Agrees the market is complacent. The ceasefire doesn't mean immediate resolution of physical energy flow disruptions. Logistics will take months, and key Middle East energy assets (Qatar gas, Iraq production, Saudi/UAE pipelines) are impaired.

We had $60 oil pricing in a surplus. That surplus is gone. At the very least, you're looking at a balanced market probably closer to $80. Each day this ticks on, you're looking at energy prices going higher.

Cyclical companies were priced to perfection before the conflict (e.g., Caterpillar, John Deere at 30x, GE at 45x, Goldman Sachs at 2.6x book). The market wasn't ready for anything less than a perfect scenario.

Our argument was that the market was just not pricing anything less than spectacular. We're still trying to work our way through that now.

Energy is a major fiscal input. Its rise will be a drag. Disruptions to helium (for semiconductors) and natural gas (critical for Asian power in Singapore, Korea, Thailand, Hong Kong) will raise costs for everything, leading to slowdowns.

Markets will have to continue to contend with this and eventually have to price it in and earnings will have to come down.

Favors 'boring' defensive assets: utilities, staples, large pharma (6-8% EPS growth, dividend yield). Also energy stocks, as the surplus is gone, establishing a higher floor (~$80). ExxonMobil's earnings power is much greater at $80+.

They might be the only areas that actually work well if you get into a true energy shock type of scenario.

Sees material downside for S&P estimates. Highlights risk to tech/AI from higher cost of capital and potential pullback of Middle Eastern funding for private equity, data centers, and AI.

Energy driving rates/inflation higher is the first thing that kills a tech cycle. We've already seen force majeure clauses invoked, pulling investment back. This could accelerate an AI bubble burst.

Exposure is on both sides: frontier AI companies rely on Middle East funding, while big tech (Alphabet, Meta) rely on cyclical advertising revenue. Higher debt costs for hyperscaler capex are untenable.

Advertising is a very cyclical business. We saw a slowdown in advertising have a material impact on earnings in late 2021.

Nervous because financials (e.g., Goldman Sachs) were priced for optimal scenarios. A slowdown in capital cycles, M&A, and IPOs feels late-cycle, exacerbated by the Middle East shock.

Our argument is the market is already priced [for perfection] and we move on beyond this... you're not getting paid for that. The market's not ready for anything less than the optimal scenario.

India's power generation is 70% coal, only ~3% natural gas, minimizing direct energy shock. It's a net importer of crude, but has world-class refineries that can process various crudes (Russian, Iranian, Venezuelan). Favors Indian infrastructure/utility stocks.

India has options... The names that we own are much more on the infrastructure and utility side of things, which are the types of names that you'd rather own during some of these periods of volatility.