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Well, yourself and a lot of central bankers and policymakers are struggling with a a question that they've struggled with before in the past. And that is whatever we're seeing in terms of inflation pass-through from the war in the Middle East, is this transitory? Is this one-off? Or has there been enough damage structurally that, you know, it's going to take a long while for us to to get out of this.
Where do you fall on the spectrum? Well, you know, the the war clearly has brought to the fore the possibility uh that this will be a kind of a replay of the 1970s. Until the war, it kind of looked like the roaring 2020s. Uh Uh global growth was strong. Real GDP in the US all-time record high. Stock market booming.
Uh but yeah, the longer this war lasts, the more we have to consider the possibility that this is a turns into a stagflationary situation, which is a real bind for central banks because well, especially for the Fed. The Fed has a dual mandate. If you have inflation going up and the economy slowing, maybe even going into the recession with unemployment going up, the Fed's kind of between what can I say?
A rock and a hard place. I mean, they they're kind of stuck. And other central banks will have to respond to inflation because they only have one one mandate. So, that really creates a a very grim outlook. I mean, the '70s were a lost decade for the stock markets in the US and and around the world. But I I think there's so much at stake here and we all know how bad this can get and if we remember the '70s, I I think they'll they'll be a lot of push against Iran.
I think Iran's going to have to fold one way or the other. And meanwhile, as I said, commodities are common. Commodities will get out one way or the other. Mhm. And listen, your shop your Epitome shop is is an independent one, right? But folks like Goldman also City, they're still holding to the view that uh the Fed is going to cut two, in some cases three times uh this year.
I mean, it's it's everybody wants to be an optimist, right? But to be honest, I mean, so much is just unknown about how this could unfold. I I'm really I I'm really sort of uh uh uh uh uh pushed to try and figure out how people can can actually be holding on to that kind of view. Uh wouldn't you wouldn't you argue or wouldn't you think that the risks are more to the upside?
The central banks are going to have to hike. Absolutely. I mean, uh almost all central banks other than the US, as I said, have only one mandate and that's to keep inflation down. And that would clearly mean that the ECB, the BOJ, the Bank of England, all all central banks big and small would have to move towards tightening.
The Fed because of the dual mandate may be kind of stuck in the middle. But the um the the stagflationary environment is one that can't be ignored. Even the industry analysts are very optimistic. It's really remarkable, but we we watch weekly analyst expectations for earnings and they're actually increasing their numbers for 2026 and the fourth quarter the first quarter of 2026, by the way.
And they're also increasing their outlook for 2027. So, maybe Wall Street didn't get the recession memo that's that's out there. I I I raised my recession odds from 20% to 35% a couple of weeks ago when I concluded that with the fog of war, how can you not get a little bit more pessimistic? And but you know, 35% is not my base case.
My base case is this too shall pass. This may very well be more akin to what we saw in 2020 when there too, oil prices surged. We had a Russia invade Ukraine. There were commodity issues with grain. So, that's that's what I'm thinking's going to happen. But honestly, as you said, it's more hope than than anything based on fact.
Yeah. And very quickly, the White House obviously watches bond yields, right? Anytime you get anywhere near uh five, you see a change in policy. I think people have noted that a number of times, right? The other metric that they're watching very closely is the the national price of gas, which is past four bucks a gallon.
And if you live in California, right there net energy importers, it's more like eight bucks a gallon. That's going to be something that they watch very closely. At these levels and we're just tucked under four right now, the national average across the country, is that a is that a taco signal right there?
I think it might be. I think arguably the postponement of the bombardment on Monday and extending it for 5 days was a kind of a taco moment. Um but it may be kind of late here for the president to uh to declare victory. I mean, he can obviously do it, but I'm saying in terms of the impact on the economy and the elections, uh I watch Polymarkets pretty closely and uh the odds of the Republicans losing the house are 85% uh according to Polymarkets.
And it's kind of even Steven when it comes to the odds of losing the um the the the Senate. So, things are messy geopolitically now. Imagine if they're still messy come the midterm elections and the result is an even messier domestic politics.
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