00:00How much of a shock is this war to the global economy?
00:05Good morning, Jamana.
00:07First of all, let me just say I'm so glad that all of you are safe over there.
00:11It's been quite a few difficult days, I think, for all of you.
00:15Now, in terms of the global economy, I think, you know, it's something that we're not factoring in completely.
00:22So although Goldman Sachs and a few other big analysts have put a number to, you know, the decline in
00:30GDP,
00:30I don't think we've really modeled this leftist scenario that we thought may never happen.
00:37So honestly, I think the shock is far reaching and the impact is wider than expected.
00:46Why are we seeing a limited reaction in the S&P?
00:50I noted it at the top of the show.
00:52Since the inception of this war, we're only, quote unquote, down around 0.6%.
00:58Why is it not reacting more?
01:01Again, I think that everybody's thinking that this should be resolved very quickly.
01:05I think we're seeing a lot of positive statements coming out of the U.S. about being in control of
01:10the war.
01:11But I think the truth is the longer this drags on, the worse it's going to be.
01:15And markets are inherently underpricing the risk over here.
01:19As you've noted, it's only down 0.6% and that's not much.
01:24I think the market is looking more towards, you know, oil prices and the inflationary threat over here.
01:31But more than that, I think the bigger threat is that many countries are actually running out of oil and
01:36other materials.
01:37So, for example, where I am right now, Bangladesh, we have only two weeks' worth of energy stockpiles.
01:44And then there are other materials as well.
01:46For example, 25% of India's fertilizer imports comes through this trade.
01:51We have LNG, 20% of the global, you know, LNG production offline.
01:56And finally, we're also seeing sulfur take a hit because sulfur, 40% of the world's sulfur comes from the
02:04Middle East.
02:04And that's used for leaching copper and uranium.
02:07Again, two very, very important metals.
02:11So, I think everything combined, this impact is not being taken into concern.
02:16And it's because we didn't expect any of this.
02:22Ayesha, is stagflation your base case scenario now?
02:27I think it is.
02:29So, no matter what happens from here, Jumana, I think even if the war stops today, for example,
02:35by the time all this comes back online and everything starts, so the bottlenecks start moving again,
02:41it's going to take a bit of time.
02:43So, for example, if you noticed yesterday, Qatar announced that it would take about four weeks to get back to
02:49full capacity.
02:50So, that's about a month.
02:51And then you have other sources also saying that, for example, oil movement and coming back online will take, again,
02:59another three to four weeks, maybe six weeks, some say eight weeks.
03:03So, when you have a situation like this, even if things get resolved today or tomorrow, we're still looking at
03:10a runway of about four to eight weeks before everything is back to normal.
03:15And during that time, obviously, we're pushing up prices and we're going to see stagflation.
03:21Yeah, and Aisha, I mean, in the run-up to this, we've been talking about the shakeout that had occurred
03:29in some of the industries that are perceived to be most disrupted by the advent of artificial intelligence.
03:35And actually, you know, this is not on a lot of people's radars, but we're still seeing a massive repricing
03:41of private equity firms.
03:43Again, you know, some of the software names continue to get hit as well.
03:46And I wonder how much of the reaction that we're actually seeing in the S&P today can be pointed
03:52back to that as opposed to the disruptions in energy that we were just talking about.
03:58So, again, that's a little surprising.
04:00Actually, I would think that that would be priced in a little bit more.
04:04But markets still seem to be quite optimistic on that front because those worries, as you rightly pointed out, have
04:11not gone away.
04:12Right. So we still have the issue of overspending on CapEx and we still have the software issues.
04:19And remind you, it's actually a seasonally weak period for us in the first two weeks of March.
04:25So everything considered, I think the market's holding up quite well.
04:29But don't be surprised if, you know, the market goes lower from here before it gets better.
04:35I think we still need to keep an eye on all those issues.
04:38And once if CapEx starts to roll over for these companies, I think we'll see a bigger hit at that
04:44point in time.
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