How the Crisis in Iran Could Spark the Next Financial Revolution

0:00It's all over our news, all over our social media, YouTube, radio, no matter where we're turning, we're hearing about the war in Iran. As the war is raging on, the Strader Hormuz is being blocked, and that is the heartbeat of the flow of oil and liquid natural gas from the Middle East to the rest of the world. It's raising gas prices here in the U.S. drastically, and one of the things we don't realize is whatever happens here in the U.S., a lot of times they feel it much more in Europe and Asia. And so today we're going to dive into how one company and their groundbreaking technology can really help countries in need.

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4:16Stephen:We cut through the noise to focus on what works, compounding, discipline, and the conviction to buy wonderful businesses and stick with them. Your path to financial freedom. Start now. All right, everybody, welcome back to the Investing for Beginners podcast. And if this is your first time, double welcome to you. We're excited to talk about today's topic because we believe this company is really going to help the world in a drastic way. So just for context, just in case you don't know, obviously the United States and some of its allies have been attacking Iran, which has caused Iran to retaliate, obviously.

4:59And one of the things they're doing is they're closing a place called the Strait of Hormuz. And this Strait is an artery, is a heartbeat, literally, of oil and natural gas flowing out of the Middle East. And so with them closing this strait, it has caused massive shortages and it's caused, what's the word, prices to skyrocket. And so today we're diving into a company that's trying to help with this and so andrew my my first question is as i mentioned in the intro we we started we don't think about it a lot here in the u.s but but it is true things that happen globally have a much bigger impact on germany and japan for instance than they do here in the u.s why is that

5:55Stephen:uh and this well there's lots of reasons but um this one is particularly interesting because of the location constraints of liquid natural gas so bloomberg has done a lot of great reporting on this i'm really just parroting a lot of what they have said um liquid natural gas is one of those come onto these where you can't really store it uh it just doesn't do well Like for oil, for example, we have an oil reserve, which recently the president has emptied because the situation is getting pretty bad. But for liquid natural gas, you can't have the same kind of a reserve like you can for crude oil.

6:35Stephen:And so a lot of it's kind of like just in time inventory kind of an idea. And when that one of those supplies is choked, you really get a lot of impact to that. So again, to quote one of the Bloomberg articles I was reading today, European gas futures have surged as much as 35 % to more than double their pre-war level. Brent crude rose as high as$119 a barrel. European diesel futures topped$190 a barrel at one point. So there's definitely inflationary risks. and the fear for investors obviously we're a show about the stock market and investing is that this inflationary impact will make its way through the broader economy and it's not hard to figure out why that would be we all need energy for our manufacturing consumers feel it at the pump consumers feel it as they make vehicle choices when they're buying vehicles so all of these things can play an impact.

7:36Stephen:And, you know, like we've always had the show about not, not worrying about the news, not getting too, too focused on the news. But if you have something that's potentially paradigm shifting, that's happening and it can affect all your investments, it's worth paying attention to, and at least trying to learn. And hopefully this episode So it can start as like an intro to that to give further research. And then it kind of goes with one of these companies that I uncovered during my stock picking sabbatical, which we can talk about. But I think it's important to hear the context about what's happening in the Stray of Hermuz, what's happening in Iran, and how that can have impacts on the economy.

8:21Stephen:Because I've seen commentary too. people are saying that wall street is being really slow to re reacting to this crisis and and like you're not seeing stock prices move as much as you would think um and i don't know why but it's it's an interesting dynamic that we have going on for sure and i could totally be wrong um and if i am wrong i'm happy to be wrong uh i think i think a part of the problem with wall street is that no one really expected um at least i did not expect for it to be so difficult for us to to maintain that's true i mean we have the most powerful navy in the world um when i initially heard iran was trying to do it i you know okay you look um but and they haven't really been successful, but they've done good enough that what they've done is they've scared all the shippers and the boats and the captains and the crews that they don't want to risk it.

