and this is Markets Weekly. All right,

so last week was a complete whirlwind in

markets. On one day you had the

president of the United States

threatening civilizational destruction

of the Iranian people and today you have

Vice President JD Vance leading peace

talk negotiations in Pakistan on behalf

of the US. So a lot has happened today.

Let's talk about two things. First off,

let's talk about how the war in the

Middle East is filtering into US

economic data. And secondly, let's talk

about how the peace locks could

potentially unfold. All right, starting

with the data. So, as we all know, when

there's war in the Middle East, it most

concretely impacts the US through higher

oil prices. Now, over the past few

weeks, oil has often been trading above

$100, and that's led to higher gasoline,

higher um jet fuel, higher diesel

prices, and so forth. So inflation data,

CPI data last month was hot. On a

month-over-month basis, CPI data surged

largely due to high energy prices.

However, if you look at core CPI, which

excludes energy prices, you can see that

it printed at a pretty tame 2.6%

year-over-year.

Now looking ahead, we have wages that

continue to decelerate and a weak rental

market leading to shelter inflation,

disinflation, and so there's a lot of uh

tailwinds that suggest a more moderate

uh core CPI going forward.

But as always, why do we care about

this? Well, we don't really care about

this. We care about uh PCE because

that's what the Fed cares about. And the

Fed, of course, has tremendous impact on

financial markets. Now the Fed does not

look at CPI. It looks at PCE and PCE is

honestly telling a different story. Now

historically speaking CPI is higher than

PCE. But more recently you have a very

interesting relationship where actually

PCE has been printing higher than CPI.

Now PCE according to the Cleveland Fed

is expected to be about 3% at PC core.

Now 3% now that that's really high. If

it was a two-handle, maybe the Fed could

kind of shrug their shoulders. But a 3%

P core PC is difficult to ignore. So the

market at the moment is not pricing in

any rate cuts this year. Even though at

the most recent Fed meeting, the Fed's

dot plot did guide towards one cut. Now,

we got the Fed minutes last week and

it's showing something that we kind of

see playing out in real time. So most

people at the Fed would actually be

cutting rates uh in in the face of an

energy price spike. The reason being

that as gasoline prices spike, consumers

will spend more of their money at the

pump, less buying other things. So

that's economic weakness that puts

upward pressure on the unemployment

rates. The modern Fed has always

prioritized employment over inflation.

That being said, there is a sizable

minority of people at the Fed who are

concerned about inflation and would even

be hiking rates. Guys, that's not going

to happen. And we all know who these

people are. They are the newer Fed

presidents who are not influential on

the FOMC.

feeding into consumer sentiment.

Consumer sentiment has dropped to

multi-deade lows. The consumer is not

feeling good. Maybe they're looking at

AI replacing their jobs, making they're

looking at the war of the Middle East,

maybe looking at high gasoline prices.

In any case, the consumer is not feeling

good. that suggests weaker uh confidence

in the economy, maybe less consumption

and suggest uh potentially economic

weakness in the months ahead. This is

always this is also of course impacting

the political prospects of the Trump

administration. Poly market is now

suggesting there's a better than even

chance that we could have a democratic

sweep at the midterm elections. That

would be very bad for the president

because if the Democrats control both

houses of Congress, you're going to have

non-stop neg non-stop investigations and

maybe some people will go to prison. Uh

the president has already promised his

staff that he's going to pardon all of

them. So we'll see see what happens

then. Now the economic damage is visible

in the in the US economic data, but of

course it's going to be much more

pronounced abroad. The US of course is

ultimately also a large producer of oil.

So, what we see abroad is that in

Europe, uh, the airlines are just weeks

away from running out of jet fuel, and

if that were to happen, they're going to

have to cancel flights, monstrously

raise prices. It's going to have a very

bad impact on some of the more tourist

driven economies. In Ireland, you

already have protests where many people

are very unhappy about the surges in

prices and it seems like some stations

are even dry. So this um the economic

impacts of the straight off closing it

is coming. It's slow but it is it is

definitely coming and I think when it

comes it's going to surprise a lot of

people in the market which is part of

the reason why there's such urgency for

this conflict to end which leads us to

our second topic.

on this, uh, this conflict in the Middle

East surprised the Trump administration.

They thought they would just bomb Iran

and then it would be over. Similar to

like Venezuela, they were caught off

guard, gravely, gravely miscalculated

that Iran would close straight off

Hamoose and accidentally got stuck in

this quagmire. Guys, there is no 3D

chess here. It's just the same old

thing. Important people doing stupid

things. Happens all the time.

