Summary
Phil Anderson argues that the ongoing Middle East conflict — disrupting oil and LNG flows through the Strait of Hormuz — is stoking inflationary pressures that could threaten both stock market valuations and the broader real estate cycle. The email draws on a 1970s inflation analog, examines the chain from energy prices through fertilizer to food costs, and makes several portfolio adjustments including a new long position in agricultural commodities.
Key Claims
- Tanker traffic through the Strait of Hormuz has slowed sharply; the strait carries ~20% of global oil consumption and ~20% of global LNG daily — confidence: high
- Oil prices recently topped near $120/barrel, up 116% from December lows; oil futures saw their biggest single-week gain in history — confidence: high
- European natural gas prices are up 94% due to disrupted LNG supply — confidence: high
- The Middle East supplies ~one-third of global urea (fertilizer) shipments; disruption risks higher food prices and lower crop yields — confidence: medium
- Current consumer price inflation is tracking the major inflation waves of the 1970s, based on a Carson Investment Research analog chart — confidence: medium (analog charts are illustrative, not predictive)
- Rising inflation above 4% historically compresses S&P 500 P/E ratios significantly (per LPL Financial data back to 1980) — confidence: high
- The S&P 500 forward P/E was recently at its highest level since the late 1990s internet bubble, making valuations especially vulnerable to inflation — confidence: high
- The 10-year Treasury yield rose from ~1.20% (mid-2021) to nearly 5.0% during the post-pandemic inflation wave; mortgage rates followed to their highest level in 20+ years — confidence: high
- Inflation is a potential major catalyst for ending the current real estate cycle — confidence: medium
Mex Pete References
- Invesco DB Agriculture Fund (DBA): Anderson explicitly notes this is not a classic Mexican Pete / ascending triangle setup (“not exactly a Mexican Pete setup as we’d normally trade”), but adds the position in anticipation of an agricultural commodities breakout following moves already seen in base metals (copper) and energy.
Stock Picks / Signals
| Ticker | Name | Action | Entry | Stop | Notes |
|---|---|---|---|---|---|
| DBA | Invesco DB Agriculture Fund | Buy / Add | Current market (rallying off consolidation lows) | $25.00 | Tracks corn, soybeans, cattle; catalyst = fertilizer/energy disruption |
| KBE | State Street SPDR S&P Bank ETF | Stopped out | — | $60.00 (triggered) | Stop hit on drop below $60; bank reversal after constructive start to year |
| PFG | Principal Financial Group | Watchlist entry adjusted | $98 (revised down) | — | Clearer buy point as pattern fills out; U.S. watchlist |
Predictions / Forecasts
- Agricultural commodities (DBA) expected to break out next, following prior moves in base metals (copper) and energy — timeframe unspecified.
- Prolonged Middle East conflict likely to sustain or increase inflationary pressures, with knock-on effects for Federal Reserve monetary policy, bond yields, mortgage rates, and equity valuations — timeframe unspecified.
- Inflation trajectory resembles 1970s analog; if it continues to track, a second major inflation wave is plausible — confidence: low (Anderson flags this is speculative).
Notable Quotes
“Inflation could become a major catalyst for bringing about the end of the real estate cycle, along with a downturn in the stock market.”
“Just because an analog chart is tracking well doesn’t mean it will keep doing so. But it’s an interesting scenario to entertain, given the inflationary pressures stemming from the attacks on Iran and resulting retaliation against energy infrastructure.”