Schroedinger's War
Morning Musings 3.18.26- views from the island
I will admit it: I am experiencing massive schadenfreude reading about Miami having dead-cap money for Zach Wilson.
The state of play in the Iran
war conflictexcursion depends on your focus. In that way, it resembles nothing more than Schrodinger’s famous cat.From a tactical military standpoint, it is undeniable that the US/Israeli coalition is winning by any conceivable metric. Complete air superiority and massive and continuous destruction of military, C&C, and infrastructure assets continue unabated. Leadership is getting eliminated as quickly as it is named.
What is unclear is, to use the popular word, the ‘strategery’. Goals are conflicting and often change; importantly, it is becoming clear that the US and Israel have different definitions of ‘victory.’ What is clear is that the two countries expected a quick capitulation.
A ‘popular uprising also hasn't occurred, and after 18 days, the likelihood of that is falling dramatically. First, similar to Obama’s famous red line in Syria, Trump famously said that if the Iranian people were shot in January we would be there with them; 30k people died and we did nothing. Many of those killed were the leaders of any nascent opposition. Trump has also stated since the
conflictexcursion began that any regime change would have to come internally from the people without US boots on the ground. Not a formula for success.The Iranians continue their low-tech, ‘mosaic’, decentralized campaign, which is impacting global supply chains; the reality is that the impact will grow geometrically very quickly. Well-known energy impact aside, the global reliance on chemical precursors, minerals, and products such as Helium ( which I learned this week is used for more than just party balloons!!) are already having downstream effects which will expand rapidly as storage is quickly used up. Planting season is nigh; it is alreasy estimated that crop type and production will be impacted, which cost impacts beginning in June.
More locally, Iran’s low-tech defense continues to cause issues with both US military installations and locations in both GCC countries and Israel; the threat of continuation of this campaign is inflicting economic damage, especially to the GCC financial centers.
Energy installations (oil fields and refineries) and desalination plants remain the tripwire; an attack by one side on the others’ facilities would trigger immediate retaliation with commensurate impacts on the global economy and local water supplies. Iran has 65 desalination plants along its coasts, and the GCC has over 100; damage to these means no drinking water to the affected areas and massive human suffering.
There’s an old saying that wars end when the losers say they do. Unless the US is going to put boots on the ground on Kharg, which I think is a real possibility, this can drag on. Iran has been preparing for asymmetric warfare, which is impossible to snuff out, and even the occasional attack on GCC countries will wreak havoc.
From what I read, the plan would be to put the 82nd on the island in the next few days to seize it, and then the MEU gets there in 10 days to control the area. Sounds good on paper, but I think Iran goes full vietcong if that happens
That’s why I have argued that Iran’s attacks on GCC were never a mistake.
Btw--the Israelis also have a vote, and they would be very happy to blow up the Iranian oil capabilities, which would have a massive multiplier effect.
And we NEVER expected a giant f- u from the European allies. I guess if you spend a year pissing on someone, they might not come running to your aid.
Cui Bono?
The US is best positioned to absorb disruptions in energy and raw materials. Does the improvement in our geopolitical position have any weight in decision-making? Unknown.
China has massive energy storage capacity, so it can outlast most other countries. They control many of the minerals and chemicals that are also exported from the Middle East. Additionally, when the conflict ends, they will be in an enviable position to ‘graciously’ offer assistance with the rebuild.
India is seeking Chinese urea supplies as the Middle East conflict threatens fertilizer output . Officials asked Chinese counterparts to consider easing export restrictions on urea as the escalating conflict disrupts LNG shipments .
Russian oil is now free to trade, at this new higher price. Unalloyed win for Putin.
When and how does it end? 🤷♂️
With that said, why are the markets up? I’ve been in the business since 83. I’ve never understood less why the mkt acts like it is now
The conflict is creating the largest supply disruption in the history of the global oil market, affecting 7.5% of global supply, according to the International Energy Agency. Citadel Securities warns the big risk to markets is shifting from inflation to a global growth slowdown, noting that the longer the Strait of Hormuz stays closed, the larger the risk of a slowdown
It feels like US markets are working under the assumption that, at the end of the day, Trump will do whatever he can to keep the economy/election chances ‘strong’..so there is somewhat of a Trump Put in operation
To wit, right now, Trump’s biggest issue in polling is inflation. The longer this continues, the more of an issue it will become. Gas prices have rocketed, and food prices will follow suit.
Trump requested a delay of about a month to his planned China visit due to the ongoing war. The request to reschedule his March 31-April 2 visit underscores how the Iran war is affecting diplomatic priorities .
Japan’s Prime Minister Sanae Takaichi warned she’s facing an “extremely difficult” meeting with Trump after the US president criticized Japan for rebuffing his demand for warships to help secure the Strait of Hormuz .
3. US Domestic Politics
FOMC D-Day: Fed holds at 3.50-3.75% (98.9% priced). The trade is the dot plot (2pm ET) and Powell presser (2:30pm). Tail risk: shift to 0 cuts reprices risk assets sharply.
Hormuz Trickle: Iran selectively allowing friendly-state transits (China, India, Pakistan). 95%+ traffic collapse persists. US bunker-busters hit Iranian missile sites along strait Tuesday.
MU Earnings Tonight: Micron Q2 after close. Consensus: $8.61 EPS / $19.17B rev. Stock at 52-wk high +4.5% premarket. Full 2026 HBM supply sold out. Guidance is the trade.
PPI at 8:30am: February PPI/Core PPI releases. Supply-side oil shock makes read politically charged for Fed inputs.
Financials Under Pressure: JPM broke 100-day EMA. GS -4.4% on Mar 12. Stagflation (NFP -92K + Core PCE 3.1%) is the fundamental headwind. XOM/CVX outperforming as inflation hedge.
Skew continues to fall as downside protection purchases abate
The top-heavy nature of US consumer spending is problematic from a societal standpoint, but likely means less demand elasticity.
Seeing a tightening in Financial conditions, exemplifying the box the Fed is in, commodity price spikes will limit any ability to ease despite any indicators in ‘cut rate’ mode.
‘Bloomberg is dead, long live Bloomberg!’ (Ghose)
Excellent work ! Thanks !