Fog of Markets

“It may be dangerous to be America's enemy, but to be America's friend is fatal.”
― Henry Kissinger

The events of the past days and weeks puts the West in a major bind. Not only is Iran managing to defend itself adequately – it's also returning the favour in spades.

Many seem to deduce that the countries of the Gulf are safe because they have business-strategic deals with Donald. But this is not business as usual.

We explained in Trump is Pot Committed what the setup is: Make no mistake, everyone is fighting for their existence.

But their survival will not depend on their affiliations to Trump and the US – it rests on how they play their cards despite of it.

In that piece we explained that while the rest are all in – Trump was not, but that he would soon raise the stakes with a ground invasion. The US is now preparing for that ground invasion. We don't know what the objective is, and they don't know either – but I guess we will eventually find out.

Despite the posturing, the US is all-in on this war, while its allies are squarely out. Still, that hasn't stopped this Administration trying to drag everyone in the war with them.

Keir Starmer is trying to make himself clear, while Takaichi wasn't at all prepared for this and looks confused when confronted with the realities of the American-Japanese alliance. I expect this will affect her coalition and her approval ratings going forward.

One dimension that still isn't being talked about enough is the effectiveness of the US military. The US spends ~$1 trillion a year on military expenditure, and is for the first time faced with an adversary not only willing to defend against it, but also capable to do so.

Some questions that will start to be raised

• Why is the US military failing to (militarily and otherwise) destroy a nation that has been sanctioned for 50 years?
• What have the trillions in military spend achieved for the US? What was the ROI?
• How did Donald go from anti-war to war-with-everyone?

Ultimately, and amongst many other watershed moments, this will lead to a shift in military doctrine. Technology is changing war, and the US will have to adapt or die.

Where does that leave the military-industrial complex?

Further Context

The market dumped after Trump’s speech that signalled more escalation in Iran – retreating from his previous de-escalatory comments. But then something peculiar happened, AI stocks started rallying on the Thursday open. This while Crude was spiking higher, with WTI now at $113 a barrel.

The fog of war is a real thing, and so is the fog of markets.

Oil is pricing in tight supplies and more turmoil around the Persian Gulf and Hormuz, while stocks are signalling that Donald will manage to execute a successful TACO. Quite simply, that’s what’s happening.

It's worthwhile to note that markets were rallying on the Thursday that would see markets closed for three days due to the Good Friday holiday. Were they expecting some major de-escalation after the escalation during the long weekend?

Markets have been conditioned by the Tariff Tantrum bounce to new highs. And their knee-jerk reaction is to buy this dip. In fact, BTFD mentality is so strong that everyone is afraid of fading it.

But they didn't just BTFD for no reason, news flow was carefully curated to push for it. We will talk more about the influence of the Iranian "Reformists" on markets later in the piece.

But leaving pundits aside, Tech/AI is getting tired and the war isn’t ending soon.

Trump used Gulf money to fund many deals, and many seem to believe that 1) Trump either owes them or 2) that the Gulf owns Donald.

Any of the two lines of thinking make them conclude that the Gulf is secure long-term. But this ignores #5 in my Crystal Ball prediction list: that Donald will probably not complete his term. Even if he completes his term, Donald is expendable.

No one is playing for keeps here. The Gulf is making permanent all-in decisions on a player that is leaving the game very soon. To their defence, they are probably forced to go all-in, having backed themselves in a corner for decades now..

Besides the AI Short Basket that remains, and the overall FaaC trade – we tentatively mentioned a Regime Change trade last week.

Let's elaborate on that setup and discuss this battle of strategies currently under play.

Fog of Markets