Stocks Are the Asset Class That's Wrong: 3-Minutes MLIV
Summary
- The speaker argues that equity markets are severely complacent regarding the geopolitical conflict involving the US, Iran, and Israel, with no negotiations in sight and continued attacks planned.
- A specific contrarian view is that the Strait of Hormuz still matters significantly for energy flows, contradicting the market's current dismissal of supply risks; consequently, oil prices are poised to spike.
- While US markets face headwinds, the speaker identifies European and Asian equities as the most vulnerable to a "substantial correction" due to their energy dependence and recent outperformance relative to the risk.
Trade Ideas
"I think that the Strait of Hormuz still does matter to some extent... And therefore I still think we've got a higher energy prices coming through." The market is currently pricing in a "fudged explanation" that energy supply is safe due to US production and Chinese stockpiles. The speaker believes this is false; if the Strait is impacted by the conflict, supply constricts, and oil prices must re-rate higher. LONG oil exposure via futures or ETFs to capture the volatility of a geopolitical risk premium returning to the market. Rapid de-escalation of the conflict or confirmation that supply chains have fully bypassed the Strait.
"The real equity markets that are being complacent are really probably in Asia and Europe... Asian and European stock markets have a much more substantial correction ahead of them and probably quite soon." Unlike the US, which is a major energy producer, Europe and Asia are net energy importers. A spike in oil prices (The Second-Order Effect of the conflict) acts as a tax on their economies, crushing margins and growth. SHORT European (VGK) and Asian (AAXJ) indices as they are mispricing the energy shock risk. Energy prices stabilizing or central banks in these regions cutting rates aggressively to support asset prices.
"Dollar strengthening... They're more logical. I think it's right." In a scenario of geopolitical chaos and rising energy costs, capital flees to safety. The US Dollar acts as the ultimate safe haven, especially if the US economy is more insulated from the energy shock than peers. LONG the US Dollar against a basket of currencies. A coordinated intervention to weaken the dollar or a sudden dovish pivot by the Fed.
"Precious metals are starting to weaken. To me... They're more logical." Usually, war is bullish for gold. However, the speaker notes that the current weakening is "logical," likely because higher energy prices fuel inflation, which keeps interest rates higher for longer (strengthening the Dollar). A strong Dollar creates a headwind for metals that outweighs the geopolitical fear bid. NEUTRAL/AVOID. While the conflict is severe, the macro correlation (Strong Dollar = Weak Gold) is currently dominating the trade. The conflict escalates to a nuclear level or systemic failure, which would override real rate correlations and send Gold higher.
Up Next
This Bloomberg Markets video, published March 05, 2026, features Mark Cudmore discussing USO, VGK, AAXJ, UUP, GLD, SLV. 4 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Mark Cudmore · Tickers: USO, VGK, AAXJ, UUP, GLD, SLV