Oil Just Spiked — Are We Headed for a Recession?

Oil is in everything.

This is likely a short-term blip.

Energy prices going up means your transportation and logistics costs more.

If you have a long-term mindset, these kind of opportunities can open up to make good positioning for the long-term trends.

Hey, welcome back, Future Billionaires. Earlier this year, Bob Fraser, our co-host here at Invest Like a Billionaire, made a very compelling case that the economy was on solid footing. But as you know, a lot can change in a few months, particularly talking about the war with Iran right now and all that's happening there. As you've seen, oil prices are moving and they're moving significantly. Geopolitical tensions are escalating, and some of the tailwinds that we had talked about for the economy may be turning now into headwinds. And so today I'm sitting down with Bob and Ben to really ask the question, is a recession still off the table? Or maybe a better way to put it, are we heading for a recession? And so that's what we're gonna discuss today. Here we are with Bob and Ben. Let's get into it. So guys, let's start with the thing that really is driving a lot of anxiety right now. Bob, in your macro presentation that we did back in January, again in February at a conference, you called for low energy prices and you called it the gift that keeps on giving. And so I guess the question is, well, I think it's also hard to predict, you know, what's just happened in terms of Iran. So is that gift being taken away? And then second is, why does oil prices matter so much to things like GDP growth? Talk to both of these.

Yeah, so what's happening, of course, is we're watching, you know, America attack Iran. And, and, uh, and right now as we speak, 20% of the oil, uh, of global oil trade goes through the Strait of Hormuz, and it is pretty much closed down right, right now. Um, so So that is creating a real spike in oil prices. You know, oil hovering around $100 a barrel. When I made my forecast, it was around $60 a barrel, and we had a kind of a supply, oversupply estimated for the next couple of years. Well, obviously the geopolitical tensions and removing 20% of the world's oil supply is a pretty big deal. So oil really matters. Now, oil is not a part of the inflation metrics. Okay. It's a, it's actually a very teeny tiny part, but, but that understates the impact of oil because oil is in everything. I mean, look outside and you know how many cars are moving, how many trucks are moving, trains, planes, automobiles. You know, it is in everything we do. Nothing is made without energy, without fossil fuels. Nothing is transported. Nothing is delivered. Nothing happens without energy. So it underlies absolutely everything. So even though it's not a part of, of, or a significant part of, of the actual inflation forecasts and inflation metrics, it actually has a much bigger impact than, than probably any other factor. And it's one of two, two things that I look at that and wages, which is also not part of inflation, that drives inflation. Well, why does inflation matter? Because that is the primary thing that determines what the Fed is going to do, right? So if the inflation is high, the Fed is not going to reduce, um, you know, reduce interest rates. And that is what drives a lot of investment growth, which we're concerned about. So all those things.

So real quick, can you give an example on that? Like, to your— like the chain reaction, right? Oil goes up, he says one of the two main things you look at. I mean, what actually happens at a broader economy level that's impacting the consumer or the investor?

Well, energy prices going up means your transportation and logistics costs and what is not transported today, right? Everything is transported from humans to, you know, inputs to outputs. Everything is transported and including manufacturing, you know, so natural gas prices and, you know, every factory takes energy. So those things and most energy is produced by natural gas today. So all these things matter greatly and they filter through, but it's not an instantaneous impact, right? It takes a minute. To filter through the economy. So, right now, the big question, right, in people's minds is recession coming? You know, I see, you know, is it somebody who's just predicting, you know, 49% chance of recession, you know? I don't know, you know, it's not 50, it's 49, right? And so, you know, it's definitely too early to call for a recession. I mean, we've not seen any new data in consumer spending. So, the big, the cheat code, for the economy is consumer spending, right? That's— if you want one data point to look at, that's when you want to look at it. And consumer spending is 70% of the US economy. And so when you're— when we're seeing that, you know, as it is, it's simply not, not going to, going to change, you know, going to have— we're going to have recession. But we haven't seen any new data for 2026 yet. So we don't know if consumer spending patterns are changing. So if that if that starts to crash, I'm absolutely going to, going to take, take a hard look at that and possibly call for recession. But that's very, very difficult to call right now. It's just far, far too early with the data that we do have.

Obviously, recession fears are stemming primarily from oil prices being high and the potential, you know, dribble-down effect of that. But if it's kind of two different scenarios, if this is short, short-lived, right, where the war in Iran is de-escalated very quickly the Strait of Hormuz opens back up, inventories for reserves that were used in the short term are rebuilt. This is likely a short-term temporary blip that has an impact, but not a long-term impact. If this is a more extended crisis that impacts oil prices for the long term, you play out some of those scenarios is could oil alone, if there is a more severe protracted conflict, could that alone cause recession based off the latest data that we've seen from the other side of it with consumers and spending and GDP growth?

