recap/history/1775222175607-91up0VxYeNw.json

{"id":"1775222175607-91up0VxYeNw","videoId":"91up0VxYeNw","url":"https://www.youtube.com/watch?v=91up0VxYeNw","title":"The Macro Chain Reaction of Oil Shocks | Bob Elliott","type":"youtube","topicCount":14,"segmentCount":76,"createdAt":"2026-04-03T13:16:15.607Z","uploadDate":"20260318","chunks":[{"title":"Teaser: Central Banks and Oil Shocks","summary":"A short teaser from Bob Elliott emphasizing that central banks never ease into an oil shock.","entries":[{"text":"Bob Elliott: Central banks never ease into an oil shock. It doesn't happen. When you have an oil shock, it's a very difficult scenario for, basically, policymakers to respond to because it both increases inflation and decreases real growth. I think a lot of people are getting ahead of themselves on talking about the disinflationary impact of an oil price rise. The first step is prices go up, real spending goes down, and that's where we're at right now. Shit has to get bad before someone does something about it in order to make it fine. People are kind of looking through the \"has to be bad\" in order for something to happen and just assuming everything will be okay forever. And that's just not how markets or economies, certainly, have worked over the last hundred years.","offset":0,"duration":50}],"startTime":0},{"title":"Sponsor Read and Financial Disclaimers","summary":"An ad read for the Digital Asset Summit and a standard financial disclaimer for the podcast.","entries":[{"text":"Host: Before we get started, a quick reminder that Blockworks' premier institutional conference, the Digital Asset Summit, is returning to New York City this March 24th to 26th. This year represents more than $4.2 trillion in assets under management with 150 speakers and 700 institutions attending. Speakers include SEC Chair Paul Atkins, CFTC Chair Michael Selig, Fed Governor Steven Moron, and Tether CEO Paolo Ardoino, alongside countless other executives, asset managers, regulators, and the core crypto infrastructure builders shaping the industry. If you want serious institutional-grade view of digital assets in 2024, Digital Asset Summit is where it happens. Use code Forward200 for $200 off and head to blockworks.co/events for more updates.","offset":50,"duration":48},{"text":"Host: Nothing said on Forward Guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. As always, investments in blockchain technology involve risk, terms and conditions apply. Do your own research.","offset":98,"duration":20}],"startTime":50},{"title":"Introduction and the Desavings-Driven Economy","summary":"The host introduces Bob Elliott, and they begin discussing the recent oil shock. Bob explains how recent economic growth was heavily reliant on household desaving, putting the economy on a knife's edge.","entries":[{"text":"Host: Alright everybody, welcome back to another episode of Forward Guidance, and joining me is one of my favorite repeat guests, Bob Elliott of Unlimited Funds. Always one of the best folks to get on to understand high-level macro frameworks and how it impacts the world, the economy, markets, everything in between. Bob, always great to have you on here.","offset":118,"duration":20},{"text":"Bob Elliott: Great, thanks so much for having me. I feel like when we tried to find a good time, which was a few weeks ago, you know, the world was a very different place than it is today, so we'll just roll with the punches and talk about what's going on.","offset":138,"duration":12},{"text":"Host: Yeah, honestly, probably silver lining that, yeah, we were planning to do this a few weeks ago and then it got delayed and now we're in a completely different situation, completely different conversation that we're going to have. So, at least that, yeah, we're in amongst it now. We're going to try and put on our geopolitical hats on a little bit and try to figure out how to understand everything that's going on with the Iran strike and how it impacts the global economy. So, you've been writing a lot on your Substack, which is really great. You've been writing a few different pieces on how to understand the context of this oil shock, of the Strait of Hormuz being closed and its impact on the global economy. And yeah, like I said, you're really excellent at these high-level macro frameworks. So I just want to understand, to you, when you see something like this happen and you contextualize it with where the global economy was heading into this supply shock, what does it look like? How are you understanding this and how does it relate to different oil shocks that we've had, like the 2022 one, and even the '08 one? Like, we had a pretty significant oil spike back then that led into a recession. So yeah, walk us through how do you digest something like this when it hits.","offset":150,"duration":65},{"text":"Bob Elliott: Yeah, well, I think we were coming into the beginning of the year experiencing something that I called the \"desavings-driven economy,\" which I sort of describe in contrast to what was, for many years post-COVID, an \"income-driven economy.\" And what I mean by desavings-driven economy was we started to see, basically, that spending continued to hold up and investment continued to hold up despite the fact that, you know, it took more desavings from households to keep that spending going as labor markets weakened, and more desavings from businesses to keep their pace of investment, particularly related to AI and such, alive.","offset":215,"duration":43},{"text":"Bob Elliott: And so, that's sort of the premise coming into this, which in many ways created an economy somewhat on a knife's edge. Meaning, if things had gone well and the government was pursuing modestly expansionary policy during the year and asset prices lifted a little bit, we were probably going to at least meet those sort of expectations, maybe even do a little bit better than the expectations that were out in markets at the outset of the year. I think the challenge is when you have an oil shock, it totally rewrites the conversation, and the reason why that is is because it's a very difficult scenario for policymakers to respond to because it both increases inflation and decreases real growth.","offset":258,"duration":43},{"text":"Bob Elliott: And as a result, you know, policymakers are kind of stuck in that sort of environment. And part of the challenge is when we were coming in, we had already had a lot of desavings sort of baked in the cake, and so there's not that much room for additional desavings to be applied in this circumstance. Doesn't mean it's impossible or the households won't desave at all, it's just we're in a very different environment now than we were, say, if this happened two or three years ago.","offset":301,"duration":32},{"text":"Bob Elliott: And so, I think the challenge is basically for households and in particular that were already spending more than they were earning, desaving relatively rapidly, now you've basically added another 1 to 1.5 percent price hike across their basket of goods to households that were already spending at only about 1.5 percent to wrap up the year in real terms. And that basically means household consumption is likely to fall to zero in real terms. And for a US economy that's so reliant on household consumption to keep it going, you know, zero real household consumption is pretty antithetical to expectations of growth of 2 to 3 percent that we've become used to.","offset":333,"duration":38}],"startTime":118},{"title":"Comparing Current Vulnerabilities to 2022","summary":"Bob contrasts the current environment with the 2022 oil shock, noting that while both periods had elevated inflation, the current shock is projected to last longer and put sustained pressure on real spending.","entries":[{"text":"Host: Hmm. Yeah, so contrasting that with 2022, you know, back then we had probably one of the hottest labor markets we've ever seen, like job openings were just absurd. And so, I'd love to just hear, back then when we had that one in 2022, it seems like we narrowly missed a recession on its own. You know, some people debate the semantics that we did see a little one, but whatever. The fact is that we came out of that somewhat unscathed and it feels to me like that is because, yeah, the labor market was in an excellent place. People were stuffed with cash from COVID-era stimulus. Companies had plenty of cash as well. Things were good and we narrowly avoided any sort of major issue there. I get the feeling that, yeah, consumers and households, like you said, are in a very different situation right now. So I'm curious, like when you see something like this oil shock that leads to higher prices and then lower consumption, how at risk are we today versus 2022?","offset":371,"duration":58},{"text":"Bob Elliott: Well, I think 2022 is really helpful because to study it helps you understand all the different mechanics. So what happened, while the magnitudes are slightly different, the mechanics are actually super similar in the sense of going into it, we had a period of elevated inflation, you know, that was sort of underlying the economy. Now, of course, that was related to COVID shocks and it was at a higher level versus today, which is essentially, you know, tariff-related plus in terms of inflation dynamics, and at a lower level. But that sort of kindling that existed of elevated inflation in the economy before the oil shock existed in both places.","offset":429,"duration":40},{"text":"Bob Elliott: In both places we had actually basically the same size oil shock, if anything this oil shock might be larger based upon just what's priced into the curve. So, you know, leaving aside whether you believe that that's good pricing or bad pricing or whatever, if you just basically take the curve as the market price and the future path of oil prices, this one's actually going to be a bit higher. The '22 oil shock largely resolved within a year, meaning it started at the beginning of the year, it peaked first in March and then in the summer and then it went back to basically where it was to start the year.","offset":469,"duration":37},{"text":"Bob Elliott: Right now, oil prices are projected to be 40 percent higher at the end of this year than they were at the beginning of this year, so that's a more extended oil shock. And in that 2022 case, basically what you saw was you saw inflation continued to be elevated. Fortunately, nominal earnings growth was relatively strong during that period, particularly when you add in all the transfer payments that were still sort of in the system. It allowed households to desave in response to maintain their real spending to some extent, but you still saw a reduction in real spending.","offset":506,"duration":32},{"text":"Bob Elliott: And so those in the '22 period, if you just think about each one of those levers, it was like household spending was strong nominally, right, so picked up nominally, financed by desaving, but real spending fell. And that's a perfect example of this combination that I'm describing that comes with an oil shock, which is both prices rise because people desave in order to keep up their real spending as much as they can, and real spending falls. So it's really hitting essentially both sides of the Fed's mandate.","offset":538,"duration":32},{"text":"Bob Elliott: And what did we see in response from the Fed? Now, of course, it was sort of the unlucky outcome that forced the Fed's hands to transition from basically the transitory narrative to the not transitory narrative and hike a whole heck of a lot in response. And today what we're seeing is, at least so far, we've seen an unwind of expectations of easing to basically neutral policy. I think the real question is actually the next set of policies likely to go higher because this will be enough to sort of force the Fed's hand. Certainly in neither case did we see the Fed cutting into an oil shock, right? We didn't see that at all, we saw the exact, at least back in 2022, we saw the exact opposite.","offset":570,"duration":44}],"startTime":371},{"title":"Contextualizing the 2008 Oil Shock","summary":"Bob clarifies that the 2008 economic collapse was primarily driven by severe US credit problems, whereas the oil price spike during that time was largely a byproduct of emerging market demand.","entries":[{"text":"Host: Hmm. Okay, so if we just think about like a matrix of the quality of the economy going into these shocks, so you have the current one, you have the 2022 one, I'd love for you to also unpack what happened in '08 and what was the quality of the economy back then going into it, because obviously that one we saw oil prices surge and then we just had, yeah, one of the greatest, you know, the Great Recession, and oil prices crashed afterwards, and you know there's this whole demand destruction era. So yeah, I'd love to add onto the matrix here of what did it