Remember when Iran was going to keep the Strait of Hormuz closed indefinitely?
No? Me neither. Because that was never on the cards.
Iran needs that waterway open. Their own oil revenue depends on it, and as it turns out, two can play at the extortion game. Yes, the IRGC can threaten to blow up ships transiting the Strait, but the US Navy can blockade Iranian ports.
There was no shortage of commentary in recent weeks regarding the world’s “pain threshold” for higher energy costs, nor was there a dearth of almost propagandist-style declarations regarding Iranian “resilience.” But Iran has one source of hard currency revenue and one source only. The economy’s already collapsed, the local currency’s worthless and a meaningful share of the populace is restive. Behind brave faces, weak hands.
Even if you assume some version of the “toll booth” narrative — which just says Iran might henceforth claim the exclusive right to charge fees to tanker traffic, never mind the problematic financial logistics when the only hard currency you’re allowed to accept, renminbi, is itself soft-pegged to the dollar — a pay-to-pass thruway only works if it’s open.
And then there’s the “small” matter of having to coexist not just with the Saudis and the UAE, but with neutral Qatar and your own client state in Iraq, which really needs that sea passage open.
Suffice to say holding yourself hostage by planting explosives under what, on your own telling, is your waterway, was a short-term tactical maneuver, not a long-term strategy, particularly when you don’t have a real navy anymore. Those IRGC speed boats are highly effective in some scenarios, but one of them isn’t breaking a full-on US naval blockade of your ports.
One more thing: If you’re Iran, and you know Israel isn’t inclined to stop until everybody associated with the Revolution’s dead and buried, but you also know achieving that goal requires ongoing US participation in the war, one way to insure yourself is opening the Strait and calling it a goodwill gesture to Donald Trump — you know, for his “peacemaking” efforts in Lebanon. Or whatever. It doesn’t matter.
Nor does it matter that Iran’s position, as communicated Friday by Abbas Araghchi, isn’t any different on its face from Tehran’s previously-communicated policy on the Strait. Before, they said it was open to anybody who communicated with the Guards. They said the same thing Friday (passage is only possible “with the coordination of the Islamic Republic Guard Corps navy”).
What matters is the language and the context. Araghchi “declared” (his word) the Strait “completely open” to “all commercial vessels” as long as the truce in Lebanon holds. The “coordinate” caveat was an afterthought this time, not an implicit threat.
If you can’t read between those lines, you don’t have any business writing about this, let alone trading other people’s money around it.
Oil plunged as much as 15%, the most since April 8, after Trump backed away from threats to kill off “an entire civilization,” as he put it.
Araghchi’s “declaration” was delivered on American social media at 8:45 ET. So, 45 minutes before the cash open on Wall Street. It was plainly coordinated with Trump’s social media posts. Just minutes later, he thanked Iran on Truth Social and then, at 9:27 ET (so a mere three minutes before the opening bell), reiterated that the Strait’s open, this time in all-caps.
In a string of subsequent “Truths,” Trump made any number of claims, including that Iran’s going to voluntarily, and for no financial reward, turn over “all Nuclear ‘Dust,’ created by” Operation Midnight Hammer. That, he said, isn’t contingent on anything to do with Lebanon.
He quickly added that the US is nevertheless hard at work resolving the “Hezboolah” situation. In an especially strident moment, Trump said Israel’s “PROHIBITED” from further bombing in Lebanon. “Enough is enough!!!” he shouted.
He went on. And on. And on. Friday, Trump said, is a “great and brilliant day for the world.” “Never” again will Iran close the Strait of Hormuz, he promised.
US equities, which were just looking for an excuse to extend gains, rose sharply.
As the figure shows, the three-week rally, at nearly 13%, is the largest since the rebound off the original COVID bear plunge.
Not to put too fine a point on it, but I called this. Almost to the minute. Here’s what I wrote on the morning of March 30:
In our zeal to castigate the administration for chancing the sort of tragically misguided adventurism that defined US foreign policy from Vietnam forward, we’re giving the IRGC far too much credit. And assigning low odds to the most likely market outcome which is a negotiated settlement that sees stocks bounce. Is the de-rating [in US stocks] enough to discount World War III? Or a permanent closure of the Strait of Hormuz? Well, no, but I don’t think either of those outcomes are on the cards.
The S&P posted gains in 13 of the following 14 sessions. You’re welcome.
There was some friction Friday between Trump’s contention that the blockade of Iranian ports will continue until a deal between the US and Iran’s finalized (Tehran said that’d be a violation of the ceasefire). But that seems inconsequential in light of Friday’s choreographed messaging. Iran didn’t confirm (but didn’t deny) Trump’s claim that any sea mines placed in the Strait will be removed.