Yeah, absolutely. But it would have to be much higher and higher for longer than it is now, right? So remember, in 2022, we saw $120 oil. Remember that? Were we all begging on street corners in 2022? I wasn't, as I recall. I'm pretty sure I wasn't.

You know, so I mean, would you remember something like that if you were, you know what I mean?

You know, I'm getting older, so those kind of things escape me sometimes, but I'm pretty sure I wasn't. And, and, uh, uh, so yes, absolutely, energy price underlies everything. And if you remember, the biggest crisis back in 2022 was airlines, you know, who are, who are unhedged with, with, you know, they're greatly affected by energy prices, and their numbers were crashing. But planes were crashing. So it all worked out. So, you know, it's more of a long-term issue. And also remember that 8% of US GDP is the domestic oil industry. So it actually has a benefit to some of our, some of us, you know, some of, to America. It is, and it has, so it has a, you know, it has an outsized impact across the nations, right? So, so Asia, which imports all of its oil— Japan, China, Vietnam, Taiwan— these, these countries import all of their oil, all of it. And so they are, they are massively in trouble. I don't know if you remember, you know, back in the '70s and '80s and '90s, you know, and even the 2000s, you know, America was actually an oil importer. And, you know, people still forget that that we're not an oil importer. We, we, we are an oil exporter. In fact, America is the largest oil producer in the world, and it's insane. And so we have this, this incredible energy dependence, and it's only since 2009 with the fracking revolution that America became this energy superpower. We are the energy superpower of the world. So we don't have a lot of, a lot of risk, you know, of supply chain risk or other risks. And we also have a domestic energy industry, like I said, that's 8% of our economy. So it's not— it's not a— it's a— it's a— it's an asymmetrical impact across the nations.

So, Bob, let me summarize this just a little bit and tell me if I got this completely wrong. But it feels like what— what I understand is what you're saying is without more consumer data, which to you have said over and over really drives GDP growth, economy growth, without more of that, which we don't have right now, this feels like more geopolitical fear versus real fundamentals. Would you say that's accurate?

Yeah, definitely. Yeah, we're not seeing consumers— are you hearing any talk amongst your colleagues and family and friends saying, gosh, I can't afford to drive right now to the grocery store because it takes too much to fill up my car? Now, maybe in California you've got, you know, these long commutes and whatever. Maybe that's the case. Or producers or manufacturers saying our shipping costs are gone up so much, our importing costs are screaming higher because of energy. We're not seeing that. So that's anecdotal. We're not seeing that yet. And energy prices right now, $100 a barrel, again, they were $120 in 2022. And that was a bit painful, right? If you remember, gasoline prices were higher and there was a lot of talk about the impact on consumers, but it really hadn't hit yet. So, we're also seeing— I saw yield curve inverted. You remember that? It's like, well, actually looked at the yield curve and it only inverted at the 1-year mark and only barely, like a hair's breadth of inversion. And remember, it was massively inverted for the last— when was it? 5 years ago, 6, 7 years ago, all the way up to 3 years ago. Massively inverted. And I kept saying, it doesn't matter, we are not having recession. And, and who, who was right, the yield curve or Bob Fraser?

So, and maybe as a quick refresher, just, just hit on some of the things we talked about from the latest consumer data. I mean, it's, it's not just, you know, consumers are marginally making it and it's, it's, you know, barely surviving and one little thing will tip them over the edge. It's, uh, most every data point is positive and in the right direction. And so, we haven't seen, to your point, more recent data, but it's a very strong consumer, all things considered, at the end of last year.

Right. And I can only go off the data, right? And so, I found over the years that there's a lot of noise and there's a lot of data. And if you pay attention to the data, the story just emerges. And the noise is, you know, can be ignored. And the consumer has been doing insanely well, really, since, you know, mid-2010s. And you look at savings rates are good. Consumer spending is incredibly strong. Checking accounts are high, debt service is low. All these things that drive the consumer, except they're grumpy. Right. That's the big negative is consumer sentiment is in the toilet. Everybody is doing super well and they're super grumpy. And, and it's really anomalous, right? You haven't seen this. And, you know, I think it has more to do with the political divide and social media and other things than it does, you know, in the past, just pure economic reality. So that's, that's my view. But we'll see.

