TDI Podcast: Prepping for 1973 (#966)

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1:25Here we go.

1:26Andrew Horowitz:We got a one-sided peace plan. Well, let's hope not, at least. Inflation estimates in the 5 % range one year out and climbing. Private markets, credit, and the same story all over again. And our guest today is Howard Lindzen, founder of Social Leverage. All this and much more on episode number 966 of the Disciplined Investor Podcast.

2:04Andrew Horowitz:And welcome back to The Disciplined Investor. I'm your host, Andrew Horowitz. And this is the show, you know this to be fact. We cut through the noise, the hype. We stay grounded. We focus on building real wealth and, of course, disciplines. Not through the hype, not through panic, not through any shortcuts. Nothing is easy in the world of investing. And right now the markets, you know, they feel heavy. You can't argue that fact that one day we see this crazy move to the upside. One day we turn it around and it's the downside. They pick back up the next day. Every single headline seems to be reason for panic or a euphoric action into the markets.

2:50Andrew Horowitz:Volatility has definitely returned. No question about that. We're seeing that the sentiment out there is I would probably say it is weak. It's fragile. It's fragile. That's probably a better way to look at it. And many investors right now are probably looking at their portfolios and wondering what comes next. I bet you're one of them right now. Thinking, do I stay the course? Do I change up dramatically? Do I just tweak? So today we're going to address that directly with some actionable thinking, I guess in these uncertain times where we have the VIX at 25 and holding, where we have news headlines bombing us every single day and we're not sure whether or not we can believe them.

3:44We're not sure whether or not President Trump is in fact talking to himself about the potential for a ceasefire, a slowdown, or even some kind of maybe just a delay. These are the same tactics that I see that were used. I have it sitting right in the studio on my desk right now, lest I forget it from a year ago. A year ago, let's take the clock back. Let's turn the time machine backwards for a minute and let's look at what happened. The tariffs, the reciprocal tariffs, the tariffs that were on top of tariffs and all of these that went on and freaked people out where we saw that China was getting hit with initially 34%, Vietnam 46%.

4:35You know, we saw that Cambodia was at 49%. And the list goes on and on. I have the whole list right here. Again, I didn't want to forget this. The insanity that we saw, how that was calculated, the haphazard approach to actually getting these numbers from the initial tariffs to charge the USA, which included currency manipulation and trade barriers, all the BS that was back then that was being fed to President Trump and acted upon and then realized that, boy, this was a big mistake, man. Markets caved. Interest rates came up. Things went hairy. The dollar went sideways, basically blew out every kind of spread that we saw.

5:16But what happened? The playbook was pretty easy. Let's overdo it. Let's say I'm going to kill you, but then say, you know what? I'm really just going to slap you. Let's say that I'm going to bankrupt you, but just say, you know what? I'm only going to charge you 10%. The playbook looks the same right now. Let's come over with extreme power. Let's come over with extreme amounts of threats. And then what? Then we back off. We prove that we have something that we can do. And we say, you know what? You want any more of that? All right, keep it up. Otherwise, come to the table and talk and do this, that, this, and that.

5:55There's a 15-point plan that's supposedly floating around right now, presented by Jared Kushner and a few others to some people anywhere, somewhere, maybe, maybe not. Maybe we're just negotiating with ourselves. I don't know. But Iran doesn't look like they really care. We know that we poked the hornet's nest. And there's residuals that come from that. It doesn't just die down and say, you know, okay, oh, sorry, hornets. We killed the queen. and now, sorry, well, let's talk. The fact is that there's a much different psychology when it comes to Iran and their beliefs and it comes to, let's say, other areas in the Western Hemisphere or even just focused in on Trump and his peeps.

6:49So here's the reality we're facing in March 2026 all the way one year forward from where we were where the playbooks look about the same. we're dealing with a multitude of serious pressures that are happening all the same time. This isn't a single crisis like we saw back in 2008, right, where the housing market collapsed. We have overlapping stresses right now that make this environment much more challenging. The environment that we have now is wholly different than what we saw back in 08, 09. And what are those problems? What are those differences? I think we've got to focus in on something we've been talking about forever, it seems.

