Iran War Risk Still Important in Background, Says Torsten Slok
Speakers
Torsten Slok
— Partner, Apollo Global Management
Summary
Torsten Slok discusses the persistent risk of an oil price spike from Iran-related supply disruptions through the Strait of Hormuz, and argues that the traditional 60/40 portfolio is broken because AI and fiscal deficits now dominate stock and bond returns. He explicitly recommends avoiding AI to escape the single-factor concentration driving markets.
- Iran/Strait of Hormuz supply risk remains elevated and could cause jump in energy prices.
- Critical fuel inventories are dangerously low, with Europe at risk of running out of jet and marine fuel.
- Oil market may be underpricing the geopolitical supply threat.
- The 60/40 portfolio lost its diversification benefit as AI drives equities and fiscal deficits drive bonds.
- AI concentration spans equities, credit, and venture capital, creating a single-factor risk.
- Value stocks are outperforming growth, signaling AI trade vulnerability.
- Investors should avoid AI to reduce exposure to the concentrated factor.
Ideas
Oil price spike risk from Iran supply disruption
Iran-related supply disruptions through the Strait of Hormuz and Bab el-Mandeb are still a significant background risk. Inventories of marine fuel, jet fuel, fertilizer, and helium are critically low, and the lack of tanker traffic means a jump risk in oil and energy prices could materialize at any time. The oil market appears to be underpricing this risk, especially with no sign of a deal and the clock ticking on inventory depletion.
Avoid AI to escape single-factor concentration
The 60/40 portfolio is broken because stock returns are now driven by AI rather than the business cycle, and bond returns are driven by fiscal deficits. AI has become a single factor dominating equities, investment-grade credit, and venture capital. Growth stocks are underperforming, value is outperforming, and the AI trade is vulnerable to reversal—especially if Chinese open-source models take market share. To avoid concentrated factor risk, investors should be not in AI.
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