look like in '08 and how did that sequence of events look like.","offset":614,"duration":34},{"text":"Bob Elliott: Well, I think interestingly in the '08 cycle, there was obviously a huge surge in oil prices, I mean more meaningfully than we're seeing right now, and it was predominantly driven at the time by a tight market intersecting with relatively strong demand from the emerging world. You know, for those folks who were back around that time, there was this whole idea of a global decoupling, right, that maybe the US was going to face some pain related to its housing problems, but globally we were going to decouple and it wasn't going to be a problem.","offset":648,"duration":40},{"text":"Bob Elliott: And the reality was at that time that sort of global growth narrative, or the narrative of the data outside the US, was quite strong. And it was only when the credit problems emerged in the US that created the second and third order consequences through the US, the economy, and the financial systems system that we saw a withdrawal of capital that basically crushed the emerging markets and created that reduction in demand. And so, in some ways I think people who are not sort of living through that period might confuse and confuse that period as indicating a strong US economy, or even that oil price rises were a meaningful driver of the economic slowing that occurred. And they were pretty marginal, it was pretty fast, it was pretty marginal, and the big story there was the credit problems, because I mean the credit problems were an like the credit problems nearly ruined the entire financial system. So I mean it was just like orders of magnitude more important for the economy in the US. But what it did highlight was just how tight that market was and how reliant it was on emerging markets who then were sort of the ancillary took sort of the ancillary hit from the US financial problems.","offset":688,"duration":74}],"startTime":614},{"title":"Economic Lessons from the 1970s","summary":"Drawing comparisons to the 1970s, Bob explains that while the magnitude of today's oil price increases is smaller, the macroeconomic linkages of inflation leading to economic pain remain consistent.","entries":[{"text":"Host: Got it. Last historical analog I want to ask you to contextualize the situation, and I know I'm really testing your financial history, but you've also written a lot, studied a lot of big macro cycles, so I feel confident you can answer this one too. The other one is, of course, the 1970s oil shock and what happened there. Obviously that one was the Great Inflation that also ensued in the '70s. So yeah, lastly, I'd just love to understand what was going on there and how is it different from today.","offset":762,"duration":30},{"text":"Bob Elliott: Yeah, I think in many ways the linkages are similar to today, but the magnitudes are very different. And so I think people often try and draw analogies of magnitude, and analogies of magnitude are kind of silly because, you know, for instance back then, oil prices went up 4 or 5x, right? Okay, so oil prices today are not going up 4 or 5x, so we're not likely to see the same sort of magnitude of inflationary pressures in the economy.","offset":792,"duration":32},{"text":"Bob Elliott: But what that doesn't mean is that the linkages are to be ignored. The linkages are the same exact linkages at different magnitude. And so in that case, you really had a lot of ways I talked about the sort of post-COVID period I think as being very similar to sort of that late '60s environment where you had sort of persistent inflation that was gradually creeping up, large fiscal expansion, you know, large deficits, not much credit driving the economy. That's why I think the late '60s is actually a really not much sort of household credit or corporate credit or borrowing driving the economy. A very income-driven expansion that eventually got to a point where we had an oil shock, and that oil shock created a lot of pain in the economy, created a lot of inflation and pain.","offset":824,"duration":50},{"text":"Bob Elliott: And then we had another oil shock on top of it, right? And so I think it's a good analogy in the sense of sort of similar kind of kindling that existed, meaning like inflation was a little too high for a little too long, an oil price rise occurred, and then that created basically the conditions that we saw in '22 and likely to see here, which is rising prices and weakening real demand and real activity, creating a challenging circumstance which sort of forces the central bank and the Fed into tightening, even though it's kind of an unpleasant tightening given the set of circumstances that existed.","offset":874,"duration":39}],"startTime":762},{"title":"Household Income, Spending, and Desaving","summary":"Bob breaks down the mechanics of household income and consumption, highlighting the risk that higher inflation will force households to reduce real spending if they pull back on desaving.","entries":[{"text":"Host: Cool. Alright, so coming back to present day, we have an economy, as you mentioned, in the last few months was largely driven by desaving, so savings rate coming lower. And yeah, I want to contextualize that with what you were seeing in the health of, yeah, the consumer in terms of its spending potential and and what the incomes were looking like going into this. And so you mentioned that the current oil market is pricing in a crisis that is more extended than the 2022 one leading into this situation of an economy that is on a knife's edge, largely held up by desavings. And when you put that all together, how do you see things playing out from here on?","offset":913,"duration":46},{"text":"Bob Elliott: Well, I think coming into this, it's good to just start with the baseline dynamic and sometimes macro folks will try and make an economy more complicated than it is. Like, the US economy is basically households earning money and spending. Like, to oversimplify. And then there's some other stuff that goes on, but that's basically what it is. And so when we were coming into this, you know, let's call it through January, household income growth was growing at about 3.5 percent or a touch better than that.","offset":959,"duration":30},{"text":"Bob Elliott: How was that growing? That was growing by essentially zero employment growth and 3.5 plus percent wage growth year over year per worker, right? That's how you get that nominal wage growth. US households were spending at about 5.5 percent coming into it, on a 5.5 percent growth coming into it. How do you close that gap between those two things? Well, essentially it's just mechanical: the savings rate has to fall in response to that, or transfers have to pick up, but transfers have largely been the same through this period.","offset":989,"duration":30},{"text":"Bob Elliott: And so what you see there is you basically see that gap widening and widening, which is the labor market's weakening gradually, no acute crisis, nothing crazy, just kind of gradually weakening, spending trying to stay up as much as possible driven by that that savings rate. And then if you think about if you sort of work through those numbers, we had 5 percent nominal spending growth in an environment of 3 percent inflation, which led to 2 percent real spending growth.","offset":1019,"duration":29},{"text":"Bob Elliott: Okay, now let's fast-forward oil, introduce the oil shock. How does that change things? Well, the labor markets aren't going to really change in the next day or two, it just labor markets are like watching paint dry. They just basically carry on as they are, right? I mean slowly but surely might move in one direction or another. But basically what we're going to see is 3.5 percent wage growth. Real spending growth, the question is, okay, let's just say they keep desaving. You keep that 5 percent nominal spending, but now we've gone from inflation environment of near three to a inflation environment that's going to have a 1 to 1.5 percent increase, and therefore real spending is going to fall.","offset":1048,"duration":40},{"text":"Bob Elliott: Those are the numbers, that's the sort of the household math problem, I always call it. If anything, the risk is that households might hold back on their desaving to some extent, right? What I just described is that they continue to desave, they continue their pace of desaving or the savings rate continues to fall. If you have an environment where stocks are falling or there's more uncertainty or more concern, you might actually see households no longer choose to increasingly desave and they might pull back on that and bring their spending in line with income.","offset":1088,"duration":33},{"text":"Bob Elliott: That would be the biggest risk, because then we'd go from a 5 percent nominal spending growth environment to say a 3.5 percent nominal spending growth environment, in the context of inflation that could be in the range of, you know, 4 percent, and that's where you get negative real spending growth. And that creates the second and third order effects of on labor markets and incomes in the future. But we're kind of getting ahead of ourselves on that. I think a lot of people are getting ahead of themselves on talking about the disinflationary impacts of an oil price rise. The first step is that prices go up, real spending goes down, and that's where we're at right now.","offset":1121,"duration":35}],"startTime":913},{"title":"Monetary Policy Response to Oil Shocks","summary":"Addressing monetary policy, Bob stresses that central banks do not cut rates during an oil shock because they must prioritize containing inflation and long-term expectations over supporting near-term growth.","entries":[{"text":"Host: Yeah, I think, yeah, that was a that was a nice little segue into how do people try to understand the sequence of events here, especially of something like an oil supply shock because you look at something like '08 and it's like, well, look, you know central banks should have looked through that and been like, oh shoot, there's this huge negative growth impulse on the other side of things. So now you have everybody skipping the first step and saying we got to go straight to cuts. And then contrasting that with what so far the reaction from central bank pricing has been, mostly hikes or or at least less cuts in the case of the US. So I'd just love to understand how you're thinking about monetary policy within this context. So you have, like I said, you know the US curve is we had a few cuts, now we're down to like one, maybe zero. Other countries are are looking at even priced beginning of their price in hikes. And people will look at that and say, hey look, we should we should move to the next phase of things, which is begin to think about cuts because this is obviously going to be really bad for growth. But obviously you need the first to get the second, and I feel like that just needs a better explanation. So I'd love for you to unpack that.","offset":1156,"duration":63},{"text":"Bob Elliott: Yeah, yeah, I mean I was I was writing last night having gotten a lot of comments about how oil shocks are deflationary or disinflationary. And the answer is like, of course, reducing household purchasing power through higher prices can be disinflationary, right? But the question is, how does that how does that system work? Because what has to happen is the first step is you have to have the prices rise, which eat into the real demand capability of the household, which then creates the slowing of labor market growth, which then hurts nominal incomes, which then reduces nominal spending that then has an effect on overall prices. Like that's the path.","offset":1219,"duration":46},{"text":"Bob Elliott: And as anyone who's watched labor markets through time knows, labor markets do not move that fast. Like they just labor markets are boring. We try our best, you know, the first Friday of every month to make this thing exciting. Like the answer the reality is they are boring as hell. And so, don't forget that, that they take forever to play out. You know, if we had a reduction in real, say tomorrow real household spending went down to zero or started to contract, it would probably be 9 or 12 months before we would fully feel that effect in the labor markets.","offset":1265,"duration":39},{"text":"Bob Elliott: And so, the point is you got to focus on the first on first things first here as in terms of how this is likely to play out. And the first step is you're going to have those price rises. And so central banks, I think part of the story going back to your sort of the core of your original question, which is how do central banks respond to this stuff? Like, central banks don't ease into oil shocks. Go back, look through all of time at all central banks and how they've responded every single time.","offset":1304,"duration":31},{"text":"Bob