9:32They don't want to risk their lives, their boats or their resources. So that's actually what is really bottlenecking the strait right now is just the fear. um so i mean i don't want to get into the the politics and all that stuff the the easiest solution is to have an escort for you know for for these tankers to let them get out of the street um but that's just not happening right now and i don't know if it's because we're we're struggling with with logistics or resources or what um but that's kind of i guess a 30 ,000 foot view, at least from my tactical view of what's happening in the strait right now.

10:19Stephen:Yeah, those are really good points. I think it took us all by surprise. And one other thing I saw this morning, I guess Iran is talking about charging these ships for access through the straight. And another thing they did is they targeted other energy infrastructure assets very recently. It was Shell PLCs had a gas to liquids plant that had damage. There was another one Qatar Energy had several of its LNG facilities attacked by missiles. So Iran at this point is just saying like, this is my interpretation. We're unhappy with what you guys are doing. So we're just going to blow it all up. Like we don't care about your, the global energy infrastructure.

11:08Stephen:We're taking it all down with us. And that's, so whether we fix the straight or not, like that's how, how does that not have impacts? Uh, and what does that do to energy production in, in those areas? I didn't, I haven't, I kind of tuned it out over the past couple of days, um, just between the bad news and all the commentary that comes with it. I just needed a break. But so I actually haven't listened to the news for two days now. Just taking a break from it. But don't get me wrong. I do believe it is important to be aware of current events. So let's transition over to the U.S. dollar. And this is something that kind of blows my mind that I didn't know previously to doing this.

12:01We all know that the war is what brought the United States out of the Great Depression, or one of the key things that brought the United States out of the Great Depression during World War II. And in a lot of cases, our economy is boosted every time we get into a war of some magnitude. But what I didn't realize is that when this happens, it also creates almost a vacuum effect that is destroying liquidity of other nations. So my question, Andrew, is what is the effect that the war in Iran is really having on the dollar? And why is it kind of the left is the only safe haven left in the economies?

12:51Stephen:It brings back a phrase I only remember from the last time we had a crisis like this was the pandemic. And the phrase back then was flight to safety. And so in a crisis, people panic. They want their money parked in places they think are safe. So back during the pandemic, that was the big fang stocks, the Facebooks, Amazon, Netflix, Google, the big tech that we now call the Mag7. those stocks remained steady and saw growth while the rest of the market cratered. If you had any sort of like small cap stocks in your portfolio, when that all happened, you definitely saw the carnage and it was not pretty.

13:33Stephen:If you look at where the global markets are today, markets like Singapore, I think it was the Philippines, a lot of these emerging markets, stock markets are crashing where the U.S. market up to now, we're recording this March 19th, U.S. market has stayed relatively steady. I mean, it loses a percent here, a percent there, but the capital has not flown out. You haven't seen this capital destruction like you've seen in some of these emerging markets, stock markets. And so the way you described it at the onset is a great visualization. It also kind of summarizes one of the big impacts very nicely, the vacuum effect sucking liquidity out of every other nation.

14:22Stephen:So you think about what happens when inflation goes higher, when the price of commodities go higher. People want to buy currency that is going to hold up value at a better rate. This is why you see people pile into gold and silver because they see it as storing value. When it comes to energy, because the energy is denominated in dollars, the demand for energy means a demand for dollars, basically. And so, you know, there's so many factors. Macroeconomics is this whole other thing. but to explain why you see some of the capital flows that you're seeing a lot of it has to do with the fact that the dollars the world reserve currency the dollar you need what they used to call petrodollars i don't know if that's still a phrase now but this idea you want to buy petroleum based products you got to use dollars all of those things make it appealing for countries and And especially the countries where you see the worst inflation becomes more and more appealing to hold U.S.

15:28Stephen:dollars as a safe haven from the inflation that's wreaking havoc in your country. What can happen, which I'm not trying to say this is happening yet, but what can happen is if inflation gets too out of control and the governments just continue just piling on more and more inflation to try to get out of it. you could start to see the currencies spiral. And then that's when the demand for dollars in those regions will be even greater. So I know you've traveled all across Europe and other places. I don't know if you've seen different kind of like inflation or currency effects or not. But that is something we have seen through history.