But let me ask you another question. From your, from your data in your presentation, you know, you talked about there'd be, you know, I think, correct me if I'm wrong, 3 cuts in 2026. The Fed would have 3 rate cuts in 2026. I have this Polly Market, um, graph pulled up as well, and it looks like the majority of folks would have agreed with you until recently. You know, as of March, uh, the, the percentage on Polly Market for 3 rate cuts is 11%, and now the real leader looks to be, uh, 1, 1 cut or 25 basis points in 2026.

Well, that shows you the idiocy of Polly Market. Um, so, you know, if you actually look at, at the futures markets, which is where the billionaires live, um, the, the market right now is predicting, uh, uh, between 2 and 3 cuts. So it was when I made the presentation is between 1 and 2 cuts. And right now it's between 2 and 3. And Bob Fraser predicted between 3 and 4. So we'll see. So far, it's— so far, it's trending exactly what I said it would do. Now, we're only in March. So, so we've got a whole nother year here. But we will see, we will see cuts. So the other big data point, there's a couple data points that have happened since, since I made my forecasts. And of course, my economic forecast may be as good as dirt, but I generally get a lot of it right. But a few things have changed. One is GDP did come in very weak, Q4 GDP for last year. And I have been predicting a strong, stronger, stronger— I said GDP will surprise to the upside. And we had a really abysmal jobs report. Abysmal. And I said jobs will surprise to the downside, which— so I nailed that one, got that one right. And I said the Fed is going to make between 2 to 3 cuts, or sorry, 3 to 4 cuts is my guess. And we're definitely seeing that trend happening. Oil, obviously, to the upside is going to put a lot more pressure on inflation and possibly, you know, and we didn't see inflation just shy under their core PCE number, shy under 3%. They want it around 2%. So it's significantly higher than they want in order to cut rates.

And so real quick, though, I think that's bad right now.

I'd be shocked if they—

Yeah. Okay. Because there's two things that I think— make sure we're getting clear on the reason what the Fed is trying to do is one, keep jobs high, keep inflation low. Right. That's their real two core mandates. So what you're saying—

minimize unemployment and minimize inflation.

And so I think what Polly Market— or maybe just say the people are reading into is the, you know, if inflation screams, we don't want to keep cutting. But you're saying you think they will because of the jobs market, because there's really both of those things they're holding in tension. And that's what's putting— could continue to put pressure on the Fed.

Yeah. And yeah, we're— and we're seeing weaker GDP growth. All in all, I think the, you know, the recession risks are increasing and I think the Fed will cut. More aggressively, um, if they can get comfortable with inflation. We'll see.

I feel like I just get so much smarter interviewing you guys around these things. I want to switch to investors because, again, our audience, to your point, are not necessarily the average consumer, right, who are going to be impacted significantly at the pump, for example, right? If oil goes up another 50 cents, 75 cents, even a dollar, Most of our listeners really aren't going to feel that. But how— so most investors listening to the show are more concerned about this because of their investment portfolio, right? And some of their holdings. Is there anything you're doing differently, guys, or you, you know, you're thinking about in terms of portfolio that investors should think about if a recession risk rises from here? Some of this data maybe does come back and it points to a real recession.

Well, I mean, we're already seeing, you know, I think in, you know, weaker numbers in jobs and GDP coming back. And now the, you know, the, the, the probability of the Fed lowering rates is higher than it was a month ago, 2 months ago. Um, and that means lower interest rates. Well, if lower interest rates are, are the, are the greatest factor driving investment, right? So if we see lower interest rates, we're going to start to see the beginning of the next real estate cycle, right? We saw a big peak in 2021 and '22. We saw the Fed massively raise rates in '23, and, and if— and, and real estate crashing, uh, commercial real estate as a result, you know, significantly. We're seeing drops of 20, you know, 25-ish. And so that's going to be changing. So, you know, we called Aspen, we called bottom in the, in the, in, in some of the markets right now in commercial real estate. You know, a month ago. We'll see if we're right, but this only strengthens that. So if we see the Fed likely reducing rates, that is going to drive demand for these real estate assets, and we're going to see some positivity there, you know. So I think that's all good. I mean, interest rates are the big factor that drives exits and drives prices. And we already know there's a lot of capital sitting on the sideline. I mean, you know, Ben, you can talk some of the, uh, some of the, uh, you know, the data you're seeing in the multifamily side and the trends in real estate, um, that are very positive.

So yeah, Ben, I'm curious to know, like, even with your conversation with lenders and capital markets right now, you know, it has— has any of this started to trickle into some of those conversations in terms of, you know, what we're getting quoted for debt and on assets? Give, give me your kind of inside take on that.

