Lots of monopoly news, as usual. A jury found Elon Musk committed fraud when he bought Twitter, Trump personally intervened to settle the Ticketmaster case, and Goldman Sachs's CEO says there's no antitrust enforcement anymore. That, and more, after the paywall.
This week, I want to focus on a weird part of Trump's Iran war strategy. Since the start of the conflict, financial markets have not been reacting as much as would be expected to what looks like an important and disruptive change to the global economy. Iran has made it very clear that its strategy is to inflict severe pain on the U.S. and Israel, and potentially the whole world, until those countries decide it's not worth it to attack Iran ever again.
To do that, it has kept the Strait of Hormuz shut, meaning that it can choke off 10-20% of global oil, gas, helium, fertilizer, and so forth. As oil analyst Rory Johnston noted, if it stays shut, "that means $250-$300 price of oil (Brent)." That's just jaw-dropping, and it should have a significant effect on the stock market. During the oil shock of the early 1970s, for instance, the stock market dropped by 50%. Yet so far, the S&P is down by just 7%. That's not nothing, but it's not much.
There are a number of possible reasons for this dynamic. Previous military attacks haven't really led to problems for the market, uncertainty is high, there's an upward bias in the markets, and when the war started, there was a glut of oil in the global economy. Plus the U.S. is better positioned than the rest of the world, since America produces its own oil and gas.
But I would add an additional factor - the Trump administration has focused on manipulating markets as part of their war strategy. The most important scorecard for the White House is the value of stocks, so they cannot let them fall. That's true for a number of reasons. The administration is composed of rich men, and they do not want to lose money. Also, the GOP establishment is run by Wall Street, so Trump's hold on the Republicans falls apart if equities truly fall. We'll see how loyal his MAGA base is with the Dow in a 1970s style downdraft; already there are signs they are getting frustrated, with his approval on gas prices at just 27%, vs 66% disapprove. That's eating into his core.
More importantly, the American-led hegemonic order really is centered on the U.S. stock market and dollar denominated assets. 18% of our equities are owned by foreigners, and Trump's domestic economic framework is organized around pulling foreign investment into America to build data centers. So if the market craters, that agenda falls apart, Arab allies lose their financial stake in the system, and Iran will sense weakness. But of course, manipulation can't be the endgame. In the short-term, you can spin, but to actually persuade the markets you are winning in the long run you have to actually win on the ground.
Here's how I think this market manipulation part of the war strategy is playing out.
(1) The War's Start Was Timed to Avoid Shocking the Stock Market
The war began in the early morning of February 28th, a Saturday. While there were certainly reasons to launch it at that moment, it's also true that the administration had 36 hours of uninterrupted strikes before the Asian markets and U.S. futures opened the next Sunday evening. And I noticed that the only tradable asset over that weekend, the notoriously manipulable Bitcoin, did very well. In other words, the start insulated the attack as much as possible from the reaction of financiers, allowing Trump to frame the opening salvo as a smashing victory.
(2) Week #1: Trump Calms the Markets
Trump's first public statements were in the afterglow of significant strikes, which killed Iran's leaders and gave confidence to U.S. speculators. "Whatever the time is, it's OK, whatever it takes," he said on March 3. "Right from the beginning we projected four to five weeks, but we have the capability to go far longer than that." His statements calmed the markets, even though Iran responded with counter-attacks.
But that week, on Friday, March 6, stocks began sliding, and oil jumped.
(3) Week #2: Trump Talks Up the Markets
Just in time, the following Monday, March 9, Trump said the war would end "very soon" and that they were "ahead of schedule." The S&P was down on the day when he made these comments, it immediately jumped to a gain. As Bloomberg noted, "The comments, including similar remarks earlier in the day, triggered sharp moves in market prices. Oil erased gains to below $90 per barrel."
On March 12th, the new Iranian regime pledged to keep the Strait of Hormuz closed. "The lever of blocking the Strait of Hormuz must undoubtedly continue to be used," said Iran's new Supreme Leader Mojtaba Khamenei. Trump responded by saying "The United States is the largest Oil Producer in the World, by far, so when oil prices go up, we make a lot of money." But the market went down that day and the following day, which was a Friday.
(4) Week #3: Scott Bessent Claims the Strait of Hormuz Is Open
Then, last Monday on March 16th, Scott Bessent went onto the morning show Squawk Box - before the markets opened - and claimed that more oil is flowing through the Strait of Hormuz. "We are seeing more and more of the fuel ships start to go through," he said. "And for now, we're fine with that. We want the world to be well supplied." Again, the markets jumped, and oil fell.
That commentary worked for a day, but was less effective. The market slid for the next four days. In aggregate, oil is up 47% and the Dow is down 7% since the war started.
(5) Week #4: Trump Threatens Escalation
This weekend, Trump tweeted that he would order the destruction of Iran's power plants if the country did not reopen the Strait of Hormuz in the next 48 hours, which would escalate the war and potentially put the entire energy infrastructure of the region at risk. Immediately, Iran threatened retaliation. Yet even now, there are endless rumors of a cease fire, and as I write, the futures market is flat, and oil prices are down.