Elliott: Like, who cares if you think it's a good idea or not? Like, I don't really care as a market participant as a fiduciary like what you think how you think they should respond is an irrelevant a totally irrelevant way of thinking. A lot of people spend time on it, it's totally irrelevant, it's useless, it's distraction. Central banks never ease into an oil shock. Doesn't happen. And so what are we seeing right now? Well, we're seeing what you'd largely expect, which is if oil prices are going to get, I don't know, a 1 to 1.5 maybe 2 percent inflation pressure through through these economies, a little less in the US a little more in places like Europe and the UK. Yeah, that's probably worth, I don't know, a couple of hikes over the course of the next year, meaning either going from two cuts to zero or from no cuts to two hikes. That seems like about right if you look back through time.","offset":1335,"duration":57},{"text":"Bob Elliott: The challenge is that that will, as I think people understand, will put more pressure on growth, right? But it's the only solution that they have because the biggest risk here, the biggest risk is that these central banks, having accepted elevated inflation for five years post-COVID, ease into this oil shock and then what are they going to do? Like let long-term inflation expectations rise radically? There's no way they're going to let that happen. That would be incredibly risky for them to do. So they've got to nip this in the bud and make sure it doesn't have the second and third order effects through the prices on the economy.","offset":1392,"duration":36}],"startTime":1156},{"title":"Bond Market Pricing and Risk Premiums","summary":"Bob observes that long-term bond yields have shifted upward without a meaningful expansion in risk premiums, suggesting markets are underestimating the persistence of elevated inflation.","entries":[{"text":"Host: Yeah. I guess the big question that people are trying to sort out is how forward-looking and efficient is the bond market going to price this in. Because obviously, to your point, it makes sense for initially the short end of the bond market to begin to price in some hikes and some hawkishness. But you would expect potentially to see the long end begin to price in that, okay, well look we're having this this oil shock and central banks are hawkish into it. If we're looking at a 10-year bond, maybe it makes sense to start to price in some some negative growth outlooks into that. But so far we've seen the long end of the bond market sell off pretty significantly. I know you've been bearish bonds, bearish stocks. So I'd love for you to just explain how you think about how and when the bond market prices in these events and the sequences of them.","offset":1428,"duration":48},{"text":"Bob Elliott: Yeah, I mean the long end of of the bond market, so far what we've seen is sort of the curve move up, basically. As as this is happened, and if anything what we haven't seen is we haven't seen a real expansion in risk premiums in the bond market through this event. And I think that's interesting because if you just sort of go back to what what caused sort of a lot of the risk in the bond market, what caused the big lift in bonds, was basically this transition in the post-COVID period, I should say, is a transition from basically no one in the world ever considering that we would have elevated inflation ever again to a world where people are like, yeah, it can happen, you know we'll we'll have elevated inflation again. And that forced essentially, you know some risk premium getting put into the long end of the curve into bonds.","offset":1476,"duration":53},{"text":"Bob Elliott: You know, what I see now is that there's not people are sort of in that point where they're like, oh, they're sort of have have memory that inflation is likely to come down to central banks' targets over the course of the next year or two, not recognizing that, you know inflation shocks can often have a life of their own. Meaning like if you get an inflation shock into already elevated inflation, just go back to 2022, what did we see? We saw a persistence, we saw inflation above these central banks' targets for five years.","offset":1529,"duration":38},{"text":"Bob Elliott: Right, we were year one into something that has played out for the last five years. And that was with massive tightening, right, a massive rise in interest rates. Inflation is still elevated across every major developed economy relative to what central banks' targets are. So far we have not seen a recognition that this could extend the life of that dynamic. And so when I think about what's getting priced into the curve, what's notable is so far there has not been a meaningful expansion of risk premiums in the bond market that should create steepness in the curve, should create a sell-off in the curve beyond basically just reflecting the fact that we need tighter monetary policy.","offset":1567,"duration":41},{"text":"Bob Elliott: And to be clear, that's true across the totality of basically financial assets, financial assets in aggregate. Like, risk premiums have not risen very much despite the fact that we've we've entered possibly a new environment of elevated uncertainty, and and yet, you know it's hunky-dory when it comes to how most investors are viewing financial assets at this point.","offset":1608,"duration":26}],"startTime":1428},{"title":"Sequencing Linkages and Asset Drawdown Signals","summary":"Outlining the sequence of economic events, Bob explains that bond yields must rise enough (near 5% on the 10-year) to meaningfully drag down economic activity, a chronological step that overly optimistic investors are ignoring.","entries":[{"text":"Host: Hmm. So, so what's your checklist or signals to look for for when to flip from being concerned about a hawkish central bank and inflation to demand destruction and negative growth?","offset":1634,"duration":12},{"text":"Bob Elliott: Yeah, great question. And part of the story that creates the weakness in economic activity that comes from an oil shock is from the fact that interest rates rise. Again, important to recognize the ordering matters. Like first interest rates rise, then there's a drag on the economy. And so what you need to see is you need to see interest rates on the long end rise enough, and short end to some extent, but really on the long end, rise enough to start to create a hit to economic activity and also create a hit to asset prices, right? Through the discounting effect.","offset":1646,"duration":36},{"text":"Bob Elliott: And so when I look at the market right now, you know bond yields right now are basically where they've been for the last six or nine months, right? Bond yields are like boring, right, you know if you had just slept through the last six or nine months you'd be like, oh, we're basically where we were before. So we got to see bonds move to something that's going to be you know create a more meaningful hit to asset prices and the economy. So that's moving up towards the 5 range, say on tens, in order to get a more meaningful drag.","offset":1682,"duration":32},{"text":"Bob Elliott: Now I think part of the story here is that there's not a lot of the economy's very sensitive to those financial conditions, so I don't think you have to have bond yields go up to 6 or 7 or 8 or something like that to start to create the reversal. I think the cap is closer to 5 on tens and then at that point that's probably enough of a drag combined with all the other things that we talked about to create you know the subsequent downdraft in bonds.","offset":1714,"duration":23},{"text":"Bob Elliott: But again, the ordering, I know it's I know it's hard to it's easy to sort of get ahead of yourself on this thing but you've got to like linkages are ordered for a reason because they have that ordered effect on macroeconomic conditions. And so I think in some ways we've almost been like so it's like we have a a a cancer of, you know, it's like the cancer of QE that people are like, okay well then everything's going to be fine, right? So why should I ever worry about anything?","offset":1737,"duration":31},{"text":"Bob Elliott: And the answer is like shit has to get bad before someone does something about it in order to make it fine. And like people are kind of looking through the has to be bad in order for something to happen and just assuming everything will be okay forever and that's just not how markets or economies have certainly worked over the last hundred years.","offset":1768,"duration":22},{"text":"Host: Yeah, that's kind of funny. It just reminds me of, like, 2022 era when you were fighting the battle of everybody was, I don't know, freaking out about Sahm rules and a recession back then, you're like look like here where we are in the economy, the labor market's pretty good, like we need to see the sequence of events to occur before we get to a point where things are bad, and it sort of feels like a mirrored situation here.","offset":1790,"duration":18},{"text":"Bob Elliott: Right, right. That's right, that's right. That's, I mean maybe it's just kind of a boring old macro person who writes down this linkage and then this thing and then this thing, who's studied too many cycles, um who who thinks in ordered you know in order in terms of how these things play out. But um but I think that's part of the advantage. Part of the advantage and the alpha opportunities that exist is when people don't think in a disciplined way about the ordering and just rush to one direction or one narrative or one intuition and away from another.","offset":1808,"duration":37},{"text":"Bob Elliott: I mean look when we look at what's going on with the pricing right now, like financial the biggest thing if you think about sort of from those folks who are trading markets, what's the biggest thing that oil shocks create? They create a a hit on financial asset prices as risk premiums as the Fed tightens, central banks tighten, and risk premiums expand, right? That's that's what they do. Uh and you know there's a long track record related to that. And so far if you look at what's going on with asset prices in aggregate, stocks are basically flat and bonds are basically flat since this whole thing has started. Okay, so like that is that is the inconsistency there, which is that across asset markets people are just not recognizing one, you know, that the oil shock creates this effect and they're rushing to the resolution down the line.","offset":1845,"duration":50}],"startTime":1634},{"title":"Global Impacts and Currency Market Dynamics","summary":"The discussion shifts to how energy shocks disproportionately harm importing regions like Europe and Japan. Bob argues that these macroeconomic fundamentals will dictate currency strength more than relative monetary policy.","entries":[{"text":"Host: Well said. Alright, so I want to I want to zoom out to the global economy and how this oil shock is hitting different countries, how it gets reflected in their currencies, and really divide it between countries that are importing energy versus energy exporters. Because, you know, you have Asian Asian economies or the European economy that are that are big energy importers and especially acutely tied to the Strait of Hormuz versus a country like the US which is nearly energy independent, has very little exposure and demand and dependency on the Strait of Hormuz and what flows through it. And I would just love for you to unpack like how does that get reflected in the impact of those economies and then how does that get shown in these currencies between energy importers versus exporters.","offset":1895,"duration":99},{"text":"Bob Elliott: Yeah, I think it's been one of the most challenging circumstances this year is for the first whatever two months of the year, the overwhelming narrative in market action was you know rest of the world stocks doing well, certainly better than expectations and the US trying to keep up and the dollar being a bit soft and and then we have this this thing that happens that basically runs counter to like all of that underlying trend that had existed before.","offset":1994,"duration":34},{"text":"Bob Elliott: Um, you know I thought we were going to talk about, you know, de-dollarization when we uh when we originally scheduled this. Like it was going to be an update on that conversation from last year, and and it's very much the opposite for exactly the fundamental reasons that you described, which is look, Japan and Europe are in bad shape when it comes to big oil price rises. That's just all there is to it. They are the, you know across the developed world, they're very sensitive to these things. And other jurisdictions, particularly Canada and the US, are in a lot better shape to absorb these dynamics.","offset":2028,"duration":37},{"text":"Bob Elliott: And so it's not that