Pricing the Iran War's Future — Are Markets Right?

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That's the average age of a new hire in America today, the highest number ever. Standard benefits now include a 401k rollover and a referral to an orthopedic specialist. Welcome to Prof. Markets, I'm Ed Elson, it is March 11th, let's check in on yesterday's market

vitals. The major indices initially climbed as oil shock fears were tempered, but they ultimately

“closed flat, crude oil prices declined, the dollar fell, and Bitcoin jumped above $70,000.”

Okay, what's happening? The war with Iran is escalating. U.S. Defense Secretary Pete Higgseth told reporters at a pentagon press conference on Tuesday that Iran was, quote, badly loser. Today will be yet again our most intense day of strikes inside Iran. The most fighters, the most bombers, the most strikes, intelligence, more refined and better than ever. Higgseth's comments came just hours after President Trump suggested the

war would end quote very soon. However, Trump also warned that the U.S. would hit Iran quote 20 times harder than they have been hit thus far. If Tehran stops the flow of oil through the straight of Homo's. And Iranian officials say the country is absolutely not seeking a ceasefire. At least 20 countries are now militarily involved, making it one of the biggest conflicts since the Cold War. Meanwhile, the energy market is on edge. The straight of Homo's remains effectively

closed and Abu Dhabi's revised refinery, one of the biggest in the world, halted operations after a drone strike nearby Saudi Iran Coast CEO Amin Nasser, warned of quote, "catastrophic consequences if the war drags on." Oil has continued its volatile ride, Brent Crude after spiking up to $119 on Monday, fell to 85 by midday on Tuesday. So we have lots to talk about. We are joined by another expert panel. We've got Katie Martin, Markets Colonist and editorial board member at the Financial

Times and also Justin Wolfers Professor of Economics and Public Policy at the University of Michigan, two of our favorites, Katie and Justin. Thank you so much for joining us on the show, Katie. I'm going to start with you. It's been hard to make sense of the market's reactions to what's happening here because it seems that originally markets were not too worried about it.

opposite way you would expect if there was some global catastrophe that might be unfolding. Then it seems to kind of reverse oil prices spike. But down again, I'm struggling to make sense

“of it myself. What do you make of how the markets have digested what's happening in Iran?”

Yeah, it was quite a weird market reaction to this whole situation. So the oil price shot higher and that much makes kind of instinctive sense. But then the other things that tend to go hand in hand with a big geopolitical shock like that, like gold generally goes up the Swiss Frank generally goes up the yen and generally goes up bonds generally go up in value and push down borrowing costs. The opposite of all those things happened. So gold went down a little bit, certainly didn't

sort of strike any new highs. The Swiss Frank weekend, the yen weekend bonds weekend on the potential inflationary impact of having higher oil prices. And also what you saw was the stocks that did the worst, the most heavily affected stock indices were those in Asia, for example, and a lot of those in Europe. And I think what that is telling you is that investors were not saying this is the end of the world. This is equivalent to the 1970s oil shock. This is equivalent to 9/11.

What they were saying was, I'm just going to take a few profits on some very successful bets that I've had running for quite a long time. I'm just going to take a little bit of risk off the table. But they weren't sort of running to the hills and scrambling for safety. So it's been really quite a confusing market response to what we've seen. But I think the one that will be the most durable and the one that we need to pay the most attention to is that bond markets,

government bond markets were very sensitive. They are really very much on a knife edge, worried about a resurgence in inflation. You know, we just got to the point where it looked like central banks and major economies had inflation kind of under control. This is a new risk factor that's come out of nowhere that people weren't anticipating and that could get messy. So we've got some investors saying it's kind of a big deal, other investors saying it is a big deal,

some investors saying, not a big deal at all, Justin, what do you think? First of all, I have to

return to that quote from Higgs-Sethy played at the top of the show. I felt like he'd been reading my mind. Higgs-Seth said it was going to be intelligent, more refined and better than ever.

