Hello, Subscribers:
In modern macro discourse, oil is often treated as noise — an inflation irritant or a geopolitical tell, but rarely as the primary signal. In our opinion, that’s a mistake. Because when oil moves structurally — not cyclically, structurally — it tends to precede massive regime change in both economic conditions and capital markets. And we may be entering exactly such a phase.
This piece from my former colleague, Charles Gave, is characteristically sharp, but what sets it apart is the cyclical intelligence embedded in the framing. It’s not about the latest Middle East headline or the noise of commodity volatility. It’s about the return of energy as capital’s fulcrum. And if you understand where oil is sitting relative to the long-term trend — cheap, unloved, and trading at multi-decade lows versus financial assets — you begin to see the asymmetry.
For the past 15 years, we've lived in an environment where capital has flowed away from energy and into software, bonds, and beta. The result? A massive underweighting of the one asset class that actually powers real production. Now, as geopolitical risks escalate, spare capacity shrinks, and Western inventories drain, the setup resembles prior turning points — 1973, 1999, 2007 — not in narrative, but in structural risk-reward.
There’s a chart in here that should stop any seasoned investor in their tracks: the S&P 500 priced in oil may have already peaked for the cycle. If that holds, the rotation from paper wealth to physical collateral won’t just be a trade — it will be a decade-long revaluation. The kind that breaks models, indexes, and assumptions alike.
The reflex of markets is still to dismiss oil spikes as transitory, as if there’s a tech workaround for thermodynamics. But capital doesn't care about ideology. And once the capital cycle turns — especially in a sector like energy with long lead times and geopolitical choke points — the re-pricing tends to come fast, and with very few exit ramps.
David “The Haymaker” Hay
The Economy Is Nothing But Energy Transformed: Iran-Israel Edition
Charles Gave (Originally published June 19th, 2025)
In his latest report for Gavekal-IS, Didier Darcet noted that investors should be careful not to confuse fear with danger. A war between Israel and Iran is most certainly dangerous for the local populations but for the rest of the world to be impacted adversely, the oil price would need to rise significantly.