Hormuz spike crushes bonds and stocks. Only oil wins.

Transcript

Tom Buddy, oil at eighty-seven dollars? No way. The Strait of Hormuz is basically a parking lot right now and the energy trade is absolutely on fire.

Marie Look, it is July fourteenth, twenty-twenty-six, and the geopolitical risk just hit a boiling point. I am Marie, and we have got Gerald and Tom here for the New York Edition of Investment Flash.

Gerald Yeah look, honestly, the Financial Times was flagging these transit risks three days ago, but markets only seem to care when the missiles actually start flying. Now everyone is a crude oil expert again.

Tom Gerald, you have to admit that eight percent move in the United States Oil Fund, ticker U-S-O, in just one session is massive. That is a seventy-one percent gain for the year so far.

Marie Hold on, Tom, that is exactly why we need to be careful here. When a trade is up seventy percent year to date and then spikes on a headline, you are usually looking at the literal definition of a crowded trade.

Gerald Exactly.

Tom One hundred percent.

Marie That is the whole story. If we get even a hint of a diplomatic off-ramp, all that geopolitical premium in B-P and the Energy Select Sector S-P-D-R Fund is going to evaporate in an afternoon.

Gerald To be fair, B-P is actually saying they expect more oil-trading gains because of this volatility. It is not just about the price of the barrel; it is about the chaos in the supply chain that they can monetize.

Tom Right, and B-P was up two percent in the last session, which is a solid move for a major. It just feels like everything is being sucked into this one single trade right now.

Marie Wait, wait a second, let's talk about the casualties. The bond market is getting absolutely shredded because of these inflation fears. Long-duration Treasuries, through the T-L-T exchange-traded fund, are at a fifty-two-week low.

Gerald The thing is, the bond market is finally realizing that the inflation dragon is not dead, it was just resting. We are seeing yields climb because oil at eighty-seven dollars is a tax on everything.

Tom No but that is exactly my point. This T-S Lombard note is saying the Federal Reserve is behind the curve because they are underestimating the A-I boom. They think the Fed should be tightening right now to cool things off.

Marie I am going to push back here. T-S Lombard is flipping the entire script. They are saying A-I isn't disinflationary, it is actually an overheating impulse. That is a wild take when everyone else is waiting for rate cuts.

Gerald Look mate, analysts revising their theories after the market already broke is basically a free retirement plan at this point. They are just trying to explain why the bond sell-off is happening after the fact.

Tom ha — fair enough. But Gerald, if they're right and the Fed has to move to a tightening bias because of productivity-led inflation, then my tech bulls are in for a very rough summer.

Marie Not so fast, Tom. Look at the data-center builders. The Wall Street Journal says they are offloading billions of dollars in stakes. If the A-I trade was truly overheating, why are the guys building the infrastructure cashing out now?

Gerald Right, and companies like Digital Realty Trust and Equinix are sitting on huge year to date gains. Selling stakes now is just prudent risk management. It suggests we might be near a local top for the real estate investment trust valuations.

Tom For real? I mean, Equinix is up thirty-six percent this year. A little profit-taking doesn't mean the story is over. But let's look at something that isn't working — China. Those airlines are a disaster.

Marie Honestly, China Southern and China Eastern lagging Cathay Pacific by fifty percentage points is a massive divergence. It shows that domestic demand in China is still totally in the basement while international travel recovers.

Gerald Yeah look, it is the same story in the E-V space too. NIO and XPeng are getting squeezed on margins because their materials suppliers actually have the pricing power. The miners like B-H-P Group are the ones raking it in.

Tom B-H-P is up thirty-two percent year to date. That is the play, isn't it? Own the dirt, not the car.

Marie See, this is what I mean. The structural factors are favoring the commodity producers again. But before we get deeper into the commodities, a quick reminder that everything we discuss on Investment Flash is for informational purposes only and is not investment advice.

Gerald Alright, let's talk about the other 'digital' commodity. Bitcoin is actually showing some backbone here. It fell with everything else initially, but it is holding steady while the altcoins are getting hammered.