“And that's how I think of it, Elson, frankly. I'll take that. It almost so, I would love it”

if this administration were intelligent, more refined and better than ever. And if Higgs-Seth was serious, it would cause a huge market rally. And that's how I transitioned from a joke to economics. Katie correctly said, if you thought about this in fairly simplistic terms, what the market's doing is very confusing. Let me come back because not all of us are financial market nerds and say, why are we talking about financial markets? I understand on a podcast called markets that might

be self-answering. And then give a frame that I think will help unravel Katie's dilemma there. I don't think I'm going to say anything Katie doesn't know. She already knows everything. It's what why are we looking at financial markets? Are we really such bloodless critters that at a moment when the U.S. is declaring war or not declaring war,

bombing a country of 90 million people and they're strife in the rest of the region. The first thing

we want to do is go and check out portfolios. I know you're better than that, Ed and that's not what's going on. What we're in right now is just a horrible news environment. Almost no news organizations have people over there. When you turn on the TV, you know that on Fox News they'll say it's splendid, you know that on MS now they'll say it's terrible. When you try to figure out what sort of data we have, the real question is are the inranians telling the truth or are the Americans telling the truth?

So for a serious citizen genuinely trying to understand what's trying to happen right now, all are usual news sources are broken. So what do we want? We want a news source where people are not just talking, they've got skin in the game. Financial markets do that. We could call the Bureau of Economic Analysis and ask them for economic data, but this all happened in the last eight days and there's no numbers on anything yet. So what we need there for is a forward looking

“indicator, bets on the future. And so that's what financial markets are. So we're not there”

because we love them and we're not there because we think that this is the most important thing

going on right now. We think that this is a very sophisticated machine for aggregating news from around the world. The other thing that this has is there's a ton of people on Wall Street who realize they can make a ton of money if they can understand the current situation better than anyone else. And so they've got satellite imagery and they're talking to it and national relations experts

now. We'll financial markets alike interviewing thousands of people. You might think they're not all

“sophisticated, but at the very least I want to say financial markets might be the least unsophisticated”

or least bad way of trying to understand what's going on. And so then the reason Katie says this is up, that's down, blah, blah, blah, blah is, well, they're telling us something about what are they telling us. If this were a classic oil shock, you would just see oil prices go up. You would see country stocks full roughly in proportion to how much they're net oil importers. And maybe you'd say a flight to safety. This is why I hate talking about gold and silver in the frank

but Katie did it, so I'm going to blame her. You'd say a flight to safety. Okay. That's one part of the story. There's another part of the story. This isn't just oil shock, this is a war. What kind of war is it? Why are markets going up and down like crazy right now? Well, it's a war with unannounced intentions, unannounced allies and unannounced exoplan. In all of us, they're trying to figure out what the hell is going on. And so when the

president just says something, it sounds like he's declaring success, we think, oh, that means he's about to back out. And when he sees us as the word month instead of the word week, then it sounds like, oh, he's all in. And so we're overreacting, but it's not overreacting, because we have no idea

“against a baseline of no knowledge. You should respond to every single thing you hear about.”

One way of thinking about this second shock is it's a war shock, war couldn't linger into

it all sorts of fiscal trouble in the long run that would explain the bond market. But another, I think, is actually going to use some shorthand here and call it a competent shock. In case you haven't been watching lately, the US has run by fools. I'm overstating my case, but they appear not to plan, they appear to have an expansionist world view, they blunder and do whatever they want, wherever they want. And if we're in a world in which an

old man can turn the world on its head according to his mood, we're in a very, very shaky world. What does that do? That puts something that's sort of like what about a year ago, people were calling a Stell America trade. If you no longer have faith, that the US is the shining beacon

of freedom that it's well-run, that the technocrats and grown ups are in charge, then you might

be not only selling a American bond, you might not think of America as your safe haven as it. And so maybe that's some of what you were learning here now. The thing is, I'm over my skis, he Katie knows all of these different markets, so I'm not your interviewer here, but I would love to know how Katie puts these pieces together. That was exactly going to be my follow-up, because Katie, you have been studying how the

cell America trade has been unfolding, and you are in conversation with many of these fund managers in Europe and around the world, and you were the one who pointed out to us that, yeah, maybe it wasn't the cell America trade that everyone thought was happening when liberation had occurred, but we definitely did see some momentum in international markets that we didn't see in US markets. So, yes, please respond to Justin.

