On My Radar: Oil, War, and the Stagflation Question
March 6, 2026
By Steve Blumenthal
“Credit is like blood that brings nutrients to all parts of the economy.”
- Ray Dalio
We are roughly a week into the conflict with Iran. It is still far too early to know how this will unfold, but markets are already beginning to price in the potential economic impact.
The most immediate economic effect is likely higher inflation, driven by rising oil prices and possible supply chain disruptions. If the conflict persists alongside the growing use of tariffs globally, the risk shifts toward something more difficult: stagflation - higher prices combined with slower economic growth.
Energy shocks have historically carried a measurable economic cost. Research from the Federal Reserve Bank of Dallas suggests that a $10 increase in oil prices adds roughly 0.2 percentage points to inflation while shaving about 0.1 percentage point off real GDP growth. Source: Investopedia
Oil prices have already risen sharply. Since December 2025, crude has climbed roughly $25 per barrel - more than a 40% increase. Higher energy costs ripple through transportation, manufacturing, and food prices, eventually showing up in consumer inflation and corporate margins. Following is a chart on Brent Crude Oil.
Source: Stockcharts.com, cmgprivatewealth.com
The geopolitical conflict complicates the Federal Reserve’s job.
While I continue to lean toward two to three rate cuts in 2026, much will depend on the labor market. The unemployment rate remains low, but it is no longer improving. Job openings are trending lower, and layoffs, increasingly tied to AI-driven productivity gains, are quietly rising.
Grab that coffee and find your favorite chair.
I had planned to share more highlights from the WallachBeth Winter Symposium, but this week, a fantastic David Friedberg discussion with Ray Dalio on the All-In Podcast touched directly on the long-term forces shaping markets today. Dalio said, “Credit is like blood that brings nutrients to all parts of the economy.” What he is saying is that when credit flows efficiently, the system grows. When it clogs up with too much debt, the economy slows, much like plaque in arteries. Do listen in. It is a master’s class in understanding how systems work. Frankly, I think it is Dalio’s best interview due to Friedberg’s line of questioning. Links below.
One of the most interesting parts of the conversation was Dalio’s reminder that macro forces ultimately shape market valuations. Which brings me to a chart I’ve been watching closely, and sharing with you frequently — Median P/E. If you are new to OMR, the message from that chart may surprise you.
On My Radar: Ray Dalio with David Friedberg - Debt, AI, and Big Debt Cycles
Ray Dalio with David Friedberg: Debt, AI & the Cycle That Destroyed Rome
Personal Note: Florida and Texas
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Ray Dalio with David Friedberg: Debt, AI & the Cycle That Destroyed Rome
Ray Dalio joins David Friedberg: You can find the link to the full interview here.
They discuss the big cycle, why DOGE failed, Gold vs. Bitcoin, what economists got wrong about tariffs, and the forces that will decide America's future
(0:00) Friedberg Introduces Ray Dalio
(1:29) Five Forces That Will Decide America’s Future
(7:26) Why Government Reform Is Nearly Impossible
(11:19) Gold vs. Bitcoin
(28:16) What Economists Got Wrong About Tariffs
(41:11) Is America Heading For Collapse?
Key Macro & Geopolitical Takeaways
1. The U.S. debt trajectory is the biggest long-term risk
Dalio emphasized that the U.S. is approaching the late stage of a big debt cycle, where borrowing and interest costs compound faster than economic growth.
Federal debt is now roughly $36 trillion (~125% of GDP) with deficits near $2 trillion annually, while interest payments alone exceed $1 trillion per year.
When debt grows faster than income, governments eventually face difficult choices: raise taxes, cut spending, print money, or restructure debt.
2. The global order is shifting toward great-power competition
Dalio reiterated that the world is moving away from the post-World War II U.S.-led global order toward a more fragmented system.
The defining geopolitical rivalry is U.S. vs. China, with competition across technology, trade, military power, and capital markets.
3. Internal political conflict is rising inside major countries
Dalio highlighted growing domestic polarization as another destabilizing force.
Historically, periods of high debt and wealth inequality tend to coincide with internal political conflict, making reform more difficult.
4. Tariffs are a blunt policy tool
Dalio acknowledged tariffs can generate government revenue and support domestic industry.
However, they also raise prices, reduce trade efficiency, and can slow economic growth, particularly if countries retaliate.