16:11Stephen:And we're still very much in the early innings of this whole development. So ideally, from an economic standpoint, global economy standpoint, ideally the war in Iran wraps up soon. But if it doesn't, you could see inflation in other places that could spiral into more inflation and that could be a problem. Is that something you've ever seen in your travels as far as like US dollars, currency, things like that? Yeah, that's a great question, Andrew. I would have to say the worst currency issue I've ever seen was when I was in Greece. Just massive poverty, and their economy was really struggling.

17:04And this was in, I want to say 2013 or 14, maybe a little bit later. But basically what happened, you know, whenever the financial, the global financial crisis happened in 07 and 09, because Greece was a part of the EU, they could not control the euro's value. So they couldn't use it to stabilize like we just talked about our Fed, they didn't have that luxury. And so as that crisis kept looming and then added to that, they had a massive amount of debt. It just caused their currency to spiral or their, I'm sorry, their economy to spiral in a unsustainable amount of inflation. and the result was multiple countries in the U had to bail them out to the tune of like 289 billion euro that is yeah that's insane so I would say that would have to be the the worst

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20:51Stephen:It's available for our value spotlight members. If you want to see the thesis, we're doing a 60 % discount for now, but I'm pulling the deal once the stock hits$45. Check it out at einvestingforbeginners.com slash 60. When you talk about something that's so big picture like this, there can be so many different side effects. One of the other things I saw on Bloomberg, which I think is relevant, is they're saying if this turns into the LNG crisis, if this turns into a long-term shock, it could be more significant than the 2022 energy crisis. And I was shocked the other day. I saw the stock of Phillips 66 had like tripled in and Marathon is another one and I remember when those stocks were in the gutter they're like$50$60 when the price of oil futures went negative way back in 2020 and we're just we're not seeing the the kind of media coverage that you would expect for these energy stocks that are really starting to take off and have been taking off since 2022.

22:12Stephen:And it could be even a bigger impact. I was doing some research on the long-term price. So I guess this is a little bit of a spoiler for what's coming for Value Spotlight in April. But I was doing some long-term research on the price of energy. And you basically had half of the time with energy going back to like the late 1800s half of the time with energy prices you had a period where everything was flat or down and maybe last like a decade decade and a half and then you have a period where energy prices have like double digit increases sometimes um i'm talking about if you like average out and kind of smooth out the numbers but 5 to 10 % annually increases for 10 to 15 years.

23:03Stephen:So you have these big boom bust periods in the price of energy globally and we've just come off a period where energy has been basically flat to down over the last 10 years and you have to ask yourself, okay, is that a permanent state or will it cycle like it has over the past 100 years? So I think it really needs to change our paradigm. I know for me personally, it's something I'm considering because I've always looked at the energy companies and seen low returns on equity, low returns on invested capital, and always said, well, you know, I want higher capital returns. I want more capital efficient companies.

23:44Stephen:But that's all on a paradigm of energy prices that are stagnant. If we do have another period where energy prices increase, compared to a long-term average to a long-term average, then you could be having these companies that are much higher, much more efficient, much more profitable. And so the past, when we always talk about the past doesn't guarantee the future, this could be a place where the financials of energy companies do not properly represent what the future of their businesses are because of where energy prices have been and where they could go. And so I think it's worth investors considering changing maybe some of their thoughts on energy and some of the companies that are in that ecosystem, because there could be some really great opportunities there over the next year, two years, three years, five years, whatever this.

24:46That was really well said, Andrew. And so I want to kind of transition over to stable coins, which is kind of the meat and potatoes of today's podcast. and I guess my very first question to you is just when the heck is a stablecoin?

25:00Stephen:Yeah, great question. Everybody associates it with crypto but at its core, stablecoin is a way to have US dollars digitally rather than doing it through the traditional financial system. So again, when I was doing my stock picking sabbatical, I got pretty deep into the weeds on some of this stuff. I've been looking at the space since like 2021. So it's something that's kind of always been on my radar, but really came to my attention again with Congress and everything they've talked about trying to push a bill for stable coins and making that a thing. But basically the idea is we could talk, I don't know if we want to bring up your time in Greece again or in other countries, like, I don't know how hard it is to get dollars when you are going through a bank in a foreign country.