I just want to return to something that Justin was saying about why we care about markets and these situations, you know, as Justin was saying, we're not monsters, you know, I describe this kind of obsession with markets around awful events like this, in the other day in a column as foolish and foolish, right? You know, you have short-term market moves that don't necessarily mean anything, and we all understand that there's a human cost that outweighs any financial

“cost to what's going on here. One of the reasons why markets are a really important thing to”

watch during this process is that Donald Trump is watching them. He really cares about the oil price, he really cares about the gasoline price, he really cares, he's the only person on earth who does care where the Dow is, but he really cares where the Dow is, he cares about these, you know, some of these measures of the stock market, and Scott Bessant cares very deeply about bond yields. So, he really doesn't want bonds to weaken too far, doesn't want borrowing costs to shoot up too much. So,

to the extent that the geopolitical news has moved markets around, that's one of the stabilizing factors around what Trump does and how he thinks and what he does next, I should we'll go on to talk about that later on. But in terms of Salam America, you know, I've talked about this on this on this shirt, in fact, before, is that's kind of not really the right word for it. It's avoid America. Nobody's talking about selling down U.S. holdings that they own in any sort of

meaningful size. What investors that I speak to around the world are doing, however, is that they are, you know, every incremental euro or pound or yen or a stray and dollar that comes into their investment pot, they're not mechanically sending 60, 70% of that to the U.S. anymore, which you would do if you're sticking to the big global indices. What they're doing is saying, maybe I can

Asia, to all sorts of different places. And so, people are doing two things that they're hedging

out the currency risk, they're making sure that they're not too exposed to big moves in the U.S. dollar, but also they are diversifying their move. And that also is kind of goes hand in hand with people thinking that the AI trade has got a little bit ahead of itself and maybe they want to invest in other things in other places. So, there's a lot of reasons why people are putting money to work in places other than the U.S. at the moment. I still find the vast majority of U.S. asset

managers who I speak to about this, don't know what Earth I'm talking about. And everybody else, all the asset managers, wealth managers, hedge fund managers that I speak to in Europe and Asia, all the time. This is absolutely a standard part of their job. They're absolutely

diversifying away from the U.S. There's a large part of the investment community in the U.S.

and a large part of Wall Street that really has not got this memo yet. But that is one of the reason is why it was those markets that sold off hardest when they shock hit the system because those markets have done so well as part of this diversify away from America trade. So, stocks in South Korea got absolutely monstered because that's been such a big beneficiary of this. It's been a way to get into AI without being in the U.S. There's a lot of great AI reliant stocks in South

“Korea that are very important to that stock market. So, all of those things that have been very”

popular as an alternative to the U.S. with the things that suffered the most in this checkout. The other reason why U.S. markets, U.S. stock markets didn't suffer as much as those in the rest of the world is, you know, if you look at a map, the U.S. is quite a long way away from the round. Don't know if you know that. But it's a long way and it's got plenty of its oil and gas. Thank you very much. It's not reliant on these energy supplies that come from the Middle East.

So, this is one of those situations where this is a war that is being conducted or initiated by the U.S. along with Israel. The economies that are going to feel the pain from this, the most amount of pain, or Europe and Asia. So, thanks for that, U.S. But, you know, this is one of the kind of really important factors about how this is going to affect the global system. The U.S. will take the pressure through inflation and through higher gasoline prices.

But the rest of the world, as you can see with what's happened with, for example, UK borrowing costs over the course of this week. We're really sensitive to that in a way that the U.S. isn't

“quite the same degree. Can I draw two threads together from what Katie just said, please?”

