We have yet to feel the full force of the unfolding crisis in the Middle East, investing strategists warn.

Pointing to a note from Jeff Currie, the Carlyle Group’s leading energy strategist, Ambrose Evans-Pritchard, International Business Editor for The Telegraph, stresses that the current situation echoes the unsettling complacency seen in the early stages of the COVID-19 pandemic.

Initially, the shock was contained to China as its economy shut down, and the rest of the world largely shrugged it off. Then the disruption spread — to South Korea, Iran, and Italy — yet global equity markets continued to climb.

It took roughly six weeks before reality set in.

Wall Street abruptly buckled, plunging 35%, accompanied by severe dysfunction in the U.S. Treasury market.

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Currie warns that a similar delayed reckoning may now be underway.

Mitchell B. Feierstein, a British-American investor and CEO of the Glacier Environmental Fund, agrees with Currie.

“There’s an 80% probability of a crash in Q2 or Q3,” Feierstein tells Newsmax Money. “Current levels of leverage and equity valuations are insane. The Fed will be forced to cut rates by up to 100 basis points this year.”

Source: Newsmax Money

“We are seeing a short-covering rally augmented by momentum trader with limited institutional participation,” continued Feierstein, author of Planet Ponzi (Radom House, 2012). “Retail, always last to join the party, is scrambling not to miss out. (See International Monetary Fund chart, below).

Source: Newsmax Money. Data from Office of Financial Research, Securities and Exchange Commission, and IMF staff calculations.

“We are surging higher on ‘irrational exuberance,’” Feierstein said. “While it’s impossible to call the top on a bubble, we are very close. Hope is never a viable trading strategy, and the downside will be painful.”

Looking at the macroeconomic picture, Currie says the real economic impact will hit once physical oil supplies begin to dry up — when shipments fail to arrive and replacement barrels cannot be secured at any price.

That critical inflection point is expected by late April, when the world’s usable buffer of roughly 800 million barrels is depleted.

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Carlyle's energy guru also cautions that recent gains in the S&P 500 appear detached from underlying fundamentals, driven in part by sentiment rather than substance.

U.S. oil and gas companies account for just 3% of the index’s total market capitalization. The remaining 97% is exposed to the adverse effects of what is effectively a major energy shock — one that could ripple across the broader economy.

If Feierstein and Currie are correct, markets are extraordinarily complacent regarding the magnitude and speed of the disruption ahead.

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