Business Rundown: Middle East Escalations Muddle World Markets
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- I'm Lydia Hu and this is the Fox Business Rundown.

Friday, June 13, 2025, stock markets fell and oil prices climbed on Friday following Israel's wave of airstrikes on Iranian nuclear facilities and missile factories. All the things that have hit inflation and kind of reignited inflation, and now you have oil moving sharply higher. Overnight, Israel launched strikes on Iran's nuclear facilities and military leaders, prompting an aggressive drone counterattack from Iran.

Markets responded to the escalation in the Middle East, oil prices jumping to their mid-$70 level, and world stock markets stumbled as anxious investors sought out safer investments like gold. President Trump says he gave Iran chance after chance to make a deal and called for Iranian leadership to make a nuclear deal before it's too late.

Friday afternoon, the president spoke with Fox News chief political anchor Brett Baier on the phone, telling him, quote, the Iranians were hit 10 times worse than they thought they would be. They weren't ready to negotiate. I think they may be now. We'll see.

Meanwhile, a new consumer sentiment report out today shows Americans' outlook is stabilizing after the initial tariff shocks in April. This, along with President Trump announcing a framework for a trade deal with China, could have given the investors major tailwinds heading into the weekend. But the Middle East conflict has added some uncertainty. Just how much of an impact could these Israel-Iran hostilities have for Americans?

Larry McDonald, there is maybe no better person to have on the podcast than you on this very important Friday, the 13th. Thank you very much for your time this afternoon. Thank you, Lydia. It's our prayers to everyone in the Middle East that's going through some tough times and trauma today. Absolutely. And we...

are so grateful to you to help us understand, you know, what's happening there. And also, you know, kind of bringing it back to the business side of things. Of course, our prayers are with the folks in Israel, with all the people in Israel, as they're bracing and waiting to see how Iran is going to respond at this moment that we're taping this here on this Friday afternoon. Folks are kind of looking at this market reaction and saying, oh,

This is actually a sign of resilience and confidence that it's not worse, that the market reaction is not worse, that we're not seeing more of a sell-off. But I'm curious about, you know, kind of what you're seeing, what your take is on that. Yeah, I've been surprised that we're, you know, it's been pretty resilient and we're rolling over a little bit.

back and forth. But overall, the market almost got back to flat. Larry McDonald is the Bear Trap Report founder and author of How to Listen When Markets Speak. But, you know, at the end of the day, the point we make in our book, How to Listen When Markets Speak, is

The whole book's concept is this multipolar world, higher bond yields. You need a whole new portfolio construction for a world with sustained inflation. I mean, think about all the things that have hit inflation and reignited inflation. And now you have oil moving sharply higher. You've had the supply chain thing with, obviously, COVID. And then on the deficit spending in Washington. So you get this

you know cocktail of of real sustained inflation i mean here's the bottom line right everyone celebrated the cpi number this week right and if you look at if you look at uh what we call the bloomberg commodity index which has that oil component to it

The divergence there between CPI and the Bloomberg Commodity Index points to a sharp CPI reversal. So what's fascinating about this week is there was a lot of celebration about inflation normalization, but now that's really very backward looking. And if you look at the BCOM, the Bloomberg Commodity Index, that points to a sharp reversal higher in inflation coming down the pipe.

So you are forecasting that we're going to see consumer prices rising? If so, when? How soon could we see that hitting the tape? Because the big question that we've been asking on our network is a lot of people predicted tariffs, for example. They're going to drive prices higher, and we're just not seeing that yet. So you're taking a look at the commodities prices, and you're forecasting that we're going to see a turnaround in inflation. Do you expect it to go higher? Yeah.

Yes, in other words, yes, if you look at the follow through components, the way commodity prices work their way into CPI core and headline, yeah, we're definitely going to have a very sharp reversal. Natural gas has been strong. Another thing that's happening this week is there's a big broadening out from gold over to silver and platinum.