There's a very sharp sense in which the U.S. markets are responding far less than elsewhere. There are other countries that are a long way away, Australia, but we're oil dependent. You're seeing much larger effects. I graphed last night, G20 stock markets, and I think China is the China and the U.S. are the least affected. And then it's the rest of the world. And what's interesting then is to draw that in a conversation with your earlier observation, Katie, that the president

is focused on stocks. He's focused on the one stock index in the world that is least affected by his actions because his country happens to be oil independent. So, that changes the economics, the politics of all of this, and I think very, very interesting ways. Because I'm now hosting this show. Welcome back to the podcast with Justin Wolf. I got a question for you too, Ned. Katie, I was so interested in what you had to say. So, you're calling

"Selomeric Revord America". I love it. Because I'll say now you call it AI. And we can all turn out with paper cups of black coffee and talk about our feelings and whether our mothers love this. I was wondering whether you can, it might be that following two stories are identical, it might be that they're different. One is, I don't believe in America. I want to avoid it. Another is historically America was a safe haven. Safe haven is a social convention,

right? It's safe because of an else thing that's safe. And that social convention is broken down.

“Is there a way to separate those stories and what are the markets telling you?”

Yeah, they are two sides at the same coin, really. I was really surprised when the first thing

that happened or the most notable thing that happened in government bond markets, when the bonds started falling on Iran, was that the prices of the bonds fell and the borrowing costs went up and the yields went up. That's very weird because as you say, you're just in like, you know, when the brand stuff hits the fan, people want to own nice, safe, boring government bonds, and so you would normally see borrowing costs absolutely crater and the price of these bonds

goes through the roof. That didn't happen and I think that's a combination of two things. You know, the moving bond yields was global, so we can't pin it all on the US, although the US does drive global direction here. But it does tell you two things. It tells you that there is less confidence in US treasuries as a as a retreat when the going gets tough,

impact. Bonds hate inflation. It's like kryptonite. They just do not like it up and at all. And so as

soon as you get inflation starts to hit, that's when you get borrowing costs shoot higher. So there were some very messy moves around what we call the short end of that market over the course of the past few days. That's very short term borrowing costs, which most closely would affect reflect benchmark interest rates. And so for example, in the UK, we went from a situation where the UK government bond market was pricing in interest rate cuts and it flipped all the way around to

almost fully pricing in a rise in interest rates over the course of just a few days. I know that doesn't sound like a lot to normal people. For bond nerds, that's like that's serious. This never happens. This was a very severe move. There's a lot of hedge funds that got caught out on the long side of it and it was quite ugly. But it does just go to show you that that's the bit where

then Robert really meets the road on on this because it is always ultimately about the oil price.

And you know, to the extent that markets do spook Dahl Trump and you know, as Justin was saying, you know, some of the US indices were some of the least effective by this, so it's possibly

“not the best way to read it. The oil price was deeply problematic for Trump and his administration.”

So we saw the oil price Brent shot about $120 a barrel. As the market opened on Monday, right before the FT reported that G7 authorities were looking to release strategic oil reserves to try and host the price down a little bit. But all of a sudden, US gasoline prices are up 16 percent in a week. You're looking at $3.48 average for a gallon of gasoline in the states. You know, you guys don't need me to tell you that the US consumers US voters are high

per focused on the gasoline price. And they're did come a point where it looked like this is something that hadn't been baked into the calculations of what the authorities would, of what the US and and around were doing, US news are what they were doing and around. How, how they hadn't bought it into account, I don't know. But yes, if you effectively block off a pretty thin strip of sea

that is used to transport 20 percent of the world's oil, you've got a problem, you know, pretty

“obviously. And that came to bite the administration. I think it was around that point that the oil”

really got into nosebleed peritory, that was where the administration thought we're going to have to soften our language here. And as I was saying, the language is either softer or harder depending on whether you're listening to a Trump or heads of, but the market has decided and you can tell this judging from the decline in the oil price, the market has decided that the worst of this conflict surpassed. Right, you'll only have that now. Stay tuned for more of this panel off to the break.

