The Weekender is my bi-weekly take on macro shifts and emerging themes. It’s not investment advice — or even our firm’s official view. I aim simply to inform, challenge, and maybe entertain. If you’d like this in your inbox every other Saturday morning via Northern Trust, subscribe to The Weekender.

Seeking constants in a world of change

Many investors are concerned the situation in Iran is metastasising — from an oil‑flow issue to a production issue (with attacks on infrastructure), and from an input‑price shock to a broader growth problem. It may have also morphed from a geopolitical flashpoint into a policy dilemma, where the Trump administration’s intractable position leaves few identifiable off‑ramps — at least in the short term — and where the spectre of additional ground troops is growing, an outcome the electorate never signed up to.

Rising oil prices constrain the Federal Reserve’s reaction function, increasing left‑tail risks — from private credit contagion to slower growth via tighter liquidity conditions. Some will point to the calendar, noting it’s an election year, and suggest — perhaps in hope — that the administration will soon realise higher gasoline prices (a tax on consumption) and electoral success are uncommon bedfellows. Others may take comfort from the oil curve’s deep backwardation; from commitments to refill the Strategic Petroleum Reserve — providing a price floor for increased shale production (and, ultimately, lower prices); from well‑anchored inflation breakevens; or from equity markets in place like Israel, Oman and Venezuela, which are near, or making, all‑time highs. That and corporate earnings remain solid, we haven’t yet seen data center capex cuts, and there are still tax cuts and rebates to come.

Hope is not lost — although hope is seldom a good investment strategy.

Today’s missive is therefore an attempt to look through the fog of war and identify opportunities that might exist in the gap between headline and reaction. An attempt to seek clarity in the chaos. And to find constants in a world of change.

The Past Is Prologue

Before looking forward, a step into the past.

We discussed finance scholar Elroy Dimson in our latest Weekender, written just days before the Iran attacks. You may recall his timely reminder that “risk means more things can happen than will happen.” We didn’t know when the war would start or how long it would last. Nor did we know that Dimson’s masterful research compendium — the Global Investment Returns Yearbook (GIRY) — was due to be published the following week. Here’s a link to the summary.

It is essential reading for any market historian or asset allocator: 126 years of data, full of hard‑won lessons. A reminder that history doesn’t predict, but it does inform — or, as Dimson suggests, quoting Shakespeare, “the past is prologue.”

Against the desperately sad and uncertain backdrop we now face, I found four ideas particularly instructive:

1. Long‑term investors should largely ignore geopolitics; far greater value destruction has occurred during peacetime bear markets
   
   
2. The best‑performing equity markets over the past 126 years were resource‑rich, extraction‑based economies.
   
   
3. Bubbles can and do form around new technologies. AI is big — but railroads were bigger, comprising 63% of the U.S. market in 1900.
   
   
4. While rail is now less than 1% of the U.S. market, a buy‑and‑hold investor would still have outperformed the index.

Invest in Constants

Whatever the outcome of the Iran war — whether choke‑points like the Straits of Hormuz (and Bab al‑Mandab Strait) reopen freely or only after the imposition of punitive transit fees — one thing seems clear: This episode is likely to accelerate the global shift toward self‑reliance.

Resource nationalism, demand for alternative energy supply (solar and nuclear), and strategic stock‑building in sectors deemed critical to national, energy and food security (think rare earths, defence and semiconductors) should continue gaining momentum. In this environment, a strategic premium will attach to the security of supply rather than the speed of supply.

Material‑world assets — especially scarce ones that cannot be replicated as quickly as the money they are priced in — offer both defensive and offensive characteristics in an increasingly fragmented global order. Those who need such resources will pay up. Those who have them will pay off. Just as they have for the past 126 years (refer the GIRY, where Australia, the USA and Canada have delivered the highest real-returns).

History doesn’t just rhyme. At times, it repeats. The past is prologue.

(P.S.: A key theme in our Capital Market Assumptions is the Global Shift to Self‑Reliance, with both Australia and the United States topping our equity forecasts for the coming decade.)

The Foreseen Consequences of War

Another likely consequence of the Iran conflict is an acceleration of change in regional energy markets — even in Europe.

The continent has been inching toward less punitive carbon taxation for some time. France has discussed expanding nuclear capacity, Italy is considering re‑engagement after a forty‑year absence, and Germany is openly contemplating a full U‑turn after abandoning nuclear only a few years ago.

Perhaps most surprising — given her role in former Chancellor Angela Merkel’s cabinet during Germany’s nuclear exit — were recent comments from Ursula von der Leyen, president of the European Commission: “We see a global revival of nuclear energy, and Europe wants to be part of it.”

Pressure is building in the U.K. as well. Energy Secretary Ed Miliband faces mounting calls to reopen the North Sea and delay or dilute net‑zero ambitions in the name of national energy — and economic — security. While he has remained steadfastly opposed (“over my dead body”), beliefs can collide with physics and economics. Iran reminds us we cannot print oil molecules. Unite — the UK’s largest trade union and a major Labour sponsor — reminds us that money still matters.

