Here's Why The Iran War Is Prompting A Safe Haven Rethink

Stephen Carroll (0:00)

Hello, Odd Lots listeners. I'm Stephen Carroll, the host of Bloomberg's Here's Why podcast, where we break down a key story in the news. We borrowed Joe for our latest episode, so we thought we'd share it with you. If you like what you hear, you can subscribe to Here's Why wherever you usually get your podcasts. Enjoy.

SPEAKER_2 (0:18)

Bloomberg Audio Studios.

Stephen Carroll (0:20)

Podcasts, radio, news.

SPEAKER_2 (0:24)

I haven't seen yet a sense of, OK, where's my safe haven? Where do I go and park myself?

SPEAKER_3 (0:28)

The US is benefiting right now from kind of the safe haven trade at the moment.

Stephen Carroll (0:32)

If you can find me a safe haven in this market, I'd be the first one to sign up for that.

SPEAKER_2 (0:35)

We do see some of the safe havens seems doesn't perform as good as we expected. For example, the gold and silver, Japanese here and the bonds.

Stephen Carroll (0:44)

In times of trouble, investors often look for safer ground. During previous crises, that's meant to rush into assets like US treasuries, the dollar, the Swiss franc or gold. But the turmoil caused by President Trump's trade tariffs last year upended the traditional safe haven trades, as investors turned away from US assets. And the latest conflict in the Middle East has seen another shift. Here's why the Iran war is prompting a safe haven rethink.

Joe Weisenthal, host of Bloomberg's Odd Lots podcast, joins us now for more. Joe, great to talk to you. Can you help us understand, first of all, the background here, what makes a good safe haven asset? Why are treasuries or the Swiss franc or gold considered a place to shelter from market turmoil?

Joe Weisenthal (1:33)

The thing that investors are always looking for is some sort of asset that is not strictly correlated to growth or to risk assets. So what is a risk asset? A risk asset is an asset that goes up when things are going well. So stock market, classic risk assets.

You're feeling optimistic, you think the world is going to be good, all things equal, you want to buy more stocks. That's what a risk asset is. Then you have other assets that are characterized as safe havens. And so there's something about their properties in which you expect to be paid back, you expect to hold their value, even if things aren't going great. So gold, obviously a classic one. People have been using it for money for thousands of years. And so by and large, you expect that it will still have monetary possibilities in a thousand years. The performance of gold is not contingent on things going particularly well in the economy. Treasuries are another example. The US is, you know, maybe it's changed a little bit, but by and large stable. And the coupon payments are simply contingent on legally required payments from the US government. And so, again, those payments will happen regardless of whether the economy is strong or bad or whatever it is. So that has safe haven properties all around the world. Generally speaking, the US has had very little inflation over the years, certainly relative to many countries. And so, therefore, the dollar holds its value relatively well. It's accepted almost everywhere. And so it has safe haven properties. So basically, what people gravitate to in times of stress, and it's a little different, are assets that are not correlated to the business cycle that can perform and hold their value even if things aren't going well.

Stephen Carroll (3:20)

So what was different than during the tariff turmoil of last year? Because some of these traditional safe havens seemed a bit less attractive.

Joe Weisenthal (3:27)

Yeah, so I think the way to think about it is that, you know, safe havenness is something that kicks in at specific times. And so, let's go back to the tariffs. Did it create a true crisis? Crisis as in like a run on the banks, et cetera?

No, not really. There was a lot of anxiety and so forth, but the net effect of tariffs were for many people around the world, the US looked like a less attractive place to invest. It would be more costly to do business here and so forth. And so, in this environment, you saw the dollar weakening, right? This really did not have much to do with its safe haven properties per se. It was just the dollar being another currency, and investors around the world looked and said, okay, this is not great for economic management. I don't really want to put more assets on the ground in the US because importing goods in the factories and so forth will be more expensive. And so, then they sell dollars. Now, you fast forward to the war in Iran, and this is very different. The dimensions of the currency are not about broader conditions. This is, there is a war going on. We do not know how long this war is going to go on. A war is spiral out of control even if they're meant to be contained. This is a historical fact. In that environment, people are not thinking about, is the US a good place to invest right now? They're thinking, I am scared. I want to have my money in something that is likely to roughly retain its value for a year or now, five years from now, etc. And by that measure, the dollar is a relatively attractive option. So at times, these what we call safe haven assets perform differently. In 2025, the dollar performed like an investment asset. Oh, I don't really want to hold it so much because the US is a less attractive environment. Today, the dollar looks good. It's a safe haven asset, not because the US is a great place to invest per se, but because those properties, those safe haven properties have kicked in.