Equities and Oil
Markets are complacent because the effects haven't flowed through yet to earnings, margins, costs, or consumers.
I'm going to give you a bearish view and a bullish one.
The Bear
Most allocators (incl me!) reduced duration in their defensive allocation (what used to be the old "40") over the past couple of years by moving into shorter-dated bonds and credits. Why not? When rates are rising you don't want to hold duration.
The same trend has arrived for equity markets as longer duration equities are being punished, partially from potential AI disruption and partially because higher long bond yields. The result is a double hit to anything priced on terminal value, looking at you SaaS...
Input costs are going up, so margins (ex-Mag7) get compressed again. The companies that don't have pricing power (pretty much all of them) are about to experience another squeeze.
If we end up with persistent LNG shortages globally, the second-order effects are absolutely not priced. Energy costs feed into manufacturing, transport, food, construction. The inflationary impulse from persistently high energy prices has not even started showing up in corporate earnings yet.
And the big one is the AI capex cycle has a gigantic funding question. How much of that infrastructure buildout was being funded by Gulf capital?
Some brief numbers - Gulf sovereigns deployed US$66b in 2025 alone. Abu Dhabi is funding both the Stargate Project ($500b) and BlackRock ($100b). Saudi Arabia $100bn to AI infra.
Gulf capital is embedded in the foundation of every major AI infrastructure buildout currently underway. With a destabilised region, if the gulf states step back in any shape or fashion, it is immensely bearish AI capex cycle.
The assumption that AI capex spend continues at the current pace regardless of the macro environment deserves way way more scrutiny than it's getting.
The Bull
It always feels smart to be sceptical. Elucidate a bearish view and everyone thinks you're a genius.
But as allocators you get paid to assess and responsibly take risk, not to avoid risks and only own things when the information is crystal clear. There is no value in that, this is an art.
It is easy to have fear dominate and you'll find reasons to not own something because you believe in scenarios that aren't grounded in fundamentals. It is important to stay grounded and rational, particularly when sentiment is this negative.
Yes, oil prices are higher. But what exactly do you think actually happens? The world keeps spinning, everyone turns up to work every day and does what they can to meet their mortgage repayments.
The Mag7 themselves continue to print cash. Earnings revisions for the broader market have actually held up better than sentiment suggests.
AI productivity gains will flow through to earnings over the next 12-18 months as adoption compounds.
The world has absorbed oil shocks before and it will absorb this one. The question is how long it takes and what opportunities the adjustment creates.
The Distribution
You don't see black swans often. They only turn up when the conditions are right.
And the conditions are ripe.
The combination of geopolitics, elevated energy prices, trapped central banks, and a tech cycle that is simultaneously creating and destroying value means the range of outcomes is pretty wild.
Think about convexity and asymmetry rather than direction. Where can you be positioned to benefit disproportionately from a move in either direction? Where are you exposed to being on the wrong side of a fat tail?
If you can answer those two questions, you're ahead of most.