Pod Insights Masters in Business At The Money: Navigating War, Tariffs and Geopolitics About this episode Israel attacked Iran with drones; the U. S. bombed Iran’s nuclear sites. This after months of Tariffs announcements and geopolitical wrangling. What are investors supposed to do?
Sam Ro, an award winning financial journalist and CFA known for his clear, data-driven insights into markets joins Barry Ritholtz to discuss what you need to know about navigating geopolitical turmoil.
Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.
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2:47 Barry Ritholtz? War, geopolitics, tariffs. How is an investor supposed to navigate their way through an environment where the US bombs Iran's nuclear sites? Israeli drone attacks have taken place in the Middle East, as well as aircraft bombing raids. All of this comes after months of noisy tariff announcements and walking those back, geopolitical wrangling. What are investors supposed to do when a war breaks out? I'm Barry Ritholtz, and on today's edition of At the Money, we're going to discuss how to manage your way through war, tariffs, and all manner of headline risks. To help us unpack all of this and what it means
3:32 Barry Ritholtz? for your portfolio, let's bring in veteran markets journalist and CFA Sam Rowe. Sam's known for his clear, data-driven insights into markets and the economy. He is a journalistic veteran who has worked at Forbes, Yahoo, Business Insider, and Axios. His Substack ticker was named by the Society of Business Editors and Writers as the Best in Business for 2022. So Sam, let's start with something you wrote recently, quote, "The US stock market has a long history of demonstrating resilience in the face of major geopolitical risk events." Explain that.
4:15 Speaker 04 Yeah, I mean, it's a... Every couple of years or every couple of months, I think you and I, or you and your clients, and me and my readers have the same kind of discussion. Some conflict breaks out, volatility comes to the markets, what are we supposed to do? And, you know, of course, you know, as a human being, this is very scary. As someone who cares about, or has friends and family connected to those events, it's really distressing. And then you put your investor hat on and think about, you know, what does history tell us here? Now, obviously, every event is going to be slightly different, but history also tells
4:59 Speaker 04 us that the markets seem to eventually look past this. Even with what's going on in the Middle East right now, I think for as long as we've been alive, there's been some permutation of a Middle East conflict, and it's always been scary. And there's always, you know, secondary effects in the financial markets, whether it's with oil prices, or volatility, and interest rates, and currencies, and all of these sort of things. And I think for traders who are trying to weave in and out of this, it's a big deal, and you really should be paying close attention to every development here. But, you know, as someone who has to get somewhere in terms of retirement, and long-term savings,
5:40 Speaker 04 or if you're saving for your college, your kid's college fund, or something, you have to wonder, you know, what does, what does five years outlook like? What does 10 years outlook like? What does even three years outlook like? And, you know, when you see some of these reviews of various geopolitical events in the past, there are some conflicts that go on for a very long time, and may or may not have a, sort of a longer-term impact on the financial market. But for the most part, the market hits tend to be very brief. I think I saw something from Deutsche Bank recently that reviewed something like 30 geopolitical events of the last 100 years. And from the beginning of the event that triggered, you know, the conflict to the bottom of the
6:24 Speaker 04 S and B 500, on average, and the median stretch is about 15 days.
6:30 Barry Ritholtz? Fifteen trading days, so essentially three weeks. So that's kind of interesting. You said something not too long ago that I thought was intriguing, and I'm wondering if it was geared to investors or traders. Stocks usually look past geopolitical events, but these events shouldn't be ignored. How do you have it both ways?
6:50 Speaker 04 Absolutely. You know, I think, I think one of the mistakes that a long-term investor can make is to try to pretend like nothing else is happening in the world. I mean, of course, you know, this stuff matters and, you know, we're going to follow news and our personal lives and all that kind of stuff. But, you know, sometimes we want to just ignore all this stuff, especially if we have, you know, 15, 20, 30 years until we actually have to begin selling these stocks. But I don't know if that's totally healthy, because maybe the study says 15 days till the market bottoms, but the study might also have a range of outcomes where it might take three years till the market bottoms.
7:34 Barry Ritholtz? Fifteen days is the average, but that doesn't necessarily mean each time it's going to be 15 days.
