Ten31 Timestamp: To Rule the Waves

**Marty Bent** (0:00)
John, were you monitoring the situation over the weekend?

**John Arnold** (0:05)
Like any good Twitter addict, I was aggressively monitoring the situation. And like I said at the beginning of this week's timestamp, some people are pros, some people do it for the love of the game, and I just do it for the love of the game. Whether they pay me or not, I'm going to monitor the situation.

**Marty Bent** (0:25)
Well, the situation evolved over the weekend.
I guess we'll jump into it. Last week we met, I was in a QS, and we were about two days in, maybe, early Saturday morning, Sunday, two and a half days in to this operation Epic Fury into Iran. It has persisted and things have escalated pretty significantly. I guess we'll just start here. All focuses on oil and gas markets right now are not all focused, but the predominant focus is on oil and gas markets. Obviously, the continuation of this operation or war, as many people are referring to it as, has led to the closure of the Strait of Hormuz. There's been a bunch of critical oil and gas infrastructure hit both within Iran and within the Arabian Peninsula, UAE, Qatar, Saudi Arabia have had some of their oil infrastructure hit. I believe many refineries have been hit, and all this is going to have dire consequences on energy markets, which are the base of everything we do in the global economy. And so, there will be knock on effects throughout the global economy and particularly on the price of goods, which I think it's safe to say they're not going to go lower from here. John, what was your reading of the situation over the weekend?

**John Arnold** (1:49)
Yeah, well, I mean, you referred to it, but it's not a war.
It's a sparkling conflict currently if you listen to our dear leaders in Washington. But yeah, it's interesting. It's kind of a piece with the theme that we've talked about some on this show, that you've talked about a bunch on TFTC and that has kind of been formed a lot of the way that we've invested over the last five years of 1031, which is just the re-emergence of the physical world into the economy. And whether it's supply chain snares in 2020 and 21, or a similar oil and gas price spike you saw after the Russian invasion of Ukraine to the last few years, the need to aggressively to reshore and to ramp up power capacity for the HPC story. Like now finally, again, one of the probably the biggest oil shock of the world has seen since I think 1983 It was the last time we got to move this big in one week. You know, some are pointing back to the Suez crisis even before that. So, you know, it's the latest iteration and entry in this series of our more frequent reminders now that the physical world gets a say and we can't necessarily assume that the cost to make stuff and produce goods and get them around the world in a reasonable timeframe is always going to be trending to zero. And, you know, the markets are trying to price that in this morning with oil almost hitting $120 a barrel last night, both Brent and WTI down a little this morning around $100, just above $100. But clearly a massive impact that I don't think anyone was really pricing in, certainly a year ago, certainly even a few months ago. And you can see the this chart just captures well kind of what we're looking at. The Hormuz Strait around Iran and the Persian Gulf controls roughly 20 percent of the world's liquid petroleum products. Basically, traffic through there has ground to a standstill with Iran threatening to blow up tankers that are trying to pass through insurance contracts on various tankers and maritime vessels have gotten canceled. Maybe we'll see what the US does with that. But all is to say we're in a very, very sticky situation to say the least. And we will get into it here. But it's going to have this latest physical constraint of the physical world is going to have a lot of downstream impacts on every market.

**Marty Bent** (4:12)
Yeah, it's pretty crazy to see it all unfold. And we'll get into, I think, what we discussed last week, really tying it to the national security strategy and this being a roundabout way to put pressure on China. I think that is one of the predominant theses that is hitting the airwaves and hit the airwaves over the weekend is continuing to this week. We'll jump into that. But I think re-approaching a chart that we brought up last week that we should check in on is the 10-year yield, which is going up alongside oil and gas prices as well. But we'll get into the ramifications of the geopolitics of this all after touching on what's happening here domestically.