7:44And I've been banging the drum on this for a while now is private credit markets. These are showing some real strain We saw that the news headlines over the week With the redemption requests from Blackstone And Apollo, Apollo's halting redemptions it looks like They've surged, right? These redemption requests are off the hook These are not only at the small places But the major funds as well where some of the vehicles have decided and the management has decided to just cap withdrawals. And then there's the concerns about things like valuation and transparency and a default internally, liquidity especially, which I think is fascinating.

8:33We talked about this last night. Not last night. It was, when was this? I talked about it last night with some colleagues, but I had another discussion about this. When was that? It was, oh, it was on DH Unplugged, and that was last week when John C. Dvorak did come back, by the way, after his heart condition and his double bypass. We talked about this. So this is kind of not just a one-off. This is a conversation that's been going on a lot now. This whole idea about what happened to the lending in the software area and the, don't forget about the fraud that we saw in the auto-related lending that was going on.

9:15This is now rippling through Wall Street. Because already we're starting to see the after effects of what's going on with banks, right? They're tightening lending standards. And this private credit has been totaled to be about$1.8 trillion in total class assets. It's being stressed in ways that we haven't seen in years. In fact, I saw a recent discussion that showed that right now we are above the default rates that we saw back in 2008. 2008. 9.8%, I believe, is the current default rate going up by the day. And some of this is because people are no longer willing to commit capital. They're like, no, no, we're not going to put more money into that.

10:07Not chasing any good money with bad, bad money with good. It's not happening. We're just not doing it. And this is what happens. And one of the big problems that I see is that the push to allow or not even allow the push to, to, to prod, to, to corral retail investors into this asset class. I talked to you about this about a year ago, a year and a half ago, I was at a cocktail party at the, um, there was an event down in Miami. Um, the Ritholtz group put it on and I was invited down there to speak to a few people. As a matter of fact, Meb Faber and I met for a drink there, and it was called Future Proof.

10:47Now, I met Meb at this particular after-conference bar for a party that was a gathering by one of—somebody put it on. But I got there, and before I even was able to get anywhere through the door, I was attacked, literally, just surrounded by all these randos that I never even met before talking about private credit. And I was like, what's this all about? And it was like nonstop. And at that moment, I'm like, uh-oh, this is bad. They're telling me how, you know, hey, what size is your book and how much of it is in private credit? I'm like, none. None that we've recommended. Well, you really should have upwards of 10 % of a client's portfolio in private credit, maybe even some private equity.

11:31I'm like, that's great. That's not what we do. That's not what we want to do. We do not want to have the liquidity headache, the capital call issues. We don't want to have all the different parameters of that for clients that we are going to have to worry about in the future. In fact, we have only a few clients, a handful of clients that have any private credit, private equity that we've actually inherited for the most part. And we manage it for them and we review it and we handle capital calls and we do all that work for them. But the bottom line of this is that it's not something that we do the research on and grab because we found that this is much too difficult to understand.

12:11Not when things are good. That's easy. That's a breeze. When the tide goes out, like it is going out now, there's a run for the exits. And that run for the exits, like a run on the banks, is what we're seeing. And that is what's causing a cascading effect, creating more defaults. because where before, when everything was just hunky-dory, everyone was just happy, happy, let's just get it going, put more money in. There was a constant stream of monies that were being utilized to fund, refund, co-fund, and to make sure that whatever was coming out would go right back in. And therefore, it was creating this stasis, this leveling off of risk.

12:58Not the case anymore. So this is why it's creating stress. We got to look at what stress is going to actually cause in areas like insurance companies as well, which piled into this like nobody's business. So that's something we're watching very carefully. Now, second, that was a long first, by the way, when we talk about private credit. Second, what else is going on? Well, we got the obvious elephant in the room. The conflict, the kerfuffle, the war in the Middle East, particularly involving and centered around Iran, right? There's all sorts of problems, just all sorts of badness. Oil prices have spiked, right?

13:40We saw 116 on Brent last week before panic set in and everybody started making up all these stories about a peace plan, a 15-point plan, and talks going on and all that. Not to mention, shall we for a minute, the 6.50 a.m. Monday morning Eastern Time, massive$1.5 billion of futures, shorts on oil, longs on indexes, and an amazing timing where 15 minutes later, President Trump came out with an announcement that skyrocketed all those positions. The money made on that was absurd. Research is being done right now by the SEC, CTFC, all the different players out there trying to find out who did this because something is amiss.