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We're playing the Dine 9 Cope for Rarmid, and the population's population in the population's population, and we're starting from now on from 25 years to 20 years in the big botanian and the EU. We're back with our panelists. To go about the justice point of what the markets are doing for us. There are best attempt at understanding the future. And so here we are trying to understand what are the markets think, because maybe the markets no better than we do, or at least that's the idea.

The trouble is, when I look at what's happened with the markets, this is a market that appears

to be entirely reactive and not at all proactive. I mean, the way that prices seem to be

spiking up and down, and even in my conversations with investors, I spoke with Steve Iceman, who's the legend of the big short, and I asked him, "How does this change your investment strategy? Does this change things for you?" He said, "It doesn't change my strategy by a single dollar." And that seems to be the consensus among many investors. And perhaps there's an argument that the US is insulated, this is going to affect other countries, it's not going to

be a problem for us. I then look at, say, the oil price, and then I read about how much does the oil price affect the gasoline prices at the pump? What does that do to inflation? Could inflation go out of control? Does that mean start inflation? Does that mean we raise rates? Does that mean a recession? I'm going a little bit crazy thinking about the downstream effects, and I'm thinking this seems a lot more dangerous than a lot of investors, and then that markets seem to think.

And now I've got a problem, because I disagree with the markets, who are supposed to be the smartest people in the room. So Justin, what do you make of this seeming message from the markets, which is, it's not going to be a huge problem for America? Any time, any of us thinks we're smarter than the big group of people with billions of dollars on the line, it's not impossible. We just want to be humble. Secondly, the fact that market prices are going up and down like crazy might sound

like irrationality, and it would, if we knew a lot about what was happening, and the underlying state of play was stable. So you knew when George W Bush was present, and he wanted to invade a rock, that news was changing, it might change his mind a little bit. We might go in earlier, later, longer, shorter. We saw the new what was happening. That's not where we, and so we had a baseline expectation and we're getting mildly interesting signals. Think about this president is, you know,

the market rally yesterday, because they thought he had suddenly declared victory and was going to

“pack up and go home, which is unlike world leaders, whatever had before. I think it's actually”

possible he could do that. Given that, if you hear a rumor that he's about to declare success, you probably should change your mind. So I don't think the market in reacting in terms of large swings is being at all irrational. And then, so the ups and downs are unusual, but I think at your question was why isn't it down more? Yeah. And here I want to talk to you two stories that I think speak to that, that I think are exactly on point. So I was a young economist during the run

up to the Iraq war. The great thing about the Iraq war was it played out slowly. Pal would go to the UN, we'd get new information, satin would say boo, like all of that. And we were able to track because there was prediction markets, on whether the US would go to war, one of the very early prediction markets. We were able to track, I read the study back in real time back then, in a week day or a week, in which it became 10% more likely the US would go to war in Iraq. The US stock market

“filled one and a half percentage points. And so from that, if you want to think of a probability”

of a war moves the market, one and a half points, that says the entire, the difference between going to war or not, when we tend to on larger, I think our conclusion was it would wipe 10 to 15

percent. The market was acting as if the market believed it would knock 10 to 15 percent off the

value of US stocks. Right. We weren't entirely energy independent back then, but we were well and truly on our way. So one thing to do is a case study here, which is the case study suggests the market seems less concerned about Iran than it was about Iraq by an entire order of magnitude. And I'm not sure I see the reason to be confident of that. Right. Second big lesson from Iraq

months. And it took longer than six years. What that says is that early forecast can be wrong by a factor of more than 365. So when Katie calls her friends on Wall Street, and they say here's what I think is going to happen, I think a rational thing to do is take their best gas and multiply by 365 and say you know, this could happen too. Right. And I'm doing YouTube now at and tomorrow, maybe today I don't know how to get random aching. I've written a script. I have a pest coming

out that looks at the history of wars. And it's almost always the case that when we go in,

we go in thinking it'll be short sharp and easy. Yes. And it never is. And just as a question of economic theory, if two countries are going to war, given they'll eventually be some outcome and it will be more efficient for them just to go to that outcome and not kill young men and women on both sides. First, that tells you that one of them must be over confident. Yes. At least one.