Whether or not this all holds I don’t know. What I do know is that given how many triumphant interviews Trump gave Friday, and considering the definitive, jubilant tenor of his “Truths,” he’d lose his mind in the event someone rains on this particular parade.
For his part, Benjamin Netanyahu emphasized that the IDF’s “not yet finished the job” against Hezbollah, but his tone was conciliatory as Netanyahu remarks go. “One of our hands holds a weapon,” he said. “Our other hand is extended in peace.”
H-Man’s three favorite words “Told you so”
“One of our hands holds a weapon,” he said. “Our other hand is extended in peace.” – sounds like day 1 of a training program for assassins.
Enjoy your victory lap CJ, you’ve more than earned it.
Nasdaq longest winning streak in 34 years.
Trump excels at half-solving problems he himself creates. It’s a grift.
Right. And it’s eminently tradable.
I unfortunately fell for the “stocks can’t go up everyday” today and was entirely too generous with my donation to the market gods.
Well placed foresight. Thank you. You have never wavered at all in stressing that markets will soon be better off from this War despite the long term ramifications of accumulated pyhsical damages to numerous facilities and infrastructure.
That “dust” ? I am sure the timetable on that is sometime before doomsday.
So I guess Pam Bondi was right when she said: “The Dow is at $50,000.” (Why did we all laugh so hard at the time then?) I must confess, I don’t really know what my point is here, but I am struggling with the question of whether this is really who we are now. If we have defanged the Iranian terrorist state once and for all, that is a truly great thing, but is it worth some sort of Faustian bargain with Trump? I don’t know. At the moment, I feel like I have just watched an Andy Kaufman comedy performance, and I am still struggling with what was real and what was not.
H- For non-professionals such as myself, I have really appreciated your coverage over the past few months of all things Trump, Strait, Market and Flows (I still don’t get it). Your direct communication definitely helped me to “Forest Gump” through the last 13 trading days. I can’t even believe it. Feels unreal.
Hope your teeter totter is shifting you back to neutral, or wherever your preferred spot might be.
This might be a good weekend to indulge. Curious to know what you think of Stone Island?
I assume you mean the brand. The problem I have with Stone Island (the brand) is that although it’s third-tier luxury, it looks and sounds like something you’d see at DICK’S Sporting Goods in the outdoor section. I can’t get over that. As I mature, I’m moving more in the direction of subtlety, but at that price point, I’d rather Moncler (which owns Stone Island now) because — and this is terribly shallow of me — at least one out of 50 people will recognize Moncler as quasi-luxury whereas, to my point above, not one in 500 people is going read “Stone Island” and think “expensive.”
Strait is closed again. That didn’t take long. There’s still plenty over time before cash open Monday in the US. I assume several swings in mood between now and then.
I still see the play nice ceasefire posture from Iran as a gambit to burn time. We’ll see, maybe I’m wrong.
As I noted when the ceasefire was first announced, you can’t get too caught up in the day-to-day headlines and noise. For example, Bagher Ghalibaf said Friday that all of Trump’s claims were lies. Trump’s obviously a habitual liar, and I’m sure most of what he said was exaggerated to the point that it might as well be a lie, but Ghalibaf’s (implicit) suggestion that Tehran’s still sticking to a no-compromise approach is just as obviously a lie. Also, we’re pretending like the IRGC has an on/off switch for the Strait of Hormuz. It’s not “completely open” one minute and then “closed again” the next. Again — and I don’t want to belabor this point too much further because I realize that all online news portals except this one rely on maximizing traffic by making a story out of every, single soundbite during a conflict to keep the lights on and the bills paid — I wouldn’t try to “temperature check” this every 10 or 15 minutes. If you do, you’ll go crazy and you’ll start to doubt your own instincts and intuitions. That’s of course not to suggest we aren’t in for another rough patch (as mentioned Saturday in “Trading ‘Crazy'”, stocks are if nothing else due for a breather just on the sheer scope of the three-week rally). It’s just to gently remind everyone that when you read NYT, BBG, WSJ, FT, etc. you’re reading reporters trying to parse what, at this point, is basically an information / propaganda war between Trump and Tehran. If you’re determined to keep hour-by-hour tabs on this, your best bet is to follow the leadership in Tehran on social media, tap into their propaganda channels (on Telegram, etc.), read Fars, etc. then decide for yourself whether what they’re saying does or doesn’t constitute something that materially changes the narrative. All of that stuff’s publicly available and you’re not “risking” anything by reading it / following it. Iran’s a nation state. You’re not going to get in trouble for reading this stuff straight from the horse’s mouth.