Iran Plan?

The ceasefire is over. The markets are getting concerned about oil again. I’m not sure that should be warranted. There’s that old saying that the definition of insanity is doing the same thing and expecting a different result. We know that the later bombings before the cease-fire did little to advance our cause, since most of the high-value targets were gone. I’m going to give our US military some credit and suggest that there is a “Plan.”

But first, my thoughts on select news items the past week:

· CPI and PPI came in lower. We didn’t get much of a fixed income rally because of the increase in oil futures on the week. Given that July oil is on average lower than June oil, I’m not sure the markets should be pricing in so many hikes.

· I didn’t get much out of Warsh’s Humphrey Hawkins testimony. As I’ve mentioned before, the employment mandate is not a factor, so the Fed is focusing on inflation. They always say one month of data doesn’t matter, so Warsh dismissing one print should not be a surprise. However, I do expect the next payroll to be weak (from giving back World Cup jobs) and the next CPI to be muted (from still-lower oil prices, AOTBE), so let’s see if the Fed narrative changes with TWO months of weak payroll and inflation data (assuming that’s what we get).

· Several GOVERNORS (Waller, Jefferson, Cook) indicated IF we don’t see movement on inflation, they are prepared to move. I’m going to give some perspective here… despite how high oil has risen this month, the average oil price this month is still noticeably lower than last month. I’m not sure if the markets understand the meaning of “IF,” but it’s going to take a material Iran escalation to get oil (and inflation) higher. We also had a number of the hawkish FOMC speak late last week, so those sound bites need to be discounted.

· The Chinese developed a “free” AI alternative to the US. Kimi performed extremely well in AI tests. As I previously mentioned, it is not clear how the US AI companies will make money, when “free open-source” versions of Chinese AI models are available. I’m not saying we are in a “bubble” – it could take YEARS or DECADES for equities to converge. I just think it’s foolish to think the Chinese won’t ALWAYS be AT LEAST close.

Iran Plan?

I am assuming “Plan” can’t be something as absurd as “we’ll blow up more things, until they cave.” We did this for a month or two prior to the ceasefire, with negligible results. The regime doesn’t care if the people suffer. There has to be more than that. Otherwise, the recent attacks will just end up costing US more in a larger “reconstruction fund” during any peace negotiations.

It’s probably not a coincidence that Iranian hostilities grew during Khamenei’s funeral week. That’s when the revenge and death threats toward Trump came out, followed by some shipping attacks. When you have your political and religious leader killed, a people as proud as the Iranians are not going to stand still.