What has darkened the picture in the last couple of days here? Christopher that's bright you and the likes of so many others to this conclusion.
Joe
Christopher Smart
When I was on a few weeks ago, it seemed like a focused US operation. Now it's clear Iran will continue to fight despite losses. A less able military can harass a more able one in a narrow strait with oil traffic. This could go on for a long time.
The White House prepares to ask for $200 billion. Reinforcements like the USS Boxer won't be near Persian Gulf until mid-April. The oil market faces a very long wait. This is why you're worried, right?
Joe
Christopher Smart
Recent Houthi history shows only a diplomatic agreement stopped harassment. If Iran doesn't stand down, the Strait will have risk for the foreseeable future. Traffic may resume but not with the same low risk. This has to get priced in.
Christopher Smart
Base case: oil flows reopen in 2-3 weeks. Downside case: pattern of much less oil getting through at higher risk keeps oil price much higher for longer until a global recession brings demand down.
Russia is cashing checks, making money thanks to looser sanctions and feeling emboldened. Many believe China is the biggest winner. How about you?
Joe
Christopher Smart
Russia benefits from higher oil price and from Patriot/defense equipment being diverted from Ukraine to Middle East. Russia has less reason to push for a quick ceasefire with US distracted.
Christopher Smart
China has large oil reserves and energy sources to cushion the blow. It's not bad news for China that US naval assets are diverted from South China Sea. Xi Jinping will have extra cards when negotiating with Trump.
What are you making of this market? VIX near 26, stocks lower, metals falling, gold lower, miners down, 10-year yield at 4.37%. What do you make of this sell everything moment?
Joe
Christopher Smart
Headlines about US troops deploying for land action in Iran and reinforcements coming in weeks/months make you wonder about scenarios where conflict lasts months or more. That uncertainty hits consumer confidence and sentiment.
Christopher Smart
On Treasury side, worries about inflation and other pressures where Fed has struggled to get back to 2% target. Now these headwinds are going to push it the other direction.