7:39 Speaker 04 Exactly. So I think, you know, you definitely want to be mindful of the possibility that things can get worse. Like even, even with what's happening right now, the markets seem to have bounced back pretty quickly.
7:50 Barry Ritholtz? All-time highs.
7:51 Speaker 04 All-time highs. We're within reach of all-time highs, but that doesn't mean, you know, there isn't going to be another flare-up, you know, tomorrow, or next week, or in a couple of months. So I think you have to be mindful of, of the fact that this stuff is going on in the world. And then you go back to the history and say, hey, the odds actually say people want de-escalation. People would rather not have violence out there. And that involves all parties. And so as long as there are more people who would rather not have violence than want violence, I think there's some gravity toward de-escalation and a pullback in violent activity.
8:29 Barry Ritholtz? So let's delve into the history of, we'll, we'll deal with tariffs in a little bit. Let's talk about war. There's a history of the last century of small wars, large wars, world wars. We have World War I and World War II, we have the Korean War, Vietnam, Iraq in 1991, and then Afghanistan and Iraq in 03, and today it's Iran, which seems to have been building, I don't know, since 1979 when the hostages were taken, following the Iranian Revolution. How should investors, not in their personal or family life, but as stewards of capital,
9:13 Barry Ritholtz? contextualize the dangers of war and the dangers of being frightened out of the market because of war?
9:22 Speaker 04 You know, I was just having a conversation about this the other day, about, you know, this whole matter of, you turn on the TV and someone will tell you, well, uncertainty is elevated today. Uncertainty, it doesn't make sense that the market's so high because of all this uncertainty that's out there. Well, uncertainty just defines the nature of investing in the stock market, right? If there was no uncertainty, you wouldn't get a great return.
9:46 Barry Ritholtz? Right, if you want certain returns, you can get 4-point-something on the 10-year Treasury.
9:52 Speaker 04 Right, exactly. But I was just thinking about, you know, the history of conflicts, especially, you know, in the Middle East. And I remember when the Gulf War started in 1990, and, you know, I was eight years old. And I was looking at the data, and apparently that was a pretty rough time, both in the oil markets and in the financial markets, and it was a tough time to be an investor, you know, going through all this volatility, because, you know, maybe this is it, maybe this is the end of all that. But then, you know, it's not long after that you realize that's actually an incredible time to start putting money into Sam Rose 520. I wish my parents put money into a 529 plan at that time, but they didn't.
10:36 Speaker 04 But, again, you just look backwards and...
10:40 Speaker 04 If there's a more powerful force than geopolitical tensions, it's going to be everyone's desire to want things to be better. And even from like a business perspective, you know, they want better technologies, they want things to be cheaper, they want things to be faster. And that force that's driving earnings and profits and productivity and the economy and employment and quality of life, standards of living and all this stuff, you know, will continue to be the dominant force in the markets. So I think that's what people miss. Like if you were to be able, if you could put all that into like a pie chart, sure, you have these flare ups in geopolitical events, but the dominant forces, you know, remain.
11:23 Barry Ritholtz? That makes a lot of sense. You mentioned oil earlier. In the 1990s and especially in the 1970s, anytime we saw Mideast tension, that always translated into higher oil prices, which then pushed into CPI inflation, driving it higher. Are we in the same set of circumstances today? Ever since the new fracking technologies in the 2000s and the United States just cranking out oil for the past, I don't know, 10, 12 years at all time record rates, does the US lesser dependence on Middle Eastern oil
12:04 Barry Ritholtz? make it more or less likely that Middle East flare ups are not going to be as inflationary as they once were?
12:12 Speaker 04 I think it's going to be not as inflationary as they once were. One of my favorite metrics that's out there is energy consumption spending as a percentage of personal consumption expenditures. And that was somewhere, that was floating around at about 10%. Energy spending as a percentage of personal consumption.
12:31 Barry Ritholtz? Household budgets.
12:32 Speaker 04 Yeah, household budgets, yeah. About 10% in the late 70s, early 80s. And that's steadily been declining. And now it's closer to somewhere between 3 and 4%.
12:42 Barry Ritholtz? That's amazing.