surprising that we've seen one heck of an unwind of the foreign stock versus US stock story in response to this, as well as you know some strength in the dollar. It's not it's not a huge strength relative to what we've seen in the past, but it's still meaningful. And I think that's a combination of the fundamentals plus I think a lot of people got caught offsides, you know, people kind of all in on one direction and got whipped back in the other direction.","offset":2065,"duration":27},{"text":"Bob Elliott: Uh at this point, I look at things and I sort of say, look, broadly on a relative basis whether you're looking at when you're looking particularly when you're looking at stocks, like we've largely priced in the differential effect of of these of these dynamics. You know, Japanese and European stocks have come back a ton, basically erase their their gains for the year. The place in aggregate that doesn't make sense I'd say is around the aggregate pricing, meaning like aggregate stock prices across the global economy. You know those have come down a little bit, but particularly when you add in the US, you know we haven't seen a huge hit to aggregate asset prices in the way um that we, you know even we haven't seen a quarter of the hit to aggregate asset prices that we saw during the '22 episode even though the shock that we're seeing here is um certainly on par with, maybe even a bit a bit more significant.","offset":2092,"duration":52},{"text":"Bob Elliott: And then when it comes to currencies, you know the real risk in the currency market is um you know I think again it's largely played out as you'd expect from the fundamentals uh with the dollar being favored relative to these other currencies. Um it is uh you know part of the story of what has driven these foreign asset markets is you know a lot of US investors looking elsewhere outside the US for you know more cheaply valued asset markets. If that really starts to unwind, you could create another dollar squeeze scenario which would be very detrimental to asset prices in aggregate, somewhat foreign asset prices, but really asset prices in aggregate as sort of the dollar wins. And I know you guys have been talking about that um in your um in your weekly conversations. You know, the dollar shock we should not totally forget the the risk of a dollar shock uh in this whole story. Um and you start to think about that from a risk management perspective that you might have a lot of risk if the dollar, you know, pushes higher here.","offset":2144,"duration":67},{"text":"Host: Yeah. I mean like just if you if you take what's priced on central banks at face value right now it just seems crazy to me that we're in a situation where like we could see the Bank of England or something hiking while the Fed is still on on a cutting bias. Like does that is there any evidence of that even being like something that occurs? Like I just I can't even imagine the impact on on currencies if that actually plays out.","offset":2211,"duration":24},{"text":"Bob Elliott: Well, I think it comes down to um it comes down to where like the Bank of England or the ECB are going to be tightening aggressively in an environment where they're experiencing a hell of a external drag from rising energy prices, which is probably a way more important story for them than is the incremental monetary policy. I I think often people um overfocus on relative monetary policies as a story for exchange rate movements.","offset":2235,"duration":36},{"text":"Bob Elliott: Like, just think about it, let's say the Bank of England tomorrow was like we're going to we're going to tighten 100 basis points. Be like, wow, that's that's a that's a big tightening, right? Well, 100 basis points in yield terms is like a one-day standard deviation in currency price terms. Like if you just think about it from a total return perspective it like is irrelevant, right? It's why like central banks if they're trying to maintain a currency peg have to tighten you know to a thousand percent or something like that because you have to be on an annualized basis because you have to be at levels like that to change the underlying supply-demand dynamic of an exchange rate.","offset":2271,"duration":45},{"text":"Bob Elliott: And so, um I think probably the relative monetary policy is just going to matter a lot less than the relative macroeconomic effects of the rising energy prices and those are so disproportionately uh in favor of the US and Canada to some extent and and negative for uh Europe and Japan that that's just going to drive those currencies, that's going to be the much bigger driver of exchange rates ahead.","offset":2316,"duration":23}],"startTime":1895},{"title":"Gold, Commodities, and Portfolio Diversification","summary":"Bob explains that gold, as a financial asset, often drops alongside equities when interest rates rise. He advocates for holding actual commodities for true portfolio diversification during commodity shocks.","entries":[{"text":"Host: That's that's a good point, I like that. Um the other thing I'm trying to tease out here from you know if if we have this potential tail risk of a major dollar rally is contrasting that with the price action of potential for gold. Um, you know when I look at everything that's going on, you you would expect gold to rally pretty significantly here I imagine but uh since the shock it's it's been bleeding. Um I'm curious how do you think about that. Is it largely something getting caught up short-term in this dollar rally? Is it because positioning was so stretched into this shock or or how like how's gold playing out for you so far and where do you expect that to go from here?","offset":2339,"duration":40},{"text":"Bob Elliott: Well gold is a financial asset and so it's really important to keep that in mind. And so to the extent that there are, you know you're seeing elevated risk premiums across all financial assets, you would expect gold to be affected by it. And you know not only was gold is gold just sort of generally a financial asset and and to be clear if you go back and look at how it played out in '22, which I think is very helpful to see like gold rallies initially and then it sells off a lot, why? Because rates go up and all asset prices go down and gold is just one of many assets, financial assets, and so it takes a hit just like everything else.","offset":2379,"duration":33},{"text":"Bob Elliott: Um and so uh what's played out here, you know I'd probably put gold in the in the gold is like the macro equivalent of Japanese and European stocks for the equity allocators in the sense of everyone got bulled up on these things, they generally made a fair amount of money on those things through the first two months of the year, and then all of a sudden you have this shock everyone's bringing down their risk and you know gold takes a hit just like the European stocks and the and the um and the Japanese stocks.","offset":2412,"duration":31},{"text":"Bob Elliott: From a fundamentals perspective, you know it's a little bit better situation better situated than those assets, but it's still part of the sort of overextended uh positioning that came into this into this reversal. It's why when you take a step back, it's why um if you're building a well-diversified portfolio of assets, it's why you can't just you certainly can't just rely on bonds to be your diversifier to equities which we've learned, you but you can't also just rely on gold as a diversifier to your equities in addition to bonds because in an environment of elevated commodity prices, gold underperforms like all financial assets, which is why you have to have commodities in your portfolio, right?","offset":2443,"duration":48},{"text":"Bob Elliott: And when I ask people, you know had was doing some of these uh some CFA events uh a couple of weeks ago, I asked people, you know how many people have commodities in their portfolio, and it's crickets. And they're like, well, commodities, you know they don't go up as much as stocks, why would I ever hold them? Well, for this this is the reason why you would hold them, right? Because there are going to be times when all assets are doing poorly because commodity prices are surging and if you want to have some protection to your portfolio, that's why you have to have some commodity uh exposure within your portfolio.","offset":2491,"duration":33}],"startTime":2339},{"title":"Market Complacency and Geopolitical Realities","summary":"Bob warns that markets are suffering from collective amnesia and an overreliance on central bank easing. He emphasizes that the prolonged momentum and severe realities of geopolitical conflicts are not fully priced in.","entries":[{"text":"Host: Well said. Yeah, I just so I just want to bring this all together now in terms of when we look at all these asset classes and what they're reflecting. So you have the oil curve is pricing in something that's more significant than 2022. You have bond yields that are the same six months ago. You have equities that are largely flat, um seen small changes in currencies, pretty aggressive moves in in interest rate pricing from central banks. um gold's bled a little bit. Why why do you think there's such a contrast or tension between all those asset classes right now? Is it just like a positioning thing or people in complacency, are they expecting a, you know, a Taco-like Liberation Day? What's your what's your read high-level?","offset":2524,"duration":44},{"text":"Bob Elliott: Well, I think there's some collective amnesia about what's going on what happened in 2022. Um and part of that is I think folks have been sort of primed that there's always going to be the next easing and the next easing and the next easing. It's like, you know QE is like burn like there's all these burnouts on QE walking around, right? Thinking that ah they're just going to get the next, you know money hit coming.","offset":2568,"duration":30},{"text":"Bob Elliott: And this is very different from other shocks like this is very different from traditional growth shocks where the central bank where central banks are sort of all all well-positioned to ease into this into a growth shock into, you know an external growth shock of some sort. It's a totally different environment. And so, the combination of sort of that sort of uh forgetting conveniently forgetting about how '22 played out and then also you know this Taco stuff is I think people have really uh gone hook, line, and sinker, I mean for good empirical reason let's say, for why Taco you should always be betting on Taco and any fall is a is a good opportunity to buy.","offset":2598,"duration":42},{"text":"Bob Elliott: But again, a war is a is a very different thing than Liberation Day. Liberation Day was entirely determined by the you know mercurial views of a single person, meaning tomorrow you know on um the day after Liberation Day or five days after Liberation Day, like Trump could just change his mind and then magic, you know policy was different and and things like. He could he ran the Taco shop. Today the Taco shop is jointly run by two big parties but really like a dozen parties and if they don't all agree that we're getting Taco ahead then the then no Tacos will be served, to extend the analogy, right?","offset":2640,"duration":54},{"text":"Bob Elliott: Um and I think that's one of the challenges, like uh I think most people have not really spent a lot of time studying wars and their effects and things like that because I mean really for 75 years we basically had no wars, by and large. Like you know small wars, not no wars, but basically small wars that didn't matter that much. But wars have a momentum of their own. And we're seeing that in real time in terms of how wars have a momentum of their own. And so it's going to take much more than just a simple, you know Taco, for this thing to to get resolved anytime soon.","offset":2694,"duration":36},{"text":"Bob Elliott: And even and I think the oil market is really reflecting that because I mean people are down there counting the barrels, you know they're saying this many barrels in this under this circumstance and this circumstance and this circumstance. Um and when they pencil out all those barrels even assuming that there's a high probability that the US is just going to try and back down or have an off-ramp or something like that, you what is it like a 60 percent chance conflict ends within 45 days. That's a very high chance that a war ends within 45 days. Most wars take you know at a minimum years and often longer than years to play out.","offset":2730,"duration":30},{"text":"Bob Elliott: You know, when they add up all the barrels, they still have that curve where oil prices are 40 percent um above where they are today. The problem is, you know it doesn't look like people in the equity market and the bond market are actually counting the barrels. They're