Tom Right, the CoinDesk report says the panic selling might be over for Bitcoin because the sellers' profit margins have basically disappeared. No one is left to sell at these levels.

Marie Hold on, did you see the sentiment on X-R-P and Ether? Social media bullishness is at a five-week high while the prices are falling. That is a classic contrarian sell signal. The retail crowd is trying to catch a falling knife.

Gerald Pff, calling the bottom on altcoins again? That's about the sixth bottom we've called this cycle, isn't it?

Tom hah — yeah, yeah. I know I said that about semis last quarter too. But seriously, the South Korea situation is a real warning. Their biggest leveraged chip E-T-F is down forty-five percent.

Marie That Korea move is brutal. The iShares M-S-C-I South Korea E-T-F dropped eight and a half percent in just the last session. That is retail leverage being absolutely liquidated.

Gerald Right, and at the same time, the Korean government is talking about easing foreign exchange rules in twenty-twenty-six to internationalize the won. It's a complete mismatch between long-term policy and short-term market carnage.

Tom It feels like a lot of these trades we liked yesterday are getting tested. Gerald, remember when you said we should watch the South Korea E-T-F yesterday? You were spot on about the volatility, even if the direction was a cliff dive.

Gerald Fair enough, though I'd rather be wrong and see everyone's portfolio stay green. The thing is, corporate bonds are not providing a safety net either. Yields are at multi-year highs, but the Wall Street Journal is saying they still aren't enough to compensate for this mess.

Marie I agree. The investment-grade and high-yield bond E-T-Fs are both sitting near fifty-two-week lows. If you aren't getting paid to take the risk, why would you sit in L-Q-D or H-Y-G right now?

Tom Exactly.

Gerald Spot on.

Marie That's why the 'Our View' section today is so focused on this barbell approach. You have to stay long the crude oil trade because of the physical reality in the Strait, but you've got to be short the long-duration bonds because inflation is the clear and present danger.

Tom But we have to mention the risk of a reversal. If there is a ceasefire or some diplomatic breakthrough, oil could drop ten dollars in a heartbeat. I'm keeping my stops incredibly tight on the United States Oil Fund.

Gerald Honestly, the most interesting part of the day is the media merger drama. A dozen blue states trying to block the Paramount and Warner Brothers Discovery merger on antitrust grounds? That is a massive headache for those synergies.

Marie No but that's exactly my point — the regulatory environment is becoming a minefield for these big deals. Warner Brothers was up nearly two percent in the last session, but it's still down five percent for the year. The market is pricing in a lot of failure risk.

Tom It's a tough environment for anything that isn't oil or A-I infrastructure. Even gold is struggling. Gold was down three percent last session. Why isn't it catching a bid with all this war talk?

Gerald Because people are selling what they can to cover losses elsewhere. It is a liquidity event. But Bloomberg suggests gold could be a catch-up trade if this crisis deepens. The gold E-T-F is down eight percent year to date, so it's a contrarian entry for sure.

Marie I'm going to watch copper too. The C-P-E-R exchange-traded fund is up one and a half percent this week. If Hormuz stays blocked, it's not just oil — it's the entire industrial supply chain that gets choked.

Tom Wait — wait a second. We're talking about a global recession if that happens. This isn't just a trade, it's a structural shock.

Gerald Look, I sounded the same about Cisco in two thousand, and look how that turned out. Markets have a way of over-pricing the apocalypse and then forgetting it happened two weeks later.

Marie oh, that's brutal. But you're right. We have to keep our heads. Today is about reacting to the oil spike, but tomorrow is about seeing if it sticks.

Tom Totally. If you are following along and want to see the charts behind these moves, hit follow on Spotify or check out investment flash dot com for the full digest.

Marie Great call. We are wrapping up the New York Edition for today. We'll be keeping a very close eye on those Hormuz headlines throughout the afternoon.

Gerald Yeah, and I'll be looking to see if the European markets have any more sense than this one when they open. Probably not, but one can hope.

Tom We're back tomorrow for the next one. We will see you for tomorrow's London Edition at seven-thirty a.m. London time.

Marie See you then. Stay sharp out there.