12:42 Speaker 04 Yeah, so energy, the direct spending on energy has shrunk significantly. And then past that, like, you know,
12:52 Speaker 04 You know, the car you drive today is far more fuel efficient than the car you drove, you know, 20 years ago. So fuel economy has improved for, you know, one of the biggest purchases of energy, which is gasoline for cars.
13:04 Barry Ritholtz? To say nothing about hybrids and EVs.
13:07 Speaker 04 Hybrids, EVs, your refrigerator is more energy efficient, the AC is more energy efficient, the, uh, the, the.
13:17 Barry Ritholtz? We switched to natural gas from oil, I don't know, 10 years ago. It costs a fraction of what oil costs and it pollutes less. And, you know, as much as people say natural gas is a problem, it's certainly much better than coal.
13:32 Speaker 04 Right.
13:32 Barry Ritholtz? And, and better than oil.
13:34 Speaker 04 Right, right, right. Having said that, it can certainly have a psychological effect on consumers especially. Um, we can spend all day talking about how I get, you know, 25 miles per gallon now as opposed to 15 when I first got my driver's license. But when you see gas prices go from 250 to 325 in a very short period of time, that affects you because that's immediately coming out of, uh, you know, whatever your Starbucks budget might be.
14:01 Barry Ritholtz? Huh, really interesting. So we've seen a, an argument pushing for home shoring. We'll bring these factories back to the US. We'll create all these new jobs. Is that realistic in the modern age of advanced automation, new technologies, artificial intelligence and robotics? Are we really going to fill factories with workers or are we going to be filling new US-based factories with a whole bunch of robots?
14:28 Speaker 04 Yeah, I think, I think there's several ways to answer that question. And in every way, it's going to be no, we're not going to have a ton of home shoring. We might have some at the margin. Everything happens at the margins, right? Some people, some people who are saving, uh, you know, point 001 percentage point, you know, manufacturing in China might figure out a way to move to the US. But for the most part, um, it's not going to be that much cheaper to move your manufacturing to the US just because it was so expensive in China. You're going to move to Vietnam. You're going to move to Mexico, you're going to move to Indonesia and all these other places where it might be more expensive than China, for instance, but it's still going to be cheaper than
15:10 Speaker 04 the US. So I think that's one of the unintended consequences of that. But as far as like what you're saying about AI and machinery and robotics and all this stuff, yeah, absolutely, that's already happening. And so it's a question that like, I don't know, I don't know if you can fight that, right? Like unless unless you decide that unless there's a policy that decides that there's a limitation on how many robots you can have in your factories or, or I mean, it's this is not, we're not even talking about production manufacturing anymore or goods production. We're also talking about services, right? Everyone in the service, it's like AI has gotten to the point where it's not just affecting the assembly line, it's affecting people who go into an office
15:52 Speaker 04 and, you know, go to meetings and strategize for their, you know, their marketing departments, or, you know, if they work in banking, you know, suddenly you can cut a couple steps out of, you know, putting numbers into an Excel spreadsheet.
16:04 Barry Ritholtz? Really, really interesting. So last question, how can investors balance staying invested against all of these geopolitical risks, war risks, trade war risks, tariffs, and just unexpected escalations? How do they balance the need to stay invested through this against the potential downside risks of all these headline?
16:30 Speaker 04 You got to study the history and you got to look at the data and you got to remember how bad things were at various points in history. Me personally, I like to keep a journal when bad things happen. I wish I had done this more actively during the financial crisis, but I didn't. I certainly did during COVID and something that, I mean, you know, you can sort of get this by proxy through reading a really deep account of various historical events. But reading my own memories or my own personal real time accounts of something like COVID reminded me
17:07 Speaker 04 It always feels like the end of the world and it lasts so much longer than you expected. Like, you know, I have 50 pages here where it's just like day after day after day. You know, we live in a new era where we're never going to be in the same office again. We're never going to meet anybody ever again and all these kinds of things. And, you know, it's something I like to do every once in a while, especially when things are calm, right? It's one thing to be in the middle of a crisis and then study the history of crises. And it's like, no, no, no, no, no, this time it's different. But when things are calm, that's probably actually the best time to go back and remember things like, well, here's another, I'm sorry to sort of
17:44 Barry Ritholtz? Keep going, no, I'm interested.