So these negotiations seem by much

reporting suggests are largely on the

behest of the US which is eager to get

out of this quagmire. Now there's a very

this very interesting post uh from the

prime minister of Pakistan on X that

reporter Ryan Grimcott. You can see that

this is a post where the prime minister

of Pakistan is talking about peace

negotiations. But the first post that he

gave actually had draft at the top and

then uh post from prime minister of

Pakistan. Very clearly this was given to

him probably by the US. So the US is

behind the scenes choreographing with

Pakistan prime minister telling him what

to say so that we can get these uh peace

talk negotiations going. Now be clear to

let's be clear these are going to be

very difficult negotiations because

there's not a lot of good faith among

the parties. Now, Iran had an had an

agreement with the Obama administration

called the JCPOA where Iran would agree

to rigorous monitoring of its uranium

program in exchange receive some degree

of relief in sanctions. Now, by all

accounts, Iran faithfully carried out

its duties under the JCPOA, but the

Trump administration unilaterally tore

that agreement apart.

Then last June when Iran was in

negotiations with the US, they were

attacked by Israel with the support of

the US. Now in February, Iran continued

to have negotiations and as soon as that

second aircraft carrier got into

position, the US attacked Iran. So the

history is that these negotiations that

Iran has held with the US and Israel

have always been fake. They've always

been it's just basically been a ruse to

give Iran to give the US and Israel time

to rearm. And even as these negotiations

take place today in Pakistan, we have

reports that there are more military

assets being moved into the Middle East.

There's a third aircraft carrier on the

way. So, it's possible that these

negotiations could really just be to buy

time so that the US can get another

aircraft carrier in position and

continue uh continue its attacks. So,

So that's the context for these

discussions. So in order to think about

how these discussions could play out, I

think it's useful to think about it from

each from the perspective of each of the

people at the table. Remember, there are

three people at the table. From the US's

perspective,

you know, again, no one knows what the

US is doing there. It's a very unpopular

war and it's costing the president

significant political capital not just

in the economic we've just shown you but

a lot of people in MAGA from Tucker from

um you know Alex Jones from uh uh Megan

Kelly these are people that were staunch

supporters of the president and are now

splitting with uh just not against

moving away from him. So, it's costing

the president political support and it's

really not clear how it's been helping

the president. So, I'm guessing that the

US would like to get out hopefully let

oil prices come back down. But also,

they are reluctant to leave Iran with a

win. That is to say, retaining control

of the Sri Moose because that would be a

very clear defeat uh from from a US

strategic viewpoint.

From Israel's viewpoint, again, this war

is very popular in Israel and it's been

Prime Minister Benjamin Yahoo's dream,

his entire dream for for his entire

political career to destroy Iran. And

one thing to note, there are elections

in Israel this year. And so, it seems

like it's in President B, Prime Minister

Benjamin's interest to continue this war

and maybe even destroy Iran. That would

be, I think, a huge, huge political

victory for him. From Iran's

perspective, well, they've already told

us through their 10-point negotiation uh

plan what they want. First and foremost,

they don't want to be attacked by the US

and Israel anymore. So, they're looking

for security guarantees. That's very

very difficult to for them to get

because, you know, maybe maybe the

President Trump could commit to this,

but then they don't really uh are not

able to restrain Israel. So, it's not

really clear how that could happen.