Unite has labelled current policy “an act of monumental political self‑harm,” threatened to cut Labour funding by 40%, and is consulting members on whether to remain affiliated. There’s no prediction market on the outcome — yet. But there is a stock market. For clues, I’d point you to the charts of North Sea drillers.

The Unforeseen Consequence of War: Gold

Many are scratching their heads over gold’s decline — and bitcoin’s rise — since the war began.

The most plausible explanations I’ve seen (impossible to verify) suggest that Gulf Cooperation Council (GCC) states, as large holders of gold, may be selling what they can, not what they want. If, for example, you live in Dubai and need liquidity, selling property (no bid) or equities (down ~20% from highs) may be difficult. Selling gold may be easier — for governments and individuals alike. That is, after all, one of its functions.

As for bitcoin, which had its own de‑risking episode months earlier, it may be benefitting from reduced mining supply. Iran was reportedly a significant bitcoin miner, thanks to abundant cheap energy. With electricity infrastructure compromised, mining capacity has fallen. I can’t attest to the veracity of either explanation — but both strike me as plausible.

Is Inflation Over in China?

It’s often said the next milestone in China’s evolving slow bull market will be the return of inflation. Higher inflation supports nominal growth, corporate profits, a steeper yield curve and a stronger renminbi (RMB). A stronger RMB, in turn, facilitates the transition from export dependence to consumption, helping rebalance trade flows and ease U.S. deficit concerns.

As in Japan, inflation matters.

The Commodity Research Bureau Commodities Index (CRBI) is approaching four‑year highs and correlates well with China’s producer price index, which has begun to trend more positively. Consumer prices have already inflected, with core inflation rising 1.8% YoY in February.

Liquidity conditions remain supportive. Fiscal stimulus is combining with a jump in narrow money supply. M1 — money in demand deposits that can be spent immediately — often precedes economic activity and equity performance. It rose 5.9% in February, up from 4.9% in January, marking a third consecutive month of acceleration.

With roughly 40% of high‑interest Chinese deposits maturing in 2026 into much lower‑rate products, some of this capital may find its way into equities — or the real economy. This may help explain why economists have been surprised by recent Chinese data. The Citigroup Economic Surprise Index hasn’t been this high since 2022, pointing to improving fundamentals despite constrained industrial capacity, a moribund property market — and war.

What Happens in Private Credit Should Stay in Private Credit

From a contagion perspective, the key sequencing risk is whether current stresses — centred on software — metastasise into something broader. The concern is not “get me out of software credits,” but “get me out of private credit.”

For now, the issue appears contained to software‑exposed middle‑market loans (Blue Owl, Cliffwater, etc.). But if it spreads — becoming a credit issue rather than a category issue — the next question is systemic risk, especially if the Fed’s reaction function is constrained by oil prices.

Here, Tony Nangle of the Financial Times, citing Office of Financial Research data, provides assistance, He concludes that “the exposure — in isolation — doesn’t really look big enough to bring down the financial system, even if things go horribly, horribly wrong.” In other words, what happens in private credit should stay in private credit.

But expected returns may fall.

As we discussed years ago, every asset class has a life cycle. The excess returns once enjoyed by private credit may mean‑revert toward something more… normal. With price discovery underway and transparency increasing, that seems entirely plausible.

Having once owned a commission based business, I can attest to a simple maxim: When you remove the mystery, you remove the margin.

AI Needs Better PR

As discussed previously, one underappreciated risk is that artificial intelligence has a public‑relations problem.

There is no shortage of doomer narratives — claiming that data centres are stealing our water, our electricity, our jobs. Surveys show fewer than half of Americans view AI positively, and less than a third trust it. In China, by contrast, roughly 83% see AI as more beneficial than harmful. For perspective, in the early days of the internet, about two‑thirds of Americans viewed it favourably.

We’ve already seen roughly $64 billion of data‑centre capex halted by anti‑AI protests, with more potentially at risk. AI is becoming political — and politicians will be forced to take a stand. My concern is that they may stand in its way unless AI improves its own narrative.

That charm offensive may be beginning. Anthropic recently released a white paper framing AI as disrupting tasks, not jobs — a subtle but powerful distinction with less political charge. I would also expect more emphasis on Jevons Paradox: as efficiency improves, usage often rises disproportionately.

History suggests displaced labour can be redeployed and lower costs unlock previously uneconomic business models. Perhaps that explains why software‑engineering roles — once expected to go extinct — are up 11% year‑to‑date. True story.

It is hard to look past the headlines. Harder still to ask what might go right when so much appears to be going wrong. But as Dimson reminds us, this too shall pass — and when it does, we will be searching for answers to questions others may have already asked.

Praying for peace.

Gary