And so that also has a lot to do with what's happening in Washington around financial repression, which we can get into. But yeah, bottom line is we're in this new world of higher yields, higher sustained inflation. And that's where you need that 1968 to 81 portfolio, which is that multipolar world global conflicts.

higher oil sustained inflation, that's like a totally different portfolio than say the 2010 to 2020 portfolio. You mentioned those safe haven trades, gold, and then you said that's moving into silver. Do you think that's going to be a short-term trade or do you think that's going to be sustained? I mean, we've seen gold touched a record high not long ago, over 3,500. I wonder if, you know, do you see it going higher from there?

Well, what we're seeing is most of our clients are on the institutional side of the bear trap support. We're seeing clients diversify out of gold into the broader metals complex, your platinums, your silvers, your coppers. Think of the whole AI trade. You've got a huge week this week of Oracle and CapEx.

Almost 30%, 40% of sales spending on capital investment from Oracle. This is nuts. I mean, this is absolute insanity. And all the projections about artificial intelligence, everyone's looking at the semiconductors. Nobody's looking at constructions.

copper, the power grid in the United States, how we're going to actually get electricity to these data centers. Natural gas is a huge winner there. So we're looking at like energy infrastructure behind artificial intelligence. Something else that came out today is the Consumer Sentiment Report. And it was interesting because it shows that

We as consumers and we're driving so much of the economy, you know, we are less pessimistic now than we were months before, you know, and I.

I wonder how you think that might play into what we're seeing for the rest of the year. Because so much of what happens with the economy is that if you feel okay, if you feel confident in the economy, then you're more willing to spend money. But if you're feeling nervous, then you want to sit on it and not spend it. And that can create a slowdown. So...

If the consumer sent a report that came out today, and I know it's a survey and there could be issues with that, but it is a survey that we look at nonetheless. If it's showing that consumers are less pessimistic, in other words, more confident than they were, could that is that, you know, kind of a good a good sign for the moment? What we're seeing is so from the consumer side.

we're seeing some weakness in what's called the buy now, pay later names. And so there's some underlying weakness there from the consumer. And then remember, energy gas has been relatively contained. So once this kind of move in oil prices up almost 10% at one point today, that's going to impact the consumer relatively in a big way. So I think a lot of the data

data on the consumer is kind of backward looking relative to what might be coming with higher oil prices if this war really escalates. But bottom line is it's really a two-tiered economy. The bottom 60% of consumers that really have been hurt by inflation, their companies that face them are kind of struggling.

the top consumers are still doing pretty, pretty well. And tariffs haven't hit them. But tariffs are a very regressive tax, right? So even though the large, the top 10% of consumers are 50% of consumption, which is amazing. The top 10% are 50% of consumption. So in the end, tariffs are

are taxed on consumption and they're taxed on the rich. But the problem is it's a regressive tax on the bottom 50 percent or the bottom 60 percent because they just can't afford the tariff hit. Larry, looking ahead to next week, we have the meeting of the FOMC with another decision on rates from Jerome Powell.

And, you know, President Trump has been very vocal about what he wants to see. He wants rate cuts. You know, he President Trump would say, look, if you take a look at inflation, it's been cooling. If we keep rates higher now, that means we're paying more to finance our debt. If we cut rates, that means we're paying less inflation.

You tell me what you think. We don't expect to hear a rate cut next week. But, you know, what do you make of that back and forth, that dialogue, what President Trump is saying? Is he right? Is he right to push for a rate cut? Or is that given what we're seeing now with, you know, Israel and Iran and the pressure, the pricing pressure with oil and commodities? That's just too much. No, no, no move.

Well, Trump's point is like if you look at the ECB, the European Central Bank, and their central bank lending rate versus the Fed, it's about 2% less. So that's what's upsetting President Trump. So the rest of the world's been a lot more. They've been cutting rates a lot more aggressively. But the biggest thing that I want people to know, and this is so important for this reconciliation bill and what the Fed's up to, is you have...

The merging of these bills. And so if you look at the net debt issuance between right now, we're at the debt ceiling. And so there's no new debt issuance since January. Once they raise the debt ceiling, and this is so important for our listeners, then there's a huge colossal catch up.