“And so you should always be thinking, is it us? And if people are not thinking that,”

whether it's in Washington, D.C. or Wall Street, then they should be and that puts me a little bit in your camp, Ed, maybe the central scenario is that things aren't so bad, but she

I don't know. There's lots of times we thought stuff would be easy and it turns out not to be.

Exactly. I mean, to be fair, everyone I've spoken to, whether they are, you know, the bankers or investors or anyone in between, they have all had a good dose of humility around what's going on here. We don't know how this is going to pan out. And so various, you know, people have been sketching out various scenarios to me. One of them is that the oil price stays somewhere around the $80, $90 kind of mark where we are now. And that's probably something that

the global economy can absorb without too many shocks. It complicates monetary policy rights.

“So it makes life difficult for central bankers. It possibly does on the margins, keep inflation”

more elevated than it will otherwise be, but it's probably, you know, consumable. We can cram this one down. What people say is not so easily consumable is if the oil price shoots to $152,000 a barrel, particularly if that happens in a straight line. And we have quite poor visibility around how and whether that might happen partly because I personally cannot discern what the president of the US is trying to achieve here. So it's a little bit difficult to kind of read what he would do

and how far he would push this. Secondly, you know, one of the things that people have been saying around this apparent step back from the president over the past few days is see the oil price

shot higher, gasoline got more expensive and taco, right? Trump always chickens out and he has

kind of real backs on of this language. The problem with that is Iran has agency here and Iran is politically very unstable at the moment. As a new leader, it's got, you know, presumably competing groups and competing interests. Any one of them can keep the straight of hormones shot or virtually shot pretty much indefinitely. You know, it's not as if you pull up a shutter or put a sign across the straight of hormones saying closed. You know, you keep that straight closed by buzzing drones

over it day and night and Iran has got plenty of drones that it can do that with. So regardless of what Trump wants to happen, he's not fully in control of this situation. You know, there are, there are, there are organizations in Iran that could keep that straight under pressure for a really long time. Just before I left the office to come home and and do this here, there was a headline kicking around from an Iranian minister saying, "No, this straight is closed and we will

“keep it closed and we've got the drones to keep it closed." So I think there is still a large amount”

of uncertainty around whether that straight is open for business. You might get the odd ship through, but, you know, but we could end up with supply disruption here for a really long time as so the nightmare scenario for central bankers for finance minister around the world and honestly for investors is that we do get $150 oil and it stays there. That's a different matter, that's a different situation to what we're in today. And it's difficult for investors to price in that possibility

before it's actually happened. So I guess we should cut investors a little bit as like they can't price in completely fanciful situations, but it's not beyond the wrongs of possibility that we could get there, I think. Right. And we can use our imagination about the downsides, just as the markets decided to do when satrini releases an article about what happens if AI, and we can play this game. So let's play this game. Justin, what if oil hits $150 a barrel, perhaps even $200 a barrel? What if

this war isn't content? What if it does continue along? What that? So I think the other way

expectations, make a list of things that could go wrong worse and current expectations.

And it could be that I haven't taken prosack in a while, but my list of things that could go wrong is much, much larger than my list of things that could go right. And one of the things I want to commend you on in your question, you led with oil, but oil's not the only pathway by which things go wrong. Right. I'm just spitting here, but I have a feeling that having your hometown bond to smithereens or having a local elementary school bond could radicalize people.

I have a sense, I've got, I'm talking to two folks with accents, so you guys can help me with this.

“In fact, I think the three of us should be called accents anonymous. We can take the show on the road.”