lazily thinking about Taco and QE and not thinking about the barrels and what the second and third order consequences are of those barrels. And so that is the gap and these gaps happen in markets. This is why you can generally generate alpha from a macro perspective because, you know not everyone is seeing the same reality and future reality at the same time. And so I think that's the gap we're seeing.","offset":2760,"duration":36}],"startTime":2524},{"title":"Conclusion and Where to Find Bob","summary":"The host thanks Bob for his insights, and Bob shares where listeners can find his macroeconomic research and follow his ETF strategies.","entries":[{"text":"Host: Amazing. Well Bob, that that's a great place to leave it. Some sage advice, appreciate a lot. And uh great to just walk through these things. You know, there's just endless whipsaws of news headlines right now, so I think it's it's a helpful mental model for everybody to digest and understand. Um so thank you for coming on and walking us through all that. I appreciate it. And where can where can folks go if they want to see more of your work in depth?","offset":2796,"duration":20},{"text":"Bob Elliott: Yeah, thanks so much for for having me. Uh if you're interested in my sort of ongoing macro commentary you can find me at BobUnlimited on anywhere you can find me, um or check out my Substack Nonconsensus, um which you noted earlier. Uh and if you want to learn more about uh my day job uh behind me, uh check out unlimitedetfs.com.","offset":2816,"duration":22},{"text":"Host: Awesome. Well thanks Bob, always great to have you on.","offset":2838,"duration":2},{"text":"Bob Elliott: Thanks for having me.","offset":2840,"duration":15}],"startTime":2796}],"entries":[{"text":"Bob Elliott: Central banks never ease into an oil shock. It doesn't happen. When you have an oil shock, it's a very difficult scenario for, basically, policymakers to respond to because it both increases inflation and decreases real growth. I think a lot of people are getting ahead of themselves on talking about the disinflationary impact of an oil price rise. The first step is prices go up, real spending goes down, and that's where we're at right now. Shit has to get bad before someone does something about it in order to make it fine. People are kind of looking through the \"has to be bad\" in order for something to happen and just assuming everything will be okay forever. And that's just not how markets or economies, certainly, have worked over the last hundred years.","offset":0,"duration":50},{"text":"Host: Before we get started, a quick reminder that Blockworks' premier institutional conference, the Digital Asset Summit, is returning to New York City this March 24th to 26th. This year represents more than $4.2 trillion in assets under management with 150 speakers and 700 institutions attending. Speakers include SEC Chair Paul Atkins, CFTC Chair Michael Selig, Fed Governor Steven Moron, and Tether CEO Paolo Ardoino, alongside countless other executives, asset managers, regulators, and the core crypto infrastructure builders shaping the industry. If you want serious institutional-grade view of digital assets in 2024, Digital Asset Summit is where it happens. Use code Forward200 for $200 off and head to blockworks.co/events for more updates.","offset":50,"duration":48},{"text":"Host: Nothing said on Forward Guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. As always, investments in blockchain technology involve risk, terms and conditions apply. Do your own research.","offset":98,"duration":20},{"text":"Host: Alright everybody, welcome back to another episode of Forward Guidance, and joining me is one of my favorite repeat guests, Bob Elliott of Unlimited Funds. Always one of the best folks to get on to understand high-level macro frameworks and how it impacts the world, the economy, markets, everything in between. Bob, always great to have you on here.","offset":118,"duration":20},{"text":"Bob Elliott: Great, thanks so much for having me. I feel like when we tried to find a good time, which was a few weeks ago, you know, the world was a very different place than it is today, so we'll just roll with the punches and talk about what's going on.","offset":138,"duration":12},{"text":"Host: Yeah, honestly, probably silver lining that, yeah, we were planning to do this a few weeks ago and then it got delayed and now we're in a completely different situation, completely different conversation that we're going to have. So, at least that, yeah, we're in amongst it now. We're going to try and put on our geopolitical hats on a little bit and try to figure out how to understand everything that's going on with the Iran strike and how it impacts the global economy. So, you've been writing a lot on your Substack, which is really great. You've been writing a few different pieces on how to understand the context of this oil shock, of the Strait of Hormuz being closed and its impact on the global economy. And yeah, like I said, you're really excellent at these high-level macro frameworks. So I just want to understand, to you, when you see something like this happen and you contextualize it with where the global economy was heading into this supply shock, what does it look like? How are you understanding this and how does it relate to different oil shocks that we've had, like the 2022 one, and even the '08 one? Like, we had a pretty significant oil spike back then that led into a recession. So yeah, walk us through how do you digest something like this when it hits.","offset":150,"duration":65},{"text":"Bob Elliott: Yeah, well, I think we were coming into the beginning of the year experiencing something that I called the \"desavings-driven economy,\" which I sort of describe in contrast to what was, for many years post-COVID, an \"income-driven economy.\" And what I mean by desavings-driven economy was we started to see, basically, that spending continued to hold up and investment continued to hold up despite the fact that, you know, it took more desavings from households to keep that spending going as labor markets weakened, and more desavings from businesses to keep their pace of investment, particularly related to AI and such, alive.","offset":215,"duration":43},{"text":"Bob Elliott: And so, that's sort of the premise coming into this, which in many ways created an economy somewhat on a knife's edge. Meaning, if things had gone well and the government was pursuing modestly expansionary policy during the year and asset prices lifted a little bit, we were probably going to at least meet those sort of expectations, maybe even do a little bit better than the expectations that were out in markets at the outset of the year. I think the challenge is when you have an oil shock, it totally rewrites the conversation, and the reason why that is is because it's a very difficult scenario for policymakers to respond to because it both increases inflation and decreases real growth.","offset":258,"duration":43},{"text":"Bob Elliott: And as a result, you know, policymakers are kind of stuck in that sort of environment. And part of the challenge is when we were coming in, we had already had a lot of desavings sort of baked in the cake, and so there's not that much room for additional desavings to be applied in this circumstance. Doesn't mean it's impossible or the households won't desave at all, it's just we're in a very different environment now than we were, say, if this happened two or three years ago.","offset":301,"duration":32},{"text":"Bob Elliott: And so, I think the challenge is basically for households and in particular that were already spending more than they were earning, desaving relatively rapidly, now you've basically added another 1 to 1.5 percent price hike across their basket of goods to households that were already spending at only about 1.5 percent to wrap up the year in real terms. And that basically means household consumption is likely to fall to zero in real terms. And for a US economy that's so reliant on household consumption to keep it going, you know, zero real household consumption is pretty antithetical to expectations of growth of 2 to 3 percent that we've become used to.","offset":333,"duration":38},{"text":"Host: Hmm. Yeah, so contrasting that with 2022, you know, back then we had probably one of the hottest labor markets we've ever seen, like job openings were just absurd. And so, I'd love to just hear, back then when we had that one in 2022, it seems like we narrowly missed a recession on its own. You know, some people debate the semantics that we did see a little one, but whatever. The fact is that we came out of that somewhat unscathed and it feels to me like that is because, yeah, the labor market was in an excellent place. People were stuffed with cash from COVID-era stimulus. Companies had plenty of cash as well. Things were good and we narrowly avoided any sort of major issue there. I get the feeling that, yeah, consumers and households, like you said, are in a very different situation right now. So I'm curious, like when you see something like this oil shock that leads to higher prices and then lower consumption, how at risk are we today versus 2022?","offset":371,"duration":58},{"text":"Bob Elliott: Well, I think 2022 is really helpful because to study it helps you understand all the different mechanics. So what happened, while the magnitudes are slightly different, the mechanics are actually super similar in the sense of going into it, we had a period of elevated inflation, you know, that was sort of underlying the economy. Now, of course, that was related to COVID shocks and it was at a higher level versus today, which is essentially, you know, tariff-related plus in terms of inflation dynamics, and at a lower level. But that sort of kindling that existed of elevated inflation in the economy before the oil shock existed in both places.","offset":429,"duration":40},{"text":"Bob Elliott: In both places we had actually basically the same size oil shock, if anything this oil shock might be larger based upon just what's priced into the curve. So, you know, leaving aside whether you believe that that's good pricing or bad pricing or whatever, if you just basically take the curve as the market price and the future path of oil prices, this one's actually going to be a bit higher. The '22 oil shock largely resolved within a year, meaning it started at the beginning of the year, it peaked first in March and then in the summer and then it went back to basically where it was to start the year.","offset":469,"duration":37},{"text":"Bob Elliott: Right now, oil prices are projected to be 40 percent higher at the end of this year than they were at the beginning of this year, so that's a more extended oil shock. And in that 2022 case, basically what you saw was you saw inflation continued to be elevated. Fortunately, nominal earnings growth was relatively strong during that period, particularly when you add in all the transfer payments that were still sort of in the system. It allowed households to desave in response to maintain their real spending to some extent, but you still saw a reduction in real spending.","offset":506,"duration":32},{"text":"Bob Elliott: And so those in the '22 period, if you just think about each one of those levers, it was like household spending was strong nominally, right, so picked up nominally, financed by desaving, but real spending fell. And that's a perfect example of this combination that I'm describing that comes with an oil shock, which is both prices rise because people desave in order to keep up their real spending as much as they can, and real spending falls. So it's really hitting essentially both sides of the Fed's mandate.","offset":538,"duration":32},{"text":"Bob Elliott: And what did we see in response from the Fed? Now, of course, it was sort of the unlucky outcome that forced the Fed's hands to transition from basically the transitory narrative to the not transitory narrative and hike a whole heck of a lot in response. And today what we're seeing is, at least so far, we've seen an unwind of expectations of easing to basically neutral policy. I think the real question is actually the next set of policies likely to go higher because this will be enough to sort of force the Fed's hand. Certainly in neither case did we see the Fed cutting into an oil shock, right? We didn't see that at all, we saw the exact, at least back in 2022, we saw the exact opposite.","offset":570,"duration":44},{"text":"Host: Hmm. Okay, so if we just think about like a matrix of the quality of the economy going into these shocks, so you have the current one, you have the 2022 one, I'd love for you to also unpack what happened in '08 and what was the quality of the economy back then going into it, because obviously that one we saw oil prices surge and then we just had, yeah, one of the greatest, you