17:45 Speaker 04 Digress a little bit. I got a notification on Facebook saying that, I think it was exactly 15 years ago, I submitted an idea for fixing the Deepwater Horizon disaster. I don't know if you're, if people remember this, but
18:03 Barry Ritholtz? That was BP Amoco and Ken Feinberg oversaw the
18:06 Speaker 04 Yeah, yeah.
18:07 Barry Ritholtz? I recall that.
18:08 Speaker 04 Yeah, yeah, Gulf of Mexico and oil well blows up and it's spewing oil into the Gulf of Mexico. Do you remember how long it was spewing oil into the Gulf?
18:16 Barry Ritholtz? 60 days, some crazy
18:18 Speaker 04 It's three months.
18:19 Barry Ritholtz? Yeah, 90 days, wow.
18:20 Speaker 04 Three months that they were eventually able to put a cap in it. And it took, I think it took another two or three months to officially say this thing was sealed.
18:28 Barry Ritholtz? Right.
18:29 Speaker 04 It's insane how long this went on for, but you know, everyone's memory is going to be, oh, well, it was something in the past. It's like, I remember it being three months. Oh, I remember being, it couldn't have lasted longer than two weeks.
18:41 Barry Ritholtz? But when you're in the moment, in the, humans live in the here and now.
18:45 Speaker 04 Right.
18:46 Barry Ritholtz? And when it's happening, especially day after day after day.
18:50 Speaker 04 Yeah.
18:51 Barry Ritholtz? It's funny, you mentioned journaling during these things. I was essentially ended up writing Bailout Nation in real time in public on the blog.
19:02 Speaker 04 Yeah, yeah, yeah.
19:03 Barry Ritholtz? And I recall having a conversation with my trading desk back then, who were just like exhausted from the volatility. Everybody was making money, but it was exhausting.
19:13 Speaker 04 Yeah.
19:14 Barry Ritholtz? And there's this fantastic line in Apocalypse Now. Do you remember the Charlie Don't Surf scene where Deval goes up to, um,
19:24 Barry Ritholtz? Martin Sheen, and he says with this wistfulness, "You know, son, someday this war is gonna end." Like disappointed. And when you're in the middle of it, it feels like it's never gonna end. The financial crisis is never gonna end. Deepwater Horizon is not gonna end. The tariffs war are not gonna end. But we always seem to come out the other side.
19:45 Speaker 04 Yeah, and again, we just came out of COVID. Like, we were-
19:50 Barry Ritholtz? Which really felt like it was never gonna end.
19:52 Speaker 04 We were literally living a science fiction movie. Like, there's no amount of money you can throw at this problem. Like, you just have to pray that the science is gonna be good enough that we figure out how to come up with a vaccine and contain this thing. But the amount, the scale of death was unbelievable.
20:10 Barry Ritholtz? Yeah, millions, millions of people in America and tens of millions around the world.
20:15 Speaker 04 And yet, you know, the economy's never been stronger and the stock market has never been higher. So I think, I think, listen, it's not to sort of necessarily downplay what's going on in terms of, and it's not just, you know, Iran. We still have a war going on between Russia and Ukraine. Let's not forget about that, right?
20:32 Barry Ritholtz? So it's the Middle East, it's Russia and Ukraine. There are other hotspots going on in Africa as well.
20:37 Speaker 04 Yep, and there's gonna be something else that's gonna flare up. That's inevitable. But, you know, again, I think not to downplay any of it, but to offer some perspective, it might help to go back and just sort of remember those times when things were really tough.
20:51 Barry Ritholtz? So to wrap up, we experienced these geopolitical disruptions in a form of duality. As human beings, we are aware of the emotional turmoil, of the toll in human suffering, and just how psychologically damaging all these horrific events are. And yet, at the same time, we have to be good stewards of our own capital and recognize that this too shall pass. I'm Barry Ritholtz, and this is Bloomberg's At the Money.
21:37 Speaker 00 At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.
22:08 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
22:50 Speaker 01 and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.
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