“This Is How Every Crisis Starts” w/ Jim Bianco

**Jim Bianco** (0:00)
SpaceX comes in at 4 or 5% waiting in the index, means I gotta sell 4 or 5% of everything else in some proportion, so that I could then redeploy that money back into SpaceX. It will be interesting to see how this plays out, because we've never had an IPO of this magnitude and potential inclusion into a stock index, especially in an era of passive.

**John Gillan** (0:25)
The markets keep making new highs, Canada has slipped into a technical recession, and it looks like Iran is pulling out of peace talks. What does all this mean for the market and when will investors feel the impact? Hello and welcome to Milk Road Macro, the podcast that really, really hopes there's a chapter in the art of the deal about how to make peace in the Middle East. I'm your host, John Gillan. Today is Monday, June 1st, and today we are joined by Jim Bianco of Bianco Research. Jim is an industry leading analyst with over 30 years of experience and expert insights on the economy, capital markets and all things macro. He has been a regular contributor to the Wall Street Journal, CNBC, Fox Business, CNN, Bloomberg, the list goes on. He has over half a million followers on X and today he's gonna share a lot of insights and alpha with us about the markets and everything that's going on. So that sounds good to you. Make sure you like and subscribe, share this episode with somebody who's gonna enjoy it. Today's episode is brought to you by Cape, the privacy first mobile carrier and Nexo earn interest borrow and trade crypto and Kalshi where your takes finally pay out. And I hope we get some good takes out of Jim today. Welcome back to Milk Road Macro, Jim Bianco. How are you, sir?

**Jim Bianco** (1:29)
I'm doing great. Looking forward to the conversation.

**John Gillan** (1:32)
Me too, Jim. I thought I didn't want to start with this, but I think given the news this morning, we better start with the Strait of Hormuz and the situation in Iran. The Strait is still closed. Iran has pulled out of peace talks. It looks like conflict is escalating there. What are you expecting to see the market react reaction to this to be? And what are you watching for coming out of this?

**Jim Bianco** (1:49)
Well, you know, I guess really the question is, is what do people expect out of the Strait of Hormuz? Do they know what the market expects?
The market expects this to be a temporary situation no more than 30 to 60 more days. It's thought that since the first day of the war, 90 days ago, and it continues to think that. You could see that in the way that the oil market has been managed over the last 90 days. We've seen an aggressive drawdown on inventories around the world, and that has been keeping the lid on prices potentially skyrocketing in terms of oil.
You could actually argue that's kind of reckless, because if you believe that the Strait of Hormuz is going to be closed for an extended period of time, you've got this precious thing called these inventories, and you should be managing expectations, and you should be managing them for the long term, instead of just dumping them all on the market to keep the price down. Because eventually, we're going to hit what's known as operational minimums. We can't run every inventory to zero, and then we're going to have to have real demand destruction. So that's what the market has been operating under. Don't worry, this is going to be over with soon. That's why it reacts to every Trump tweet about, oh, we're close to a deal. The deal has been finalized. We're just waiting to sign it, and the market gets excited every single time, because everybody believes that to be the case. Now I'm skeptical that that's going to be the case. I think this thing is going to drag on for a lot longer than people think, because I don't think the Iranians have the incentive to cut a deal like everybody else thinks, that we're talking about the potential of them having damaged their oil fields. I remember a month ago when Trump said, three more days till their oil fields explode, and I'm waiting for their oil fields to explode a month later, and they haven't exploded. I think that this could definitely drag on a lot more, and I think that that's what you're seeing in the news now, is that the Iranians are not under pressure to deal. That's why they're mad about what's happening in Lebanon with Israel. That's why they're saying that they're pulling out of the talks. There's no urgency on their part to deal, and I think this is going to go longer, and eventually, we're going to hit those operational minimums. We keep aggressively drawing down inventories, and I don't mean we, the United States, I mean the globe. You've seen aggressive drawdowns of inventories in Japan, you've seen them in China, you've seen them in the United States, you've seen them in Europe, and when we hit those operational minimums, then we're going to start to see shortages start to appear.