Yeah. Well, I totally agree with Bob Fraser. I think if you can separate out the long-term drivers of demand for, say, multifamily or housing as an example, from short-term recessionary impact or short-term oil impact on the economy, it actually creates a perfect buying opportunity because what happens is a lot of the competitors that are purchasing assets maybe pull back because they're going to go into risk-off assets. But the long-term drivers of demand are still there. And so I think it would only probably want to accelerate the amount of assets that I want to buy because the likelihood of interest rates going down, making it cheaper to purchase, less competition, knowing that over— if I have a long-term mindset, we're looking at a 7 to 10-year investment horizon in all of our assets. We know that demand is going to drive long-term rent growth and long-term values. And I would definitely be in buy mode even more. Now, on the other side of it, with maybe something in the industrial portfolio, if we do see a recession, that could impact the business cycle probably more acutely than housing demand. And so maybe see a slowdown of investment of businesses making expansions or hiring more or doing the things that they already plan on. But again, if you have a long-term mindset and understand like in industrial, the long-term drivers of reshoring and nearshoring, which are decades-long transitions of shifting the landscape of industrial, those are still going to be intact. And these opportunities can open up, to, to, to make good positioning for the long-term trends.

Yeah, I mean, at that point though, you can get, you know, you get the wrong— the, the— if you get the long-term trend right, that definitely is wind to your sail. But, but not a counter to that, and I know that you know this too, you still got to be able to survive in the short term, right? So there's still rules to this of being able to maybe, you know, withstand a, a longer lull cycle in that, in that case.

You know, let me just make a point that I don't think enough people are making. Um, Iran is being put out of business, and Iran is— has been since the 1980s, has been the largest sponsor of global terror in the world. And how much disruption has happened because of Iran, and, and they clearly have been attempting to get a nuclear weapon. And that is terrifying. I mean, how long, as soon as, how long would Israel last if they had a nuclear weapon? And you look at the, you know, the way they're responding, they're literally willy-nilly blowing up oil fields. They're refusing to any diplomatic solutions. They refuse to even negotiate a peaceful end to, you know, to, you know, by getting, you know, free nuclear fuel to drive nuclear, you know, nuclear power plants, which is ridiculous. Why would an oil-producing nation as wealthy as they are want nuclear power? They don't want nuclear power. They want nuclear weapons. And they refused all those things and are now blowing up their neighbors, friendly allied neighbors, blowing up their infrastructure, killing their citizens. This is a regime that is a global, horrible, horrible regime and global disruption, global terror. So for them to be taken off the table, what impact is that going to have for our children and our children's children, right? For a nation like like that to be disempowered and neutralized. And hopefully that will happen. And so very, very rarely do we think in terms of the long-term, right? This is where the Chinese without, well, election cycles and without politicians really, they take a long-term view. They take a 20-year view and they lock up mineral supplies for 20 years and then choke the world of it because they have this long-term view. Very few, very few of us have a long-term view. And so in the long term, I just— my hope is that this becomes a very good thing for the planet, as difficult as it is. And, um, and what would it be for the world's largest terror player to be taken off, off the, off the chessboard? Um, would be very, very positive. So that's my hope.

Bob Fraser, to that point, into the earlier point we were just making of you get the long-term trend right, you're typically in a good, you know, in a good spot. But you have to be able to withstand kind of short cycles or short lulls. Is there anything you guys, as we wrap this episode up, uh, advice or direction you'd give to, to our audience, our investors, of maybe how to take advantage of that long-term trend while, while also surviving maybe short-term lulls or short-term down, uh, down cycles?

Yeah, I, I, I think I'm, I, I've I'm hoping I'm right that with the Fed lowers rates 3 to 4 notches this year. If they do, we will definitely see the, the real estate cycle turning. And that's very positive for investment. If we do see GDP growth, you know, motoring along, we're going to continue to see demand for these things. If we're, you know, we're clearly not seeing a full-on recession yet. And no signs of that. And I think we watch all the data, right? Let's see, you know, do things get very painful? I think with oil at $100 a barrel, I think we're seeing people paying more at the pump. But I don't think it's causing lots of global disruption. I think at $120 a barrel, I think it gets a lot more painful. And I think certainly if we were to see prices sustained above $120 a barrel, I do think we're going to see a lot of issues. Remains to be seen. But we're not there yet. And let's, you know, we'll see. It does, it does look like this conflict is not going to be over quick and, and we're going to see disruption. But how much longer can they keep the Strait of Hormuz closed? You know, we'll see if they can reopen the strait. We're going to see all this, all this go away.

Hey, thanks for listening. If you enjoyed this episode, you want to explore more from iLab, head over to InvestLikeABillionaire.io. Let's keep the conversation going. See ya.