War A-ha Moment

I will do a Fed preview Tuesday with @Livesquawk. https://x.com/LiveSquawk

I think I’ve done a pretty good job of analyzing the positioning, dynamics and risks of the Iran War the past few months. Of course, that doesn’t lead to a conclusion about the outcome… until now. I’ve recently had two “a-ha moments” when it comes to the War. The first was the “speculation” that we were offering a $300B reconstruction fund, which could bring the total package for Iran to over a trillion dollars. Unless a complete unfreezing of funds and/or sanctions relief are not on the table, that is an enormous payday for Iran. That tells me Trump (aka “TACO Boy”) is motivated. The second is the recent revelation that we have “secretly” been escorting ships though the Hormuz. I previously discussed the importance of escorts in past issues. Iran is losing control of the Hormuz and their leverage, and so they are also motivated. While we are only discussing the signing of an MOU (and not the full deal), I will discuss why I think even without a deal, just the reopening of the Strait solves a majority of our problems.

But first a message from the Author:

Having grown up in NYC… KNIIIICKS!!! Let’s keep that on the down low, since I now live in Texas and all my neighbors have guns.

Now the week in news:

· Core CPI came in fractionally light (as warned last week) but PPI came in firm. Core PCE is supposed to come in around 0.4, but we knew there would be payback from the slightly softer print last month. However, with Hormuz flows possibly resuming on the horizon, I think the markets will be more forward-looking and ignore the short term inflation data, if Hormuz reopens.

· The European Central Bank was the first G7 central bank to hike. This may have contributed to some (relative) hawkish sentiment in the near-term. Maybe. But this should have been priced.

· Warsh leads his first Fed meeting next week. I can see arguments for either a hawkish tone (to keep inflation expectations anchored) or a dovish tone. But considering how Trump was out this week saying the Fed should ease, I lean towards thinking Warsh is going to sound close to “neutral” (in light of the high inflation data), but leaning on the dovish side, assuming a deal is still up in the air. He may even sound outright dovish if an MOU towards a Hormuz reopening is close (or done) by the meeting. The thing about nepo babies is that you rarely hear of back-stabbing in that world. Because if you are incompetent and the only way to get the job is with the help of those more powerful, you are probably not going to defy those who did you that favor. My main focus for the meeting will be Warsh’s tone, and his new plans for the Federal Reserve.

War A-ha Moment

I sent the following email titled “The Boy Who Cried Wolf” to institutional clients at the end of Thursday: