Dear Reader,
Happy Monday — Boy oh boy…
Dated Brent Crude prices have surged to $141 a barrel.
That is the highest level since the 2008 financial crisis.
What is Dated Brent Crude?
Dated Brent Crude is oil purchased for physical delivery within the next 10 to 30 days.
Here's what makes this so striking:
Oil futures for June delivery are sitting at $109 a barrel.
But if you want to actually get your hands on physical oil today, you're paying $141.
That's a massive disconnect between the futures market and the physical market.
Actual ships, actual cargoes — they're being sold to the highest bidder.
Governments in Asia and Europe are scrambling to secure oil supply, and they are bidding prices up dramatically.
In some parts of the world, rationing is already being discussed.
The last time dated Brent touched these levels was 18 years ago.
Why Should America Care?
My kids asked me the other day: if America is energy independent, why do we care about the Strait of Hormuz?
I told them it's like the human body.
One supply issue somewhere affects the entire system.
A blockage in your heart affects everything.
The oil market is so deeply interconnected and so sophisticated that a disruption anywhere raises prices everywhere.
We feel it at the pump.
But for Asia and Europe, this isn't just an economic inconvenience — this is a matter of national security.
That's why governments are bidding oil up to these extraordinary levels.
What This Means for Your Portfolio
Morgan Stanley put out a note last week adjusting their recommended portfolio in response to the energy situation.
They moved from the traditional 60/40 split — 60% stocks, 40% bonds — to 55% stocks and 45% bonds.
Their message: sell some stocks, raise some cash, and wait for opportunities.
Their current ideal portfolio breakdown is actually 55% U.S. stocks, 25% core fixed income, 20% government bonds, and 5% agency-backed securities.
They're also flagging foreign stocks to get hit harder than U.S. stocks by this energy crisis.
Remember earlier this year when everyone was saying buy foreign indexes, buy foreign markets, the U.S. is overvalued?
This is a big reversal on that thesis.
European and Asian economies facing an energy crisis are likely heading into recession.
And when that happens, they stop pouring excess capital into U.S. markets, they pull back from funding AI development, and they stop buying bonds.
All of that has real consequences here at home.
The Bottom Line
The U.S. economy is dynamic enough that you can't predict exactly what happens next.
But we know we're adding straws to the camel's back.
And you never know which straw breaks it.
We're going to keep a close eye on this.
Have a wonderful Monday. I'll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine