One week / one topic: Amidst the chaos...

What happened?

Tragically, we have seen a continued military escalation in the Middle East over the last week.

Through various developments on the ground, markets have now had one year to adjust to this new reality. Recent price reactions have been fairly muted, with the S&P 500 (white), 30yr US Treasuries (Blue) and Gold (purple) actually not moving by much.

On the other hand, Oil (red) has shot up by ~9% as a higher probability of supply disruptions gets priced in.

Carl von Clausewitz – one of the great war strategists – famously said that “War is the realm of uncertainty; three quarters of the factors on which action in war is based are wrapped in a fog of greater or lesser uncertainty.“

What should investors make then of such localized price action? Are markets correct in thinking that events in the Middle East will not meaningfully alter investment opportunities?

When faced with such radical uncertainty, tuning out some of the ‘noise’ and carefully considering the odds on offer can hopefully point us in the right direction…

Our observations