And so?
It's a very odd situation, to have military threats and timing dictated in part by what will worry speculators. But the half-life of these kinds of comments is shortening; I suspect the market will continue its slow slide. Market participants, and political opponents, are giving less credence to Bessent and Trump, because it's clear they aren't in control of the situation. As Senator Chris Murphy put it, the panic is pretty obvious.
It surprised me that it's taken this long for investors to catch on to the market manipulation. For the most part, Wall Street has gone along with the Trump administration's spin. I don't generally think speculators are gullible. But in this case, they have been. Iran, to them, has no credibility in the markets. On CNBC, Jim Cramer veers between confidence the war is over, and disbelief that this war is not under Trump's control. Unlike his usual schtick of calling CEOs or billionaires and asking them what big money is going to do, he has no sources in Iran he can call. Similar Wall Street guys, like Nvidia CEO Jensen Huang, are pumping the market.
Conventional wisdom spewers like ex-PIMCO chief Mohamed A. El-Erian are moving from saying the war might cause a slight slowdown to something more serious. But no matter what the clique of boomer financiers initially thought, the refiners in Asia need Middle Eastern oil, and it's not getting there.
This War Is a Significant Change in the Global Order
Most recent U.S. wars are dumb and expensive, but they are under the control of the American government, which can choose to withdraw, or not. But this one is not. Iran can choose to open the Strait of Hormuz, or not. The American military tactic of parking its aircraft carriers 20 miles from a nation and blowing the hell out of them, which worked for decades, has been neutralized by cheap missiles and drones.
On a strategic level, there's a looming supply chain crisis imposed by Iran on the rest of the world. As an example, hospitals are starting to ration scans because there's little helium to spare, China is restricting exports of plastics, and airlines are cutting flights as jet fuel screams higher. We can expect a lot more downstream consequences.
These supply chain shocks mean our global order is being disrupted. There's a lot of nonsense about what that order is, a lot of anti-American rhetoric or pro-American jingoism, but the truth is, it is based on oligarchy rather than any particular nation-state. Global elites buy and sell dollar denominated assets mediated by U.S. banks, they expect U.S. soldiers to keep the flow of oil running, and the U.S. middle class gets their jobs outsourced in return for cheap goods. This system is centered in the U.S., but it's not American, it's run for a global oligarchy. During Covid, for instance, the U.S. government actually tried to allow poor countries to get access to vaccine technology, but German, Swiss, and British pharmaceutical giants, and furtive South African elites, blocked it.
This situation allows for oligarchs all over the world to make a lot of mistakes, like a rich kid constantly indulged by his parents after he wrecks yet another car. The U.S. can spend 20% of our economy on useless health care bureaucracies, bomb whoever, allow predatory gambling everywhere, but as long as the impact doesn't touch the global elites, they are fine with it. Other nations have their own white elephants - the Saudis recently canceled their $1 trillion desert city project named The Line, and Europeans live in an ossified bureaucratic state that can't do anything.
There are some bad countries who refuse to play in this game of Western oligarchy - China, North Korea, Russia, and so forth. That doesn't make them virtuous, but they are less invested in our system. That's why Iran was so frustrating to Western oligarchs, they have oil, geopolitical leverage, and yet they are spoiling it for everyone with their weird unwillingness to live in a Davos-mediated world.
But now Trump has gone and tried to blow up Iran, and in doing so, sacrificed this entire framework. The U.S. has been revealed as a paper tiger, unable to defend luxury resorts like Dubai where the investors and influencers live. Global oligarchs invested in this order have also been discredited, as fuel shortages hit everywhere from Sri Lanka to the Slovenia to Thailand.
And the basic deal, which is U.S. soldiers keep the oil flowing, has been broken. There's a lot of chatter about how Trump should end the war, his strategy, and so forth, but the truth is that he cannot end the war by himself. It is not up to him. And it is not up to the rest of the world either, which is also angry with Iran for closing the Strait. There are outside possibilities; Iran may capitulate, the Iranian public may overthrow its regime, the Iranian government may decide it wants a cease fire for its own internal purposes. But the point is that it is not up to America, or any other set of nation-states.
A war that America started but cannot end even as pain gets inflicted on the investor class, and supply chains everywhere, is something no one has seen in our lifetimes. And maybe that's a simpler explanation for why Wall Street hasn't reacted as much as I might expect. There are no analogies to draw upon.
And now, the rest of the round-up. Lots of really interesting stories. The political environment is causing a slew of populist independent candidates in Western GOP dominated states to have a real shot. Also, it turns out that Trump settled the Ticketmaster case after being pestered by media magnate Ari Emanuel, the brother of Obama chief of staff Rahm Emanuel. A jury found Elon Musk committed fraud when he bought Twitter, Paramount's deal may be collapsing of its own financial weight, and Mark Zuckerberg shut down the "metaverse" after pouring $80 billion into it. Oh and a supply chain crisis is happening in slow motion.
That and a lot more after the paywall.
ed - I am not buying the paywall, pal. I do have a budget, and I cannot afford it.