5. AI will reshape the economy—but may also create bubbles
Dalio described AI as “eating everything” economically, meaning it will transform nearly every industry.
However, he warned investors not to assume every AI company will be profitable, drawing parallels to the dot-com boom, where the technology succeeded but many companies failed.
6. AI could intensify economic inequality
Productivity gains from AI may concentrate wealth among a relatively small group of winners.
This could increase social and political tensions, especially if job displacement accelerates.
7. Gold remains the preferred crisis hedge
Dalio argued that gold remains the most reliable reserve asset, particularly during periods of geopolitical stress or currency debasement.
He suggested investors might consider 5–15% portfolio exposure to gold as a diversifier.
8. The next decade may be unusually turbulent
Dalio suggested the coming decade could involve greater geopolitical conflict, financial stress, and political division than most investors have experienced in their careers.
The key challenge will be how governments manage debt, inequality, and technological disruption simultaneously.
Bottom Line Summary
Dalio’s core message: the world is entering a period where high debt, geopolitical rivalry, technological disruption, and political polarization collide - a mix that historically produces major economic and market turning points.
Head up, lights on!
Interested in more on this topic. I wrote about Ray Dalio last week in OMR: Big Cycle Stage 6
Median P/E and Median Fair Value
One of the most interesting parts of the conversation was Dalio’s reminder that macro forces ultimately shape market valuations.
Which brings me to a chart I’ve been watching closely - Median P/E.
Unlike the traditional market P/E, which can be heavily influenced by a handful of mega-cap stocks, the Median P/E measures the valuation of the “typical” company in the index.
In other words, it tells us what the average stock in the market is actually trading at.
My view remains unchanged: any correction near 4,500 on the S&P 500, for index-only investors, presents a better investment opportunity. The Median Fair Value estimate as of February 28, 2026, is 4,457.51.
The following chart updates monthly. It looks at 62-years of month-end “median P/E” data.
The median P/E is the middle price-to-earnings ratio of a group of stocks.
If you line up all the companies in an index from the lowest P/E to the highest P/E, the median P/E is the one in the middle of the list. Half the companies have a lower P/E and half have a higher P/E.
Why I like it:
It reduces distortion from extreme outliers (very expensive stocks).
It gives a better picture of the “typical” company valuation in the market.
Why this matters today:
When a few mega-cap stocks have extremely high valuations, the average market P/E can look expensive, while the median P/E may show the broader market is cheaper.
Follow the orange line in the center of the chart. NDR plots valuation zones that range from Very Overvalued to Bargains. We currently sit in the upper end of the “Overvalued” zone.
Simply follow the red and green arrows and my notations.
Source: NDR, cmgprivatewealth.com
Last week, I shared with you the Goldman Sachs presentation deck from the WallachBeth Park City investment conference. It includes a chart showing that valuations can remain high for extended periods, especially when macro conditions are favorable. Take a look at the market's performance when valuations (as measured by the CAPE Ratio, similar to the Shiller PE I post in Trade Signals each week) are in the overvalued zone (above 80%).
Bottom line: It is not a time to be excited about future S&P 500 Index returns. Look back again at the Median P/E chart. I believe 4,500 is a number we should keep our eye on.
To get there, expect a lot of fear in the streets. A John Templeton, “buy when everyone else is selling moment.” Other areas are performing well. Energy, commodities, and gold in particular. Areas my firm remains bullish on.
You can find John Tousley’s presentation deck here. Worth your review.
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The views are Steve Blumenthal’s and subject to change. Not a recommendation to buy or sell any security. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. See important CMG disclosures below.
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Trade Signals: March 5, 2026 Update
Trade Signals Sections:
Market Commentary
The Indicators Dashboard - Stocks, Investor Sentiment, Bonds, Commodities, Currencies, and Gold
Valuations and Subsequent 10-year Returns
Supporting Charts with Explanations
Why Trend Following Matters
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Personal Note: Florida and Texas
“My humanity is bound up in yours, for we can only be human together.”
- Desmond Tutu
I’m heading to Jacksonville this weekend to visit my son Kyle. Meetings Monday in West Palm Beach and dinner Tuesday in Naples. Austin follows later in the month. A busy pace, but I’m enjoying the journey.
So much is happening in the world right now. I find myself hoping and praying for wisdom and a peaceful path forward.
Wishing you a great weekend.
Warm regards,
Steve
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Stephen B. Blumenthal
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.
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