The brutal math of supply chains point to a market correction in August, says CIO

本站添加: 2026-05-26

[00:00:00]So, you say the real danger period is likely August. If you get that specific, it's real scary. What are you seeing in terms of your data points and timelines to suggest that August is the month that we get a correction?

[00:00:15]Yeah, fantastic question. And you know, that sort of narrowing in on a specific time frame is unusual.

[00:00:24]And therefore, it's important to understand why I'm being this specific at this time.

[00:00:29]The real setup here relates obviously to the Strait of Hormuz. And the reason why these time scales are kind of predictable up to a point is because of the the long lag that's built into the supply chain for fossil fuels and fertilizer. And specifically, it takes about 60 days for for ships to once they've crossed the Strait of Hormuz to arrive in their ports, unload, and then there are other time periods involved as you follow each barrel of oil through the refinery system, into storage, and then being shipped back out as diesel or gasoline, and then finding the ultimate market. And this is true of any commodity supply chain. There's always a lag built in.

[00:01:13]And what I'm really pointing out is that all of those charts that people have seen on the number of ships passing the Strait of Hormuz, which was formerly, you know, more than 100 a day, and it's been, you know, a smattering, a few a day for the last 3 months. That means that there's a build-up of accumulated obviously oil that's not been reaching the market. And same for other cargoes.

[00:01:39]And the you know, the plug for that has been drawdown of inventories and reserves.

[00:01:44]And you can't do that forever. And therefore, August is around the time frame post US driving season where I think it's really going to become critical. And you could say, well, you know, look, they'll be in a negotiated agreement and it'll be over, and you know, everything will be back to normal with ships going up the Strait of Hormuz. But if you started those ships tomorrow, it's going to be about at least 60 days before those ships arrive. And then you've got to add another 60 days. So you're looking about 120 days. So you're looking at about 4 months.

[00:02:12]Um and that's why I'm saying August is going to be really the crunch time.

[00:02:18]And I guess it sounds like you're not going to change your call even if we get a peace deal. I mean, I thought we were getting a deal over the weekend that some kind of announcement from President Trump. We didn't get that unfortunately, but if you look at the futures market, I get that it's a thin volume kind of day, but it is down more than 5% and the market is ready to act. Uh does it change your call in any way if this duration of the war is any shorter than what we are anticipating or what we're primed for because it is of course running a lot longer than the initial estimation, of course.

[00:02:58]No, you're absolutely right. So I think we need to separate um two features of financial markets. Um the call that I'm making concerning August is really, you know, the brutal math of supply chains and the pig progressing through the python as it were. So we won't see the pig come out of the python in terms of the damage caused by this to the economy until roughly that time frame, you know, August. Uh so that's why, you know, we're sticking to that call.

[00:03:23]Um but you rightly indicate that the futures markets, which are open all the time, um people can trade uh with leverage, uh there's substantial money to be made in the futures market by saying, "Well, we're in an oil range, crude oil range." You don't have to look at the chart, you can see it's a wide range, uh but we're moving sideways within that range. And there's money to be picked up on every twist and turn of this uh you know, negotiation that's happening. So I think we need to separate the short term from the long term.

[00:03:50]But as an equity investor, not a futures trader, what I would say is I I think that the call that we're making concerning August means that you really should be picking up or buying the dips in those names which are set to benefit from the shortage. And I would say that's, you know, basically oil producers outside of the Gulf, uh specifically in North America and Latin America.

[00:04:12]Okay. So, let's say there is a viewer out there watching this interview, really liking and appreciating and agreeing with what you're just saying.

[00:04:23]What should that investor be buying into to get ready to brace for that correction?

[00:04:31]That's another great question. I think because of uncertainty, I've said quite clearly I think that it's baked in we're going to have problems over the next 3 months. And I I'm specifically saying I think August is when the rubber hits the road, as it were. And then that's because it takes time for all of these signals to surface in the financial economy.

[00:04:52]And so, you might already have signs of stress come the driving season in June, July in the United States. But I I think the financial markets already wake up in August. Um Uh so, to to answer the question clearly, I think investors need to recognize that during this period of uncertainty, this sort of phony war, as it were, um as far as the financial market's concerned, um financial instruments, you know, indices, individual stocks, uh sectors, and so on, you know, they're trading the ups and downs, the swings and roundabouts of this ongoing negotiation, which is very drawn out.

[00:05:23]Um and I think the right thing to do is to recognize the key fact that we've noticed in this market is gold and oil are trading opposite.

[00:05:31]Therefore, it's good to own both of them.

[00:05:33]In in a scenario where we get a major problem, if oil really becomes in short supply, there will be demand destruction. We'll probably have some kind of economic downturn. How severe, we don't know. Uh I I think that gold will benefit that and gold miners, but right now they're being punished.

[00:05:51]Uh, and equally oil producers will benefit even if there is a kind of a demand destruction as long as they can produce into the shortage.

[00:06:00]So, I think the key thing is focus on gold producers that have the right cost structure.

[00:06:05]And focus on oil producers that are well positioned in the geopolitical play.

[00:06:09]And then secondly, uh, I I think you can still play the capex boom in AI. And you can also play this resurgence of strength in China. And and what hasn't Sorry, Japan.

[00:06:21]And what hasn't What has been a not too bad situation in China. Particularly with the shift to EVs and alternatives to oil.