26:00Stephen:But the idea and the promise of a stable coin is you can have dollars digitally with a click of a button without needing to be involved with all the banks and all of those, all of the ways that I've made it previously inconvenient and that's the promise of stable coins i can kind of answer your question there um so dollars in other countries the only places i've ever been where i could actually spend a u.s dollar on the economy there are in third world countries um any any established country germany Greece, Poland, Estonia, Korea, no businesses would accept anything but the proper currency because then they have to go exchange it and it's a huge headache for them.

26:58um the current you know so yeah it's just it's not a thing to to use a u.s dollar uh unless you are in uh you know iraq afghanistan some you know a very poor third world country

27:18Stephen:so it's the the payment rails seem to really be seeing this promise of stable coins and I guess being the next level where the reality you're describing is no longer the reality, but it's in fact a lot more convenient for merchants and for customers. Shout out to Cohen Marcel, Vandero Hoydunk. I don't even know if I said that correctly on LinkedIn, But he recently posted that MasterCard agreed to acquire a company called BVNK for$1.8 billion. And so the way he put it, when one of the world's largest payment networks buys stablecoin infrastructure, this is no longer a side bet on crypto. It is a statement that programmable money is becoming part of mainstream payment architecture.

28:10Stephen:So there's so many things that these stable coins allow and empower merchants to do, consumers to do. But in the lens of what we're discussing today, the idea is you can have dollars. You can take money from, like, let's say you're in the United States, you use Venmo would be a good example of like a technological payment app that's not really tied with the traditional banking system. Venmo is owned by PayPal. But it's not like Bank of America, JP Morgan, Wells Fargo. It's kind of in its own lane that we're calling fintech these days. But with a Venmo account, you could buy a stablecoin. And then if you're a consumer in a place where your currency is devaluating greatly, you could buy USDC as the one that this company Circle issues, which is currently the second largest stablecoin in the world.

29:16Stephen:And basically, you know that your value in that currency is tied to the U.S. dollar rather than if you're in pesos and pesos are rapidly devaluing. So it's just a safe place that they can put their money. Yeah, and it's very easy to do. let it keep its its current value i guess is is that a good way to look at it because because i mean if you're you know a great example of this is uh when i lived in poland uh their currency is a uh oh good grief i'm so blanking on it now i apologize to any polish that may hear this um zelotti the other currencies is a lotty and um when while i lived there uh obviously i was in the u.s military so i was getting paid by the u.s government and so every every first and the 15th of every month when i got paid i would go to the atm and i would take out it was like 28 or 27 dollars and 80 cents uh to me but that would be about 200 250 zelotti and that's what i lived on for those 15 days and it was amazing uh for me anyway because i was able to save a lot of money uh that way however and what you described someone in poland couldn't take a hundred zelotti and buy a hundred dollars right um so basically what you're describing is i recognize my my my uh currency is is dropping i'm willing to buy the u.s dollar so that my current currency that is in my bank retains its value yes okay just wanted to make sure i was picking up what you're putting down there yep yep so so at any time if you want to take your stable coin usdc convert it back to your currency you're going to get the value of wherever the us dollar moved and not where your local currency moved and you know there's there's all these techno techno optimists who think it's gonna take over the world and that may or may not happen right um but i think mastercard mvisa they have been showing their and stripe too uh stripes actually building their own stable coin rail right now called uh tempo but they're showing that um they're leaning into the stable coin idea and if visa mastercard stripe all these companies make it really easy to spend stable coins then maybe the, I don't know, what is, what does that do to the local currencies there?

32:25And, you know,

32:27Stephen:does it keep their governments more honest? Does it allow the people who live there maybe to not be as negatively affected as, as people who keep their money in the local currency? I don't know. It's, it's very much again, early innings. but I think it's definitely a trend that we'll see over the next 10, 20 years, maybe 30 years, but an entirely just different way to look at currency. And now it's becoming becoming like a problem. We had this, this long time in the stock market of they called it the, they called it the peace dividend. You know, we've had so much great stock market returns with all the peace in the world and relatively low chaos and crisis.