They Iran would also of course like to

retain control over straight of Hamuz

which um you know they have which is now

given them control over 20% of the

world's oil. That's some newfound power

that they would like to keep. Now if

things were to remain as they are today

then Iran would basically be charging

let's say a $2 million toll

making money and maybe in a few months

they could have a successful nuclear

test. they could become a nuclear power

with control of straight of Hamuz that

would cement their status as a regional

hedgeimon. So they do come into this uh

into this negotiation with a lot of

leverage. Now they've lost a lot of

leadership. Their industrial capacity

has been severely dis degraded but at

the end of the day, there's really no

military solution for the US and Israel

to retake the street of Hammoose. It's

possible they could just nuke the entire

country. It's possible that they could

send half a million troops uh to retake

to conquer Iran, but those are I think

unlikely scenarios. As a side note, I've

been talking about and worrying about a

potential nuclear attack on Iran. Now,

Professor Pap of the escalation blog

addressed this point in one of his

recent talks and he thinks that it's

he's not really worried about a nuclear

escalation. His thinking is that uh if

there is a nuclear attack on Iran, the

fallout would be very difficult to

control in the sense that the nuclear

fallout could drift where the weather

blows it and you could easily have a

scenario where the follow is blown to

say Gulf allies or maybe even blown uh

towards Israel. So you could have a so

it it's kind of not in anyone's interest

to have this nuclear war because it's

going to hurt everyone. However, I will

also note that there are other nuclear

experts like Gerald Chevrier who who

thinks that if you detonate a nuke not

on the ground but in air the nuclear

fallout is limited and so that could be

a way to uh for these countries to

deploy nukes without having to worry

about fallout being blown back towards

towards their own countries. So anyway,

not sure how that will play out. So in

any case, there's Bloomberg laying down

uh in this graph the 10 points that Iran

would like and you can see that even

though the US is willing to, you know,

maybe negotiate around some of them, uh

it they're in stark contrast with

Israel, which is which is not willing to

negotiate on very many of them. So it's

it's not clear how these negotiations

would ultimately take place. It's it's

going to be a very difficult negotiation

and the markets are already cheering

this as if it were a done deal. We can

see that the moment that the se the

negotiations or the ceasefire were

announced the markets basically went

vertical. It's almost as if they were

replaying liberation day. I'm not sure

if that's the right move because at the

end of the day the street of hormos is

still closed and as we discussed earlier

the damage is still filtering through

the economic system slowly but surely.

Now, whatever happens though, this is

definitely going to remake the global

map. One thing that we've learned is

that the Gulf allies, the Gulf states

like Saudi Arabia and so forth, they

learned that the US cannot guarantee

their security. And so, at the end of

the day, they're going to have to be

nicer to Iran because Iran can still

strike their production capacity

whenever they want.

Um,

I know that there's some people who

continue to think that this is some kind

of 3D chess game with China, but

honestly, China looks like it's going to

be one of the winners in this scenario.

China played a role in getting Iran to

the table. And if you look at the US's

national security strategy, it's very

clear that the US no longer is treating

China as like their great global rival.

Right? So there's reporting in the Wall

Street Journal that suggests that, you

know, that the Trump administration is

kind of getting rid of lot a lot of the

hawks, a lot of China hawks in the

administration and moving towards more

of a consiliary tone with China. Now, if

you know anything about the military

supply chains in the US, you'll notice

that they're heavily dependent upon

Chinese components. So there there

really is no point in having this great

global rivalry with China when, you

know, you can't even make missiles

without Chinese help. So, it's looking

like really the same strategy that's

laid out in the national security

document we talked about last year where

we're going to have a multi-polar world

where, you know, the US has their sphere

of influence in the China has theirs and

we can trade with each other. We can

compete, but uh it's not some kind of

great rivalry here. So, in any case,

it's going to be an exciting week. I

have no idea how this turns out. If we

don't have some kind of resumption in

oil flow though, I do believe we will

have a global

deep global recession, maybe a

depression in some parts of the world

and uh eventually that will be reflected

in financial markets. All right, so

that's all I prepared for today. Talk to

you guys next week.

definitely going to remake the global

map. One thing that we've learned is

that the Gulf allies, the Gulf states

like Saudi Arabia and so forth, they

learned that the US cannot guarantee

their security. And so, at the end of

the day, they're going to have to be

nicer to Iran because Iran can still

strike their production capacity

whenever they want.

Um,

I know that there's some people who

continue to think that this is some kind

of 3D chess game with China, but

honestly, China looks like it's going to

be one of the winners in this scenario.

China played a role in getting Iran to

the table. And if you look at the US's

national security strategy, it's very

clear that the US no longer is treating

China as like their great global rival.

Right? So there's reporting in the Wall

Street Journal that suggests that, you

know, that the Trump administration is

kind of getting rid of lot a lot of the

hawks, a lot of China hawks in the

administration and moving towards more

of a consiliary tone with China. Now, if

you know anything about the military

supply chains in the US, you'll notice

that they're heavily dependent upon

Chinese components. So there there

really is no point in having this great

global rivalry with China when, you

know, you can't even make missiles

without Chinese help. So, it's looking

like really the same strategy that's

laid out in the national security

document we talked about last year where

we're going to have a multi-polar world

where, you know, the US has their sphere

of influence in the China has theirs and

we can trade with each other. We can

compete, but uh it's not some kind of

great rivalry here. So, in any case,

it's going to be an exciting week. I

have no idea how this turns out. If we

don't have some kind of resumption in

oil flow though, I do believe we will

have a global

deep global recession, maybe a

depression in some parts of the world

and uh eventually that will be reflected

in financial markets. All right, so

that's all I prepared for today. Talk to

you guys next week.