My sense is folks in Europe are starting to rethink the idea that they're in a serious

security pact with the United States. I don't know how true that is. I'm not a foreign relations guy, but if that's true, that ups military spending in Europe and it has to wipe military spending in the United States as we have to provide the protection for ourselves that our European friends once gave us. If you look at the big movements in public debt and any industrialized country, they all coincide with wars. So this could be a huge shock to public debt. It could be a shock to

defense spending. You think about, if we end up with troops on the ground, if people come home injured, maimed, killed, those are, and I want to be clear here, expensive in every sense, expensive in a human sense, but economics recognizes humanity. Also expensive in a fiscal sense,

“that veterans affairs looks after them for the rest of their lives. It could be that this is the”

next step and the Trump isolation dance, and America finds itself now, one big step closer to Ortaki, which is a fancy dinner party word for cutoff from everyone else, which would mean that the United States and North Korea were the world's two great isolated nations. There's just so many things that could play out here. And again, most of them come off the naughty list, not the nice list, that, you know, and they don't all run through oil. And that's where I would be very nervous

betting my family's future in financial markets, given that. The proud to point to that is, you know, just the past six years, I have had some moments of serious trauma in financial markets. You know, we had COVID, we had the liberation day tariffs, which, you know, it's not even a year ago now, and it took like 20% or fewer stocks, you know, it was a really violent move. They bounce back,

“they always bounce back markets are so much more resilient than we give them credit for. I think”

because the system has got safer since the financial crisis, because banks are safer beasts than they used to be. There are just a lot more safety nets kicking around in the system, and we know what we've learned over the past six years and longer, is that central banks are really good at putting out fires. They've absolutely got this lift, they know how to stock banks falling over, they know how to support bond markets, they know how to support economies. So whether that's

complacency or not, I don't know, but you absolutely have to take your hat off to how resilient markets are. And I think there's a certain element of that coming through now, where the calculation by investors is, yes, this situation is bad, is it worse than shutting down the entire global trading network overnight like we did with COVID? Probably not, all things equal. The other thing that, you know, is Justin was saying, there is definitely a conversation in Europe about

can we rely on the American security umbrella. That definitely means much more defense spending across Europe, and we're starting to see some of that kicking in, you know, from Germany and the UK and elsewhere. But one of the interesting things that a number of investors have brought up with me over the course of this week is that if you ever needed a big advert for the reason why spending on green technology makes sense and green energy, it is this. For some reason,

we failed to do this at scale after Russia's full scale invasion of Ukraine in 2022. But this is just another thing bashing us over the head saying, we've got to be less rely on fossil fuels. You know, if we ran the country on solar and we ran the country on wind, we simply wouldn't have this kind of vulnerability to the anywhere near the same extent. So I do think this will be a shot in the arm for that. And on that front, Europe, you know, okay, but some of the regulation may have

been pulled back, you know, encouraging green technology and that is problematic. But for a lot of

investors it never went away. We no one offers the letters ESG ending or no one talks about green

and sustainable funds. But in reality, that's what a lot of investors here are still doing and it's

mess, which I hope we do soon for a number of reasons that I hope this is one of the things that we take away from it is that the you know, green technology is not a nice to have. It is a geostrategic imperative. Can I come as close to disagreeing with Katie as I will all day? Yeah. Not about the

second stuff. The second point you might there is about green technology. I agree. You said market

“is a resilient. And we should expect that it implied. We should expect that to continue. Now, I think”

really what it is is economies are resilient and markets are betting on the future of an economy. And so if we're thinking about regular economic shocks, even irregular ones, financial crisis, COVID, wars, I agree with you. Here's a different thought experiment. The question is what are we learning in the current moment? One thing we might be learning about is the president's determination in a run. Another might be what's going on with world-all markets. But if our deeper one is,

how far will the president go? How much of an order crowd is he? Is he willing to start a war

because he feels like it? Start a trade war based on a misunderstanding of his undergraduate days.

Take on central banking dependence. Destroy the federal bureaucracy. Are we going to see elections? Look, I understand how much of a nut job I sound like saying that. But so I talk to very

“serious people. I say, "Is this a question that now belongs in polite society?"”

