Horizon,
Speaker 2: it's not going to end. The tariffs war are not
Speaker 2: going to end. But we always seem to come out
Speaker 2: the other side.
Speaker 3: Yeah. And again, we just came out of COVID like we.
Speaker 2: Were really felt like it was never going to end.
Speaker 3: We were literally living a science fiction movie, like it's
Speaker 3: there's no there's no amount of money you can throw
Speaker 3: out this problem, like you just have to pray that
Speaker 3: the science is going to be good enough that we
Speaker 3: figure out how to come up with a vaccine and
Speaker 3: contain this thing. But the amount, the scale of death
Speaker 3: was unbelievable.
Speaker 2: Yeah, millions, millions of people America and tens of millions
Speaker 2: around the world.
Speaker 3: Yeah, and yet this, you know, the economy has never
Speaker 3: been stronger and the stock market has never been higher.
Speaker 3: So I think, I think, listen, it's not to sort
Speaker 3: of necessarily downplay what's going on in terms of you
Speaker 3: and it's not just you know, uh, eron. We still
Speaker 3: have a war going on between Russia and Ukraine. It's
Speaker 3: not forget about that, right.
Speaker 2: So it's the Middle East, it's Russian Ukraine. There are
Speaker 2: other hotspots going on Africa as well.
Speaker 3: Yep, and there's gonna be something else that's gonna flair up.
Speaker 3: That's inevitable. But you know, again, I think not the
Speaker 3: downplan of it. But to offer some perspective, it might
Speaker 3: help to go back and just sort of remember those
Speaker 3: times when things were really tough.
Speaker 2: So to wrap up, we experience these geopolitical disruptions in
Speaker 2: a form of duality. As human beings. We are aware
Speaker 2: of the emotional turmoil of the toll in human suffering
Speaker 2: and just how psychologically damaging all these horrific events are.
Speaker 2: And yet at the same time we have to be
Speaker 2: good stewards of our own capital and recognize that this
Speaker 2: too shall pass. I'm Barry Riudt Halts, and this is
Speaker 2: Bloomberg's at the Money. You know you talk about