know, the Great Recession, and oil prices crashed afterwards, and you know there's this whole demand destruction era. So yeah, I'd love to add onto the matrix here of what did it look like in '08 and how did that sequence of events look like.","offset":614,"duration":34},{"text":"Bob Elliott: Well, I think interestingly in the '08 cycle, there was obviously a huge surge in oil prices, I mean more meaningfully than we're seeing right now, and it was predominantly driven at the time by a tight market intersecting with relatively strong demand from the emerging world. You know, for those folks who were back around that time, there was this whole idea of a global decoupling, right, that maybe the US was going to face some pain related to its housing problems, but globally we were going to decouple and it wasn't going to be a problem.","offset":648,"duration":40},{"text":"Bob Elliott: And the reality was at that time that sort of global growth narrative, or the narrative of the data outside the US, was quite strong. And it was only when the credit problems emerged in the US that created the second and third order consequences through the US, the economy, and the financial systems system that we saw a withdrawal of capital that basically crushed the emerging markets and created that reduction in demand. And so, in some ways I think people who are not sort of living through that period might confuse and confuse that period as indicating a strong US economy, or even that oil price rises were a meaningful driver of the economic slowing that occurred. And they were pretty marginal, it was pretty fast, it was pretty marginal, and the big story there was the credit problems, because I mean the credit problems were an like the credit problems nearly ruined the entire financial system. So I mean it was just like orders of magnitude more important for the economy in the US. But what it did highlight was just how tight that market was and how reliant it was on emerging markets who then were sort of the ancillary took sort of the ancillary hit from the US financial problems.","offset":688,"duration":74},{"text":"Host: Got it. Last historical analog I want to ask you to contextualize the situation, and I know I'm really testing your financial history, but you've also written a lot, studied a lot of big macro cycles, so I feel confident you can answer this one too. The other one is, of course, the 1970s oil shock and what happened there. Obviously that one was the Great Inflation that also ensued in the '70s. So yeah, lastly, I'd just love to understand what was going on there and how is it different from today.","offset":762,"duration":30},{"text":"Bob Elliott: Yeah, I think in many ways the linkages are similar to today, but the magnitudes are very different. And so I think people often try and draw analogies of magnitude, and analogies of magnitude are kind of silly because, you know, for instance back then, oil prices went up 4 or 5x, right? Okay, so oil prices today are not going up 4 or 5x, so we're not likely to see the same sort of magnitude of inflationary pressures in the economy.","offset":792,"duration":32},{"text":"Bob Elliott: But what that doesn't mean is that the linkages are to be ignored. The linkages are the same exact linkages at different magnitude. And so in that case, you really had a lot of ways I talked about the sort of post-COVID period I think as being very similar to sort of that late '60s environment where you had sort of persistent inflation that was gradually creeping up, large fiscal expansion, you know, large deficits, not much credit driving the economy. That's why I think the late '60s is actually a really not much sort of household credit or corporate credit or borrowing driving the economy. A very income-driven expansion that eventually got to a point where we had an oil shock, and that oil shock created a lot of pain in the economy, created a lot of inflation and pain.","offset":824,"duration":50},{"text":"Bob Elliott: And then we had another oil shock on top of it, right? And so I think it's a good analogy in the sense of sort of similar kind of kindling that existed, meaning like inflation was a little too high for a little too long, an oil price rise occurred, and then that created basically the conditions that we saw in '22 and likely to see here, which is rising prices and weakening real demand and real activity, creating a challenging circumstance which sort of forces the central bank and the Fed into tightening, even though it's kind of an unpleasant tightening given the set of circumstances that existed.","offset":874,"duration":39},{"text":"Host: Cool. Alright, so coming back to present day, we have an economy, as you mentioned, in the last few months was largely driven by desaving, so savings rate coming lower. And yeah, I want to contextualize that with what you were seeing in the health of, yeah, the consumer in terms of its spending potential and and what the incomes were looking like going into this. And so you mentioned that the current oil market is pricing in a crisis that is more extended than the 2022 one leading into this situation of an economy that is on a knife's edge, largely held up by desavings. And when you put that all together, how do you see things playing out from here on?","offset":913,"duration":46},{"text":"Bob Elliott: Well, I think coming into this, it's good to just start with the baseline dynamic and sometimes macro folks will try and make an economy more complicated than it is. Like, the US economy is basically households earning money and spending. Like, to oversimplify. And then there's some other stuff that goes on, but that's basically what it is. And so when we were coming into this, you know, let's call it through January, household income growth was growing at about 3.5 percent or a touch better than that.","offset":959,"duration":30},{"text":"Bob Elliott: How was that growing? That was growing by essentially zero employment growth and 3.5 plus percent wage growth year over year per worker, right? That's how you get that nominal wage growth. US households were spending at about 5.5 percent coming into it, on a 5.5 percent growth coming into it. How do you close that gap between those two things? Well, essentially it's just mechanical: the savings rate has to fall in response to that, or transfers have to pick up, but transfers have largely been the same through this period.","offset":989,"duration":30},{"text":"Bob Elliott: And so what you see there is you basically see that gap widening and widening, which is the labor market's weakening gradually, no acute crisis, nothing crazy, just kind of gradually weakening, spending trying to stay up as much as possible driven by that that savings rate. And then if you think about if you sort of work through those numbers, we had 5 percent nominal spending growth in an environment of 3 percent inflation, which led to 2 percent real spending growth.","offset":1019,"duration":29},{"text":"Bob Elliott: Okay, now let's fast-forward oil, introduce the oil shock. How does that change things? Well, the labor markets aren't going to really change in the next day or two, it just labor markets are like watching paint dry. They just basically carry on as they are, right? I mean slowly but surely might move in one direction or another. But basically what we're going to see is 3.5 percent wage growth. Real spending growth, the question is, okay, let's just say they keep desaving. You keep that 5 percent nominal spending, but now we've gone from inflation environment of near three to a inflation environment that's going to have a 1 to 1.5 percent increase, and therefore real spending is going to fall.","offset":1048,"duration":40},{"text":"Bob Elliott: Those are the numbers, that's the sort of the household math problem, I always call it. If anything, the risk is that households might hold back on their desaving to some extent, right? What I just described is that they continue to desave, they continue their pace of desaving or the savings rate continues to fall. If you have an environment where stocks are falling or there's more uncertainty or more concern, you might actually see households no longer choose to increasingly desave and they might pull back on that and bring their spending in line with income.","offset":1088,"duration":33},{"text":"Bob Elliott: That would be the biggest risk, because then we'd go from a 5 percent nominal spending growth environment to say a 3.5 percent nominal spending growth environment, in the context of inflation that could be in the range of, you know, 4 percent, and that's where you get negative real spending growth. And that creates the second and third order effects of on labor markets and incomes in the future. But we're kind of getting ahead of ourselves on that. I think a lot of people are getting ahead of themselves on talking about the disinflationary impacts of an oil price rise. The first step is that prices go up, real spending goes down, and that's where we're at right now.","offset":1121,"duration":35},{"text":"Host: Yeah, I think, yeah, that was a that was a nice little segue into how do people try to understand the sequence of events here, especially of something like an oil supply shock because you look at something like '08 and it's like, well, look, you know central banks should have looked through that and been like, oh shoot, there's this huge negative growth impulse on the other side of things. So now you have everybody skipping the first step and saying we got to go straight to cuts. And then contrasting that with what so far the reaction from central bank pricing has been, mostly hikes or or at least less cuts in the case of the US. So I'd just love to understand how you're thinking about monetary policy within this context. So you have, like I said, you know the US curve is we had a few cuts, now we're down to like one, maybe zero. Other countries are are looking at even priced beginning of their price in hikes. And people will look at that and say, hey look, we should we should move to the next phase of things, which is begin to think about cuts because this is obviously going to be really bad for growth. But obviously you need the first to get the second, and I feel like that just needs a better explanation. So I'd love for you to unpack that.","offset":1156,"duration":63},{"text":"Bob Elliott: Yeah, yeah, I mean I was I was writing last night having gotten a lot of comments about how oil shocks are deflationary or disinflationary. And the answer is like, of course, reducing household purchasing power through higher prices can be disinflationary, right? But the question is, how does that how does that system work? Because what has to happen is the first step is you have to have the prices rise, which eat into the real demand capability of the household, which then creates the slowing of labor market growth, which then hurts nominal incomes, which then reduces nominal spending that then has an effect on overall prices. Like that's the path.","offset":1219,"duration":46},{"text":"Bob Elliott: And as anyone who's watched labor markets through time knows, labor markets do not move that fast. Like they just labor markets are boring. We try our best, you know, the first Friday of every month to make this thing exciting. Like the answer the reality is they are boring as hell. And so, don't forget that, that they take forever to play out. You know, if we had a reduction in real, say tomorrow real household spending went down to zero or started to contract, it would probably be 9 or 12 months before we would fully feel that effect in the labor markets.","offset":1265,"duration":39},{"text":"Bob Elliott: And so, the point is you got to focus on the first on first things first here as in terms of how this is likely to play out. And the first step is you're going to have those price rises. And so central banks, I think part of the story going back to your sort of the core of your original question, which is how do central banks respond to this stuff? Like, central banks don't ease into oil shocks. Go back, look through all of time at all central banks and how they've responded every single time.","offset":1304,"duration":31},{"text":"Bob Elliott: Like, who cares if you think it's a good idea or not? Like, I don't really care as a market participant as a fiduciary like what you think how you think they should respond is an irrelevant a totally irrelevant way of thinking. A lot of people spend time on it, it's totally irrelevant, it's useless, it's distraction. Central banks never ease into an oil shock. Doesn't happen. And so what are we seeing right now? Well, we're seeing what you'd largely expect, which is if oil prices are going to get, I don't know, a 1 to 1.5 maybe 2 percent inflation pressure through through these economies, a little less in the US a little more in places like Europe and the UK. Yeah, that's