And it comes out to $1.5 trillion between, say, September 1st and the end of the year, $1.5 trillion of new bonds that have to hit the tape, that have to be sold. There needs to be buyers for those. And that's why you see people like

Gunlach and Dalio, a lot of famous investors talking about this real bond crash moment later in the year. But Scott Besant and the Fed knows this. They're changing financial regulation on what's called the SLR. All that means is they're forcing the banks to own more treasuries.

And so they're going to try to use these tools to get more buyers of treasuries, things like the banks, Wells Fargo, Jamie Dimon. And so the Fed, I think because interest costs right now are about a trillion dollars, about 20% of tax receipts. So the Fed has to cut rates. But even in the face of inflation, and they need some help with the bond market from the banks, that's very, very difficult.

financial repression like. And all that means for our listeners is you want to be in hard assets in that kind of world. Financial assets are stock certificates and bonds. Those are financial. Everybody is table max overdosed.

on those types of drugs. We're in a financial impression world, which is clearly we're shifting toward. That's where investors need to own hard assets or companies that own assets, companies that own natural gas, companies that own metals in the ground, Rio Tintos of the world. That is where the new portfolio of construction is going.

Interesting. OK, so you mentioned the national energy, but do you have other sectors? What about the defensive stocks right now? Is that something that you are taking a look at? You know, we were just talking about that on The Big Money Show moments ago. You know, sometimes during periods of conflict, people look at.

The defense of companies that we have in the United States, especially since President Trump also just was posting on Truth Social about Israel's capabilities that are being bolstered by American technology and defense.

Right. And so, yeah, so typically when you go into a slowing down in the economy with kind of global conflicts, yeah, those what we call the XLP names, the consumer staples ETF, they will hold up a lot better. What's kind of evil about the staples is stocks like Walmart are in there, which are trading at 40 times earnings. I mean, it's absolutely insane, you know, and so, yeah.

What we're looking at is kind of like companies that are in the energy support system for artificial intelligence, natural gas, your FCG ETF, which is

a great portfolio of natural gas companies that are going to benefit from that powering up of artificial intelligence. Some of our core positions in our portfolio are focused on uranium, nuclear power,

The NUKZ ETF, we've been along that for over a year, and it's a wonderful portfolio of independent power producers and the nuclear play, because that's what's going to really be required for what we call that build-out of artificial intelligence. And the last thing is the copper names, the COPX.

Copper is we're under supplied globally We're going to rebuild the US power grid to support all these electric vehicles all this artificial intelligence the pressure on the grid copper copper copper So yeah that hard asset portfolio copper uranium platinum the PLTM ETF These are kind of that's that that's the new portfolio for the for the coming years You know, there's the meeting of the g7

this weekend, starting on Sunday. It's going to be in Alberta, Canada, where President Trump is going to have this sit-down with

our allies, members of the G7, Canada, the UK, others. And surely they're going to talk about trade, tariffs. Maybe they'll talk about some of those minerals that you're mentioning too. How are we going to get them? Where can we get them if China is not going to be a reliable supplier? What are you watching out of the G7? What really matters to you coming out of that summit?

Well, I think the fact that Ms. Scheinbaum was invited and what we're probably going to see is some progress on a kind of a reconstruction of our trade deals with Mexico and Canada. So we could see some real progress there, like a NAFTA recovery.

like the beginning of a NAFTA reconstruction, which was supposed to happen anyway, that NAFTA agreement has to be kind of developed over time for a new world. So we could see some very positive trade news there.

um and you know that's pretty much the institutional clients that we talked to they were they're looking at canada they're looking at the banking system they're looking at some of the natural gas companies up there very cheap relative to the us one thing that we could see is some type of you know trade deal where

Canadian natural gas companies have more access to the U.S. market. That could be extremely profitable for Canadian natural gas companies. And so you've got all those years with Trudeau. You know, you've now got a new political regime up there. So that's those are some of the things that institutional investors that we talk to are looking for. Larry McDonald, thank you so much for this really important conversation today on this Friday. We really appreciate your time.

Thanks Lydia. Have a great weekend.