Why I'm Fading a 'Ceasefire Rally' as Trump's Iran Deadline Approaches

Donald Trump

I continue to fade any “ceasefire” type of rally.

A ceasefire will allow shipments to transit the Strait of Hormuz. The bottlenecks in oil, gas, LNG, etc. will be reduced. Supplies will be stockpiled. A short ceasefire won’t get the economy back to where it was before the attack, but it will go a long way to minimizing the damage. If Iran closes the strait again, after any ceasefire, it will take time for that to do damage (i.e., the global economy will be in better shape a month or more down the road, even if they re-close the strait).

The U.S. has ships on the way. The U.S. can add troops and do even more maintenance on our sophisticated equipment (like jets). We can replenish weapon systems from our stockpiles and bases around the world. What can Iran really do on that front? Maybe they have weapons that are difficult to get to, that a ceasefire would buy them time to retrieve. Maybe China and Russia will help. But if I had to bet on who would be in a better position relative to today to re-engage, I’d bet on the U.S.

A real coalition, whether NATO, Gulf States or some combination, could be formed. There will be time to communicate and strategize. The world will seem slightly less scary. Any coalition is bad for Iran.

Finally, and this is tricky, but the threat of “Power Plant Day and Bridge Day” is a big step. Yes, it clearly puts pressure on Iran. But is the escalation so big, that Iran doubts it will occur? The threat has been extended multiple times. Maximum leverage only works if the enemy really believes you will use it. And many people question this step as being “too big.”

Some sort of “deal” makes sense, but a “ceasefire” seems like a foolish thing for Iran to agree to.

The U.S. attacked already during negotiations (though it seems pretty clear that Iran wasn’t negotiating in good faith).

If I see a ceasefire with “security agreements” that would be another matter, but that would resemble a “deal” more than a ceasefire.

Market Has Been Almost Desperate to Rally

Fears dissipate quickly and the market latches on to any sign of potential “return to normal” in the region.

The “in depth” energy people tell us that “normal” already won’t look like normal – damage has been done throughout the region and supply chain. But equities seem to ignore that as “fear mongering” from the energy folks.

I am going to remain cautious on risk here. Not extremely bearish, but running anything from small net short positions, to flat on equity risk. I want hedges and I want to add to hedges on “irrationally exuberant” relief rallies, while booking gains when markets cool off. It has been successful during this conflict.

Vertically Integrated Nations

As you know, I really believe in the concept of ProSec or "production for security" (and resilience). That countries need to be more self sufficient on things ranging from chips to smelted copper. Energy and rare earths (the processing and refining) are at the forefront. So will be AI and data center development.

Here is a chart I find interesting: recent outperformance by some European tech names. Could it be a sign that Europe is going to not only build out more AI, but champion its own companies?

It would certainly fit with my view that ProSec will lead to vertically integrated nations (or economic zones).

As I have mentioned in the media, BP and Shell are intriguing, but there may be many more opportunities. Nokia and Ericsson have been quietly leading the way (and that has been with a weakening dollar). I do still like (INTC) (was my top equity pick starting the year).