probably worth, I don't know, a couple of hikes over the course of the next year, meaning either going from two cuts to zero or from no cuts to two hikes. That seems like about right if you look back through time.","offset":1335,"duration":57},{"text":"Bob Elliott: The challenge is that that will, as I think people understand, will put more pressure on growth, right? But it's the only solution that they have because the biggest risk here, the biggest risk is that these central banks, having accepted elevated inflation for five years post-COVID, ease into this oil shock and then what are they going to do? Like let long-term inflation expectations rise radically? There's no way they're going to let that happen. That would be incredibly risky for them to do. So they've got to nip this in the bud and make sure it doesn't have the second and third order effects through the prices on the economy.","offset":1392,"duration":36},{"text":"Host: Yeah. I guess the big question that people are trying to sort out is how forward-looking and efficient is the bond market going to price this in. Because obviously, to your point, it makes sense for initially the short end of the bond market to begin to price in some hikes and some hawkishness. But you would expect potentially to see the long end begin to price in that, okay, well look we're having this this oil shock and central banks are hawkish into it. If we're looking at a 10-year bond, maybe it makes sense to start to price in some some negative growth outlooks into that. But so far we've seen the long end of the bond market sell off pretty significantly. I know you've been bearish bonds, bearish stocks. So I'd love for you to just explain how you think about how and when the bond market prices in these events and the sequences of them.","offset":1428,"duration":48},{"text":"Bob Elliott: Yeah, I mean the long end of of the bond market, so far what we've seen is sort of the curve move up, basically. As as this is happened, and if anything what we haven't seen is we haven't seen a real expansion in risk premiums in the bond market through this event. And I think that's interesting because if you just sort of go back to what what caused sort of a lot of the risk in the bond market, what caused the big lift in bonds, was basically this transition in the post-COVID period, I should say, is a transition from basically no one in the world ever considering that we would have elevated inflation ever again to a world where people are like, yeah, it can happen, you know we'll we'll have elevated inflation again. And that forced essentially, you know some risk premium getting put into the long end of the curve into bonds.","offset":1476,"duration":53},{"text":"Bob Elliott: You know, what I see now is that there's not people are sort of in that point where they're like, oh, they're sort of have have memory that inflation is likely to come down to central banks' targets over the course of the next year or two, not recognizing that, you know inflation shocks can often have a life of their own. Meaning like if you get an inflation shock into already elevated inflation, just go back to 2022, what did we see? We saw a persistence, we saw inflation above these central banks' targets for five years.","offset":1529,"duration":38},{"text":"Bob Elliott: Right, we were year one into something that has played out for the last five years. And that was with massive tightening, right, a massive rise in interest rates. Inflation is still elevated across every major developed economy relative to what central banks' targets are. So far we have not seen a recognition that this could extend the life of that dynamic. And so when I think about what's getting priced into the curve, what's notable is so far there has not been a meaningful expansion of risk premiums in the bond market that should create steepness in the curve, should create a sell-off in the curve beyond basically just reflecting the fact that we need tighter monetary policy.","offset":1567,"duration":41},{"text":"Bob Elliott: And to be clear, that's true across the totality of basically financial assets, financial assets in aggregate. Like, risk premiums have not risen very much despite the fact that we've we've entered possibly a new environment of elevated uncertainty, and and yet, you know it's hunky-dory when it comes to how most investors are viewing financial assets at this point.","offset":1608,"duration":26},{"text":"Host: Hmm. So, so what's your checklist or signals to look for for when to flip from being concerned about a hawkish central bank and inflation to demand destruction and negative growth?","offset":1634,"duration":12},{"text":"Bob Elliott: Yeah, great question. And part of the story that creates the weakness in economic activity that comes from an oil shock is from the fact that interest rates rise. Again, important to recognize the ordering matters. Like first interest rates rise, then there's a drag on the economy. And so what you need to see is you need to see interest rates on the long end rise enough, and short end to some extent, but really on the long end, rise enough to start to create a hit to economic activity and also create a hit to asset prices, right? Through the discounting effect.","offset":1646,"duration":36},{"text":"Bob Elliott: And so when I look at the market right now, you know bond yields right now are basically where they've been for the last six or nine months, right? Bond yields are like boring, right, you know if you had just slept through the last six or nine months you'd be like, oh, we're basically where we were before. So we got to see bonds move to something that's going to be you know create a more meaningful hit to asset prices and the economy. So that's moving up towards the 5 range, say on tens, in order to get a more meaningful drag.","offset":1682,"duration":32},{"text":"Bob Elliott: Now I think part of the story here is that there's not a lot of the economy's very sensitive to those financial conditions, so I don't think you have to have bond yields go up to 6 or 7 or 8 or something like that to start to create the reversal. I think the cap is closer to 5 on tens and then at that point that's probably enough of a drag combined with all the other things that we talked about to create you know the subsequent downdraft in bonds.","offset":1714,"duration":23},{"text":"Bob Elliott: But again, the ordering, I know it's I know it's hard to it's easy to sort of get ahead of yourself on this thing but you've got to like linkages are ordered for a reason because they have that ordered effect on macroeconomic conditions. And so I think in some ways we've almost been like so it's like we have a a a cancer of, you know, it's like the cancer of QE that people are like, okay well then everything's going to be fine, right? So why should I ever worry about anything?","offset":1737,"duration":31},{"text":"Bob Elliott: And the answer is like shit has to get bad before someone does something about it in order to make it fine. And like people are kind of looking through the has to be bad in order for something to happen and just assuming everything will be okay forever and that's just not how markets or economies have certainly worked over the last hundred years.","offset":1768,"duration":22},{"text":"Host: Yeah, that's kind of funny. It just reminds me of, like, 2022 era when you were fighting the battle of everybody was, I don't know, freaking out about Sahm rules and a recession back then, you're like look like here where we are in the economy, the labor market's pretty good, like we need to see the sequence of events to occur before we get to a point where things are bad, and it sort of feels like a mirrored situation here.","offset":1790,"duration":18},{"text":"Bob Elliott: Right, right. That's right, that's right. That's, I mean maybe it's just kind of a boring old macro person who writes down this linkage and then this thing and then this thing, who's studied too many cycles, um who who thinks in ordered you know in order in terms of how these things play out. But um but I think that's part of the advantage. Part of the advantage and the alpha opportunities that exist is when people don't think in a disciplined way about the ordering and just rush to one direction or one narrative or one intuition and away from another.","offset":1808,"duration":37},{"text":"Bob Elliott: I mean look when we look at what's going on with the pricing right now, like financial the biggest thing if you think about sort of from those folks who are trading markets, what's the biggest thing that oil shocks create? They create a a hit on financial asset prices as risk premiums as the Fed tightens, central banks tighten, and risk premiums expand, right? That's that's what they do. Uh and you know there's a long track record related to that. And so far if you look at what's going on with asset prices in aggregate, stocks are basically flat and bonds are basically flat since this whole thing has started. Okay, so like that is that is the inconsistency there, which is that across asset markets people are just not recognizing one, you know, that the oil shock creates this effect and they're rushing to the resolution down the line.","offset":1845,"duration":50},{"text":"Host: Well said. Alright, so I want to I want to zoom out to the global economy and how this oil shock is hitting different countries, how it gets reflected in their currencies, and really divide it between countries that are importing energy versus energy exporters. Because, you know, you have Asian Asian economies or the European economy that are that are big energy importers and especially acutely tied to the Strait of Hormuz versus a country like the US which is nearly energy independent, has very little exposure and demand and dependency on the Strait of Hormuz and what flows through it. And I would just love for you to unpack like how does that get reflected in the impact of those economies and then how does that get shown in these currencies between energy importers versus exporters.","offset":1895,"duration":99},{"text":"Bob Elliott: Yeah, I think it's been one of the most challenging circumstances this year is for the first whatever two months of the year, the overwhelming narrative in market action was you know rest of the world stocks doing well, certainly better than expectations and the US trying to keep up and the dollar being a bit soft and and then we have this this thing that happens that basically runs counter to like all of that underlying trend that had existed before.","offset":1994,"duration":34},{"text":"Bob Elliott: Um, you know I thought we were going to talk about, you know, de-dollarization when we uh when we originally scheduled this. Like it was going to be an update on that conversation from last year, and and it's very much the opposite for exactly the fundamental reasons that you described, which is look, Japan and Europe are in bad shape when it comes to big oil price rises. That's just all there is to it. They are the, you know across the developed world, they're very sensitive to these things. And other jurisdictions, particularly Canada and the US, are in a lot better shape to absorb these dynamics.","offset":2028,"duration":37},{"text":"Bob Elliott: And so it's not that surprising that we've seen one heck of an unwind of the foreign stock versus US stock story in response to this, as well as you know some strength in the dollar. It's not it's not a huge strength relative to what we've seen in the past, but it's still meaningful. And I think that's a combination of the fundamentals plus I think a lot of people got caught offsides, you know, people kind of all in on one direction and got whipped back in the other direction.","offset":2065,"duration":27},{"text":"Bob Elliott: Uh at this point, I look at things and I sort of say, look, broadly on a relative basis whether you're looking at when you're looking particularly when you're looking at stocks, like we've largely priced in the differential effect of of these of these dynamics. You know, Japanese and European stocks have come back a ton, basically erase their their gains for the year. The place in aggregate that doesn't make sense I'd say is around the aggregate pricing, meaning like aggregate stock prices across the global economy. You know those have come down a little bit, but particularly when you add in the US, you know we haven't seen a huge hit to aggregate asset prices in the way um that we, you know even we haven't seen a quarter of the hit to aggregate asset prices that we saw during the '22 episode even though the shock that we're seeing here is um certainly on par with, maybe even a bit a bit more significant.","offset":2092,"duration":52},{"text":"Bob Elliott: And then when it comes to currencies, you know the real risk in the currency market is um you know I think again it's largely played