The Strait of Hormuz has been closed or heavily restricted, on and off, for the best part of six months. Oil is not at $200. It is not at $150. For a market that has spent fifty years pricing Gulf disruption as the ultimate tail risk, this ought to be the story of the year.
Rupert Mitchell, AKA the Blind Squirrel, has an explanation, and it has nothing to do with demand destruction or shale.
He says it’s The China Collar. “China just recognised over the last twenty to thirty years that they have an energy Achilles heel. And they are run by engineers. So they built storage.”
China has become an effective buying cartel. For half a century Saudi Arabia was oil’s swing producer. Beijing is now the swing buyer: absorbing shipments when prices sag, stepping back and drawing on inventory when they spike.
Nobody knows how much oil is actually in those tanks. But Mitchell thinks the last five months settled whether it is enough. “I suspect if they played that joker, they’ve got another joker behind it.” Squirrels know about storage, after all.
The real insight is what it does to equities. If the left tail is genuinely gone, if $30 crude is off the table because someone with a trillion-dollar balance sheet is standing underneath the market, then the risk premium generalist investors slap on the energy sector is mispriced.
Oil producers stop getting suckered into building capacity on every Permian spike. Offshore drillers get their capex underwritten by somebody else’s floor. “I’d be staggered,” he says, “if the energy weight within the S&P was not two and a half times its current 3%.”
Note what he is not saying. He still thinks $120–130 crude is live this year, and he is positioned for it. The collar caps the disaster; it does not cap the trade.
For your capital markets training needs, visit my friends at Finance Talking.
Buying Britain on its bond floor
Mitchell spent 25 years on the sell side, at Barings in 1994, five months before Nick Leeson brought it down, then at Jefferies, then running Asian equity capital markets for Citi and Goldman out of Hong Kong. He reaches for that toolkit when he explains the UK.
“You’re basically buying the UK right now on its bond floor.”
Not the FTSE 100, on Britain. He means the FTSE 250 and the domestic economy underneath it. Companies that survived a decade of diminished access to their largest trading partner, trading at twelve times earnings.
“These management teams are pretty battle-hardened as far as I’m concerned. And if they’re trading on 12 times earnings, that makes me love them more.”
And the wrapper matters. He owns it through UK investment trusts, closed-end funds, sitting at high single-digit discounts to net asset value.
When private equity takes out a portfolio company at a 30–40% premium, which is happening regularly these days, the discount on the wrapper hands him another turn on top. Five FTSE 100 constituents have already been taken out this year. The market is being hollowed out in front of us, and he intends to be paid for it.
If not bonds, then what?
The third strand should worry anyone with a pension. The 60/40 portfolio worked beautifully between 2000 and 2020. But widen the window to the whole post-war period and stocks and bonds spend most of their time positively correlated. The golden age was the anomaly.
So he doesn’t own the Bloomberg Agg. Instead, he outsources 15% to CTAs, because he knows he’s a mean-reversionist who is bad at momentum and would rather rent the style factor than fake it. Long-dated crude: a December 2028 barrel, as a store of purchasing power, because “energy is money”. Gold, which he concedes is the purer version of the same trade. And emerging-market local-currency debt, held through a single non-benchmarked closed-end fund currently running about 40% in African currencies. He likes EM central bankers as an asset class: they defend real rates to defend their currencies.
Not Bitcoin. I asked him. Rodents don’t do crypto. That would be stupid.
The organising idea, when you strip it back, is simple enough to fit on a napkin: own scarcity, in a world where bonds are about to become mightily abundant.
Why didn’t I think of that?
Thanks for listening.
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