And the answer I get is yes. And then so the question is, "Is he a big personality but in the tradition of American presidents?" What do we put it next to Orban? And we put it next to, Putin, do we put it next to Turkey? Do we put it next to Argentina? Because if what we're learning about is how serious he is about the Ordecrap project? The Ordecrap project undoes the resilience of the economy. And here I just want to, you know, Turkey is a shadow of

what it could be. Hungery is a shadow of what it could be. 100 years ago, Argentina was one of the richest handfuls of countries in the world. The Ordecrap project came up. They just destroyed institutions. And it struggled for a century since. And I do think there may be a very real sense that what we're reacting to right now is not Iran as Iran. But Iran is, this is twice a simple way, the case, a mental health check. Iran as how far is the White House

really to go? Because if we were to start a trade war in a war war, then I jingo, what are you forecasting for 27 and 28? Yeah, I do think I run hot and cold on this idea that markets are a controlling factor on the president. You know, when we had the liberation day tariffs, the moment when he pulled back was when there was a slightly weak auction of relatively short term U.S. government bonds. I have a hard time believing that he's keeping a very close eye on

government bond auction on a day-to-day basis. I have an easier time believing that he's keeping a close eye on oil prices and on the price of gasoline with the mid-term's coming up in

“November. So I think he's playing with fire and I think there's a genuine possibility that this”

runs away from his control and that he hasn't mentally accounted for what the retaliation from Iran could look like over the long term. That there really is a genuine scenario, potentially where oil goes to $150 to $200 and that a barrel, but we're not there now. And I do think the one of the reasons we are not there right now is that he has taken a look at the price of gasoline and thought this is a political liability for me. So in a way it's the oil price that might save us from

disaster here or from further disaster here and maybe it will keep a bit of a check on him. But it is an incredibly dangerous situation and investors currently are not positioned for a disaster. They've taken a little bit of risk off the table and they've been a little bit cautious for 10 days or so. They are not positioned for that hellscape where things do absolutely run out of control and we should be alive to that risk, but aware that it hasn't happened yet and the

markets are very good atwithstanding shocks. Can I just ask you Katie before we end here? These investors who are less concerned about this and you brought up the point of market resilience. Are they not concerned because markets have been historically resilient throughout the history of difficult experiences, difficult times crises? Or is it that they believe that

this war will be quick and dirty and over and Trump said it's basically complete and so it's

over and so we don't have as much of a reason to worry anymore. The first one seems I can kind of get my head around. I still have a little bit of an issue with it. The second one I don't believe it all. I think it is a little bit of both and I think the mid-turns are of very big control in

we would potentially be in a different space. I share your concerns that this could very

“easily run out of control and the U.S. and Israel have lit a fire that they cannot”

downstairs. Very aware of that as a possibility right now today the betting is that that won't

happen and we should hope that that remains the case. Investors, the clues in the name right,

they are paid to be invested in markets, they are paid to take risks, they're not paid to be the

“big scared cats and get out of everything that looks potentially risky at the first sign of trouble.”

So it is a calculation for them that is a very genuine risk of this gets out of hand,

for central bankers and investors and for real humans in developed economies and emerging economies. When not that the worst case scenario yet doesn't mean we can't get there.

“Okay, Justin Wolf is Katie Martin. Thank you very much.”

Thank you very much. Okay, that's it for today. We appreciate you joining us for another property markets panel. If you have a guest you think we should speak to you on this topic or any other topic, please drop us a line in the comments or email our producer Claire at [email protected]. We hope to hear from you. That's it for today. This episode is produced by Claire Miller and Alison Weiss edited by Joel Passen and engineered by Benjamin Spencer. Our video editor is Brad Williams.

Our research team is down to Lahn, Isabella Kinsel, Chris Nodon, Hugh and Mia Sylvario and our social producer is Jake McPherson. Thank you for listening to the property markets and property media. If you liked what you heard, give us a follow. I'm Ed Alison. I will see you tomorrow.