out as you'd expect from the fundamentals uh with the dollar being favored relative to these other currencies. Um it is uh you know part of the story of what has driven these foreign asset markets is you know a lot of US investors looking elsewhere outside the US for you know more cheaply valued asset markets. If that really starts to unwind, you could create another dollar squeeze scenario which would be very detrimental to asset prices in aggregate, somewhat foreign asset prices, but really asset prices in aggregate as sort of the dollar wins. And I know you guys have been talking about that um in your um in your weekly conversations. You know, the dollar shock we should not totally forget the the risk of a dollar shock uh in this whole story. Um and you start to think about that from a risk management perspective that you might have a lot of risk if the dollar, you know, pushes higher here.","offset":2144,"duration":67},{"text":"Host: Yeah. I mean like just if you if you take what's priced on central banks at face value right now it just seems crazy to me that we're in a situation where like we could see the Bank of England or something hiking while the Fed is still on on a cutting bias. Like does that is there any evidence of that even being like something that occurs? Like I just I can't even imagine the impact on on currencies if that actually plays out.","offset":2211,"duration":24},{"text":"Bob Elliott: Well, I think it comes down to um it comes down to where like the Bank of England or the ECB are going to be tightening aggressively in an environment where they're experiencing a hell of a external drag from rising energy prices, which is probably a way more important story for them than is the incremental monetary policy. I I think often people um overfocus on relative monetary policies as a story for exchange rate movements.","offset":2235,"duration":36},{"text":"Bob Elliott: Like, just think about it, let's say the Bank of England tomorrow was like we're going to we're going to tighten 100 basis points. Be like, wow, that's that's a that's a big tightening, right? Well, 100 basis points in yield terms is like a one-day standard deviation in currency price terms. Like if you just think about it from a total return perspective it like is irrelevant, right? It's why like central banks if they're trying to maintain a currency peg have to tighten you know to a thousand percent or something like that because you have to be on an annualized basis because you have to be at levels like that to change the underlying supply-demand dynamic of an exchange rate.","offset":2271,"duration":45},{"text":"Bob Elliott: And so, um I think probably the relative monetary policy is just going to matter a lot less than the relative macroeconomic effects of the rising energy prices and those are so disproportionately uh in favor of the US and Canada to some extent and and negative for uh Europe and Japan that that's just going to drive those currencies, that's going to be the much bigger driver of exchange rates ahead.","offset":2316,"duration":23},{"text":"Host: That's that's a good point, I like that. Um the other thing I'm trying to tease out here from you know if if we have this potential tail risk of a major dollar rally is contrasting that with the price action of potential for gold. Um, you know when I look at everything that's going on, you you would expect gold to rally pretty significantly here I imagine but uh since the shock it's it's been bleeding. Um I'm curious how do you think about that. Is it largely something getting caught up short-term in this dollar rally? Is it because positioning was so stretched into this shock or or how like how's gold playing out for you so far and where do you expect that to go from here?","offset":2339,"duration":40},{"text":"Bob Elliott: Well gold is a financial asset and so it's really important to keep that in mind. And so to the extent that there are, you know you're seeing elevated risk premiums across all financial assets, you would expect gold to be affected by it. And you know not only was gold is gold just sort of generally a financial asset and and to be clear if you go back and look at how it played out in '22, which I think is very helpful to see like gold rallies initially and then it sells off a lot, why? Because rates go up and all asset prices go down and gold is just one of many assets, financial assets, and so it takes a hit just like everything else.","offset":2379,"duration":33},{"text":"Bob Elliott: Um and so uh what's played out here, you know I'd probably put gold in the in the gold is like the macro equivalent of Japanese and European stocks for the equity allocators in the sense of everyone got bulled up on these things, they generally made a fair amount of money on those things through the first two months of the year, and then all of a sudden you have this shock everyone's bringing down their risk and you know gold takes a hit just like the European stocks and the and the um and the Japanese stocks.","offset":2412,"duration":31},{"text":"Bob Elliott: From a fundamentals perspective, you know it's a little bit better situation better situated than those assets, but it's still part of the sort of overextended uh positioning that came into this into this reversal. It's why when you take a step back, it's why um if you're building a well-diversified portfolio of assets, it's why you can't just you certainly can't just rely on bonds to be your diversifier to equities which we've learned, you but you can't also just rely on gold as a diversifier to your equities in addition to bonds because in an environment of elevated commodity prices, gold underperforms like all financial assets, which is why you have to have commodities in your portfolio, right?","offset":2443,"duration":48},{"text":"Bob Elliott: And when I ask people, you know had was doing some of these uh some CFA events uh a couple of weeks ago, I asked people, you know how many people have commodities in their portfolio, and it's crickets. And they're like, well, commodities, you know they don't go up as much as stocks, why would I ever hold them? Well, for this this is the reason why you would hold them, right? Because there are going to be times when all assets are doing poorly because commodity prices are surging and if you want to have some protection to your portfolio, that's why you have to have some commodity uh exposure within your portfolio.","offset":2491,"duration":33},{"text":"Host: Well said. Yeah, I just so I just want to bring this all together now in terms of when we look at all these asset classes and what they're reflecting. So you have the oil curve is pricing in something that's more significant than 2022. You have bond yields that are the same six months ago. You have equities that are largely flat, um seen small changes in currencies, pretty aggressive moves in in interest rate pricing from central banks. um gold's bled a little bit. Why why do you think there's such a contrast or tension between all those asset classes right now? Is it just like a positioning thing or people in complacency, are they expecting a, you know, a Taco-like Liberation Day? What's your what's your read high-level?","offset":2524,"duration":44},{"text":"Bob Elliott: Well, I think there's some collective amnesia about what's going on what happened in 2022. Um and part of that is I think folks have been sort of primed that there's always going to be the next easing and the next easing and the next easing. It's like, you know QE is like burn like there's all these burnouts on QE walking around, right? Thinking that ah they're just going to get the next, you know money hit coming.","offset":2568,"duration":30},{"text":"Bob Elliott: And this is very different from other shocks like this is very different from traditional growth shocks where the central bank where central banks are sort of all all well-positioned to ease into this into a growth shock into, you know an external growth shock of some sort. It's a totally different environment. And so, the combination of sort of that sort of uh forgetting conveniently forgetting about how '22 played out and then also you know this Taco stuff is I think people have really uh gone hook, line, and sinker, I mean for good empirical reason let's say, for why Taco you should always be betting on Taco and any fall is a is a good opportunity to buy.","offset":2598,"duration":42},{"text":"Bob Elliott: But again, a war is a is a very different thing than Liberation Day. Liberation Day was entirely determined by the you know mercurial views of a single person, meaning tomorrow you know on um the day after Liberation Day or five days after Liberation Day, like Trump could just change his mind and then magic, you know policy was different and and things like. He could he ran the Taco shop. Today the Taco shop is jointly run by two big parties but really like a dozen parties and if they don't all agree that we're getting Taco ahead then the then no Tacos will be served, to extend the analogy, right?","offset":2640,"duration":54},{"text":"Bob Elliott: Um and I think that's one of the challenges, like uh I think most people have not really spent a lot of time studying wars and their effects and things like that because I mean really for 75 years we basically had no wars, by and large. Like you know small wars, not no wars, but basically small wars that didn't matter that much. But wars have a momentum of their own. And we're seeing that in real time in terms of how wars have a momentum of their own. And so it's going to take much more than just a simple, you know Taco, for this thing to to get resolved anytime soon.","offset":2694,"duration":36},{"text":"Bob Elliott: And even and I think the oil market is really reflecting that because I mean people are down there counting the barrels, you know they're saying this many barrels in this under this circumstance and this circumstance and this circumstance. Um and when they pencil out all those barrels even assuming that there's a high probability that the US is just going to try and back down or have an off-ramp or something like that, you what is it like a 60 percent chance conflict ends within 45 days. That's a very high chance that a war ends within 45 days. Most wars take you know at a minimum years and often longer than years to play out.","offset":2730,"duration":30},{"text":"Bob Elliott: You know, when they add up all the barrels, they still have that curve where oil prices are 40 percent um above where they are today. The problem is, you know it doesn't look like people in the equity market and the bond market are actually counting the barrels. They're lazily thinking about Taco and QE and not thinking about the barrels and what the second and third order consequences are of those barrels. And so that is the gap and these gaps happen in markets. This is why you can generally generate alpha from a macro perspective because, you know not everyone is seeing the same reality and future reality at the same time. And so I think that's the gap we're seeing.","offset":2760,"duration":36},{"text":"Host: Amazing. Well Bob, that that's a great place to leave it. Some sage advice, appreciate a lot. And uh great to just walk through these things. You know, there's just endless whipsaws of news headlines right now, so I think it's it's a helpful mental model for everybody to digest and understand. Um so thank you for coming on and walking us through all that. I appreciate it. And where can where can folks go if they want to see more of your work in depth?","offset":2796,"duration":20},{"text":"Bob Elliott: Yeah, thanks so much for for having me. Uh if you're interested in my sort of ongoing macro commentary you can find me at BobUnlimited on anywhere you can find me, um or check out my Substack Nonconsensus, um which you noted earlier. Uh and if you want to learn more about uh my day job uh behind me, uh check out unlimitedetfs.com.","offset":2816,"duration":22},{"text":"Host: Awesome. Well thanks Bob, always great to have you on.","offset":2838,"duration":2},{"text":"Bob Elliott: Thanks for having me.","offset":2840,"duration":15}],"logs":[{"elapsed":"0.0","message":"Downloading audio from YouTube...","detail":null},{"elapsed":"0.0","message":"Trying download with browser cookies (ad-free)...","detail":null},{"elapsed":"26.3","message":"Audio downloaded (23.4 MB) in 26.3s","detail":"File size: 23.4 MB"},{"elapsed":"26.3","message":"Video title: The Macro Chain Reaction of Oil Shocks | Bob Elliott","detail":null},{"elapsed":"26.4","message":"Audio duration: 47:32 (47.5 min)","detail":null},{"elapsed":"26.4","message":"Uploading audio to Gemini File API...","detail":null},{"elapsed":"30.0","message":"Audio uploaded in 3.6s","detail":"File ref: files/pdnyi5bd5lom"},{"elapsed":"30.0","message":"Audio processed in 0.0s. 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