14:32The volume was not normal by any standards. Just 15 minutes before this announcement. Somebody was told something. Now with all this going on, inflation fears have cropped up dramatically. The reason? Well, you see oil where it is now. Everybody's starting to think back to the oil embargoes back in 73, 74, or maybe even the conflict back in 1979. This is a situation where we saw oil prices, because of a variety of conditions, reverberate through the economies of the U.S. and other countries around the world for years to come. And even if oil does back down, we still have a lot of problems. Already we saw that the U.S.

15:16Postal Service is increasing their rates on non-postage, right? So their packaging by 8 % for a fuel surcharge. You know that UPS and FedEx and all these companies are going to be doing the same thing, right? And that's going to lead to inflation. In fact, I got a chart from my good friend Tom Nelson from Franklin Funds this week that talked about the one-year expectation and the break-evens that look at about 5 % one year out. We're talking about a major ramp in inflation expectations over the next 6 to 12 months. I don't think that's a surprise to anybody. Already we're starting to see a little bit of that before the war broke out.

16:02PPI, PCE, CPI, it's all ticking higher. Import cost, a much greater number than we had expected just this week. So with that going on, we have the potential for stagflation. That's going to cause a major problem from consumer goods to corporate margins. Now third, the bond market's under pressure. The last several treasury auctions were abysmal. We have this massive treasury supply, war-related spending concerns, and shifting rate expectations have really pushed the longer-term yields higher. The 10-year treasury recently climbed to 4.4%, 30-year 4.9%, 6.4 % on the 30-year mortgage. These are so much higher than they were just, what, three weeks ago?

16:59Andrew Horowitz:Investors are also pricing in bigger deficits and questioning, you know, how easy this market can absorb all this debt that's being pushed because we have a lot of spending that's going on. Again, just three weeks Really, think about this Just three weeks of a war The spend is amazing A war that we were told we were never going to get into A stupid war in the Middle East We were told we're not going to get into that Spending that we said wasn't going to happen with Doge It's happening The things that we were promised Kind of broke down dramatically in the last three weeks And the other thing that's happening right now is the U.S.

17:44dollar has strengthened significantly. It's hit multi-month highs. Now, this blows our theory about emerging market assets right now that were the beneficiaries of a stable-to-weak dollar over the last year. The shift that we've seen has pretty much, I think, taken off the table expectations for a Federal Reserve rate cut. I mean, it's even introduced the possibility, dare I say this, of higher rates later this year, which could be a problem for other things. So the combination creates this slow motion feeling of tension. Markets feel manipulated from what's gone on. Headlines are just screaming.

18:34So it's natural to ask whether it's already too late to make any defensive actions. So as a disciplined investor, what do we actually do? The answer is pretty straight. I think it's pretty easy. It's pretty understandable. I think you know what to do. Protect your capital without abandoning your long-term plan. So what are we going to do here? First of all, we're going to start to review our overall allocation. We're going to make sure that we have proper defensive buffers. We have cash, short-term treasuries, short-term high-quality bonds, these kind of things, and maybe even some, I would say, some hedges.

19:10Things that could also provide things like you want to get high liquidity, stability, especially if the volatility increases beyond where we are now. I mean, a lot of investors today are probably really well served keeping, I don't know, 10 to 20 % more in liquid low risk assets. Depending on where you are in your risk tolerance. You don't want to get, the whole point of this is you want to get spooked out. You need to rebalance things where needed. Certain parts of the portfolio have run hard or become overweight. Well, maybe it's time now, especially to trim back to the target weights. This is, again, one of those things that we do on a regular basis to sell high and buy low over time.

19:56That's a core discipline of ours. I think in terms of your equity exposure, focus on quality. We're leaning towards value, the energy, the staples, healthcare, utilities, things like that. We're leaning. Not both, but we want strong balance sheets, consistent cash flow, the potential for pricing power, right, where people can weather higher input costs. That's important. Short duration when it comes to fixed income. So that kind of is the bulk of that, right? I think that's really important because, you know, The thing is that you want to be able to ride through the bad times so you can get the longer-term potential good times.

20:51You want to, I think you want to separate this idea of what can I control and what can I not control? Because none of us can predict what's going to happen here. I'm not even talking about in two years, two months, two days, two minutes. We don't know. Things are changing. The exact path of this war, the Fed decisions, redemptions from private credit, or even what is the next monster under the bed that we don't even know about. But we can do things like controlling our spending, our savings rate, the diversification of our portfolio, our emotional reactions, right? I mean, we could definitely do that.

21:40One of the things we don't want to get involved in is panic selling at the bottom, right? That's the worst thing we could do because that is one of the ways you can evaporate more wealth than at any other time of your investing career. Also, doing nothing and hoping for the best can probably be just as dangerous, especially when real risks, real risks, try to get that out, Real risks are involved. So history shows us that I think we can all agree

22:13Andrew Horowitz:that when we have these periods of multiple overlapping stressors, they're going to resolve. Some of them may be quickly. Some of them may be with more pain at first.

22:31But I think that the investor, the disciplined investor that comes out ahead are those that can keep a cool head,

22:39Andrew Horowitz:remain calm. They could think clearly through all that is going on and pretty much act with a plan that they set up prior rather than reacting to the various headlines that come out. So the discipline in the times like these that you need means you're acknowledging the risk without letting fear drive your decisions. It means that you have a process that you trust and the courage to follow it. So if your current situation feels like you're misaligned with today's realities, well, do something about it. If you have too much liquidity, too much concentration, not enough dry powder in the event things go down for opportunities, now is the time for these adjustments.

23:31Not drastic moves, not panic selling, not getting crazy on that, right? The bottom line here is that I want you to be set. I want you to be disciplined. I want you to be ready ahead of something and not making crazy reactive decisions at the wrong time. So it doesn't matter whether you're doing this a long time or whether you're new at it, right? Use this moment right now to strengthen your plan. Don't abandon it. Be disciplined.

24:00Andrew Horowitz:Let's take a moment and let's talk about interactive brokers, shall we? Because interactive brokers, or IBKR as we call them, has key competitive advantages for sophisticated investors just like you. IBKR's margin loan rates are from just 4.14 % to 5.14%. In fact, IBKR is rated one of the lowest margin fees by StockBrokers.com. I want you to compare IBKR's clients' low margin borrowing costs to other brokers like Schwab or E-Trade, Fidelity, and Vanguard, which charge hundreds of basis points above IBKR's low rates. Look, the best informed investors choose interactive brokers. Margin, of course, is only for investors with experience and have a high risk tolerance because you can lose more than your initial investment.

24:55Andrew Horowitz:Rates are, of course, subject to change. Get started today at ibkr.com slash compare. Interactive Brokers is a member of SIPC. Again, it's ibkr.com slash compare. All right, here we are. We're ready to go. We're ready to roll in. Our guest, and you know what? I just got a text. I just got a text and an alert. He's not going to be available. So we have to plow on. And the good news is I wish him the best. I think he's posted something on Twitter about a garage door incident or something that just happened. So, Howard, we wish you the best. People around me are just, things are happening. First, we got J.C.

25:39Dvorak with his heart issue.

25:41Andrew Horowitz:Now we got Howard Lindzen with some kind of mishap with the garage door or something. I don't even know what's going on. So anyway, Howard, feel better. The good news is I have lots to talk about because I wrote up a comparison that I was going to talk to you about after Howard. We'll just talk about it now. And this was a look back. I wanted to look at what happened during the 1973-74 oil embargo. And I wanted to look back at that and put a little bit of a comparison into what's going on today. There are some eerie similarities. So I think arguably the 1973 oil embargo, it was probably one of the most important energy shocks in, I don't know, is it modern history or at least history?

26:34Andrew Horowitz:73, that's a number of years ago. So that was in history. Modern history, maybe. And understanding what happened here, once again, studying history so we don't repeat it in the future, which, by the way, is all forgotten now because we didn't study the history, and that's why we're getting what's going on right now. But studying history, understanding what happened, can give us a little bit of perspective further on what we were talking about before the break, about diversification, what we want to do, the outlook. Because when we look at geopolitical events and energy disruptions and how all this can create this massive inflation and impact markets, especially when we look at what's unfolding right now.

27:15Andrew Horowitz:Here we are in 2026. So going back, here's some notes that I kind of put down about what happened in 73. I was young. I was a wee lad at the time. So I had to go back to the history books and kind of pick out and tease out some of the information. But back then, it was Egypt and Syria. They launched what was known then as the Yom Kippur War against Israel, the United States, and a few allied nations provided support to Israel. And in response, the Arab members of OPEC, then was known as OAPEC, O-A-P-E-C,