Yesterday I said Treasury would need a bigger boat and compared buybacks to the Cheeto as a door lock - today (faster than expected!) that became clear. So I cover the buyback fail and the need for QE, the economic war against Iran, the China/Switzerland trade deal, Walmart earnings, and more supply coming thanks to the giant Anthropic IPO.

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All right, welcome back to

the second Daily Discernments.

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Turns out two things, two days in a

row to have something to talk about.

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and amazingly enough, have a few things

to talk about, not just one or two.

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we'll start with, with the

buybacks because that was

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what we covered yesterday.

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and I, I sent out the meme with the

little Cheeto, door lock trying to

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hold, hold the door open or door, door

closed yesterday saying, and I talked

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about it on the show yesterday, the

buyback's not gonna be big enough.

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They're gonna have to move to QE.

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and that the chances were the market was

gonna pressure this stuff because that's

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what markets do, 'cause it's too small.

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It's not enough to, hold back war

inflation and El Niño inf-inflation.

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Sure enough, today, bond

market completely, retraced

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the whole move of yesterday.

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So we had this, significant, move in

the markets, manipulation, whatever

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you wanna call it, intervention, if

you wanna take it a little easier

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word, to get yields down, and that's

completely undone literally the next day,

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showing exactly what I'm talking about.

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It, it's just not, it's not a, a real

enough solution, so eventually we're

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gonna have to get to QE or something

like QE, like I said yesterday.

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and the, and the pressure to,

to do that might come quick

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and might come with force.

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and to talk about the war and,

and that El Niño inflation, oil up

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again today and oil kind of has been

going up almost every day lately.

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And then you look over at ag prices,

almost all ag prices up today, and I

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think you can continue to see that, and

you're starting to see input prices go up

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with, with fertilizers, stuff like that.

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So- This just gets really hard for the

Treasury and the Fed to do anything

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about any, anytime soon that isn't,

in, in many ways counterproductive.

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But they're gonna have to, because

again, they can't let yields go six,

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seven percent out on the back end.

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They just can't.

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So they won't.

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but how long it takes for them to

truly respond will be interesting.

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Speaking of that, today they did respond.

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Scott Bessent came out, went out of

his way to say, "Hey, yesterday we

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said we'd go two to four billion.

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Hey, that may be, it may be

bigger than four billion."

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And the market was like,

"Yeah, I don't care."

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Just didn't, didn't really

move the market at all.

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So as I keep saying,

gonna need a bigger boat.

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be fun to see what they do on that next.

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Brent oil passed ninety-three today,

so again, that pressure is mounting.

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gasoline at, is up past

four ten, I think, a gallon.

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Diesel, like, five fifty.

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So the pressure, the

pressure continues to mount.

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The administration did come out today

and announce that they're gonna let

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winter gasoline be pulled forward and be

used earlier, than usual to help, bring

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down the price with some extra supply.

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Obviously, that will help until winter.

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Like, I think that goes without saying

that that's sort of a, a seed corn,

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eating strategy that has its own

potential downside risks, come winter.

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So that'll be interesting to, to

watch Staying with sort of this theme,

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the big thing is for the last week

or whatever, maybe week and a half

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has been, "Oh, don't worry about it.

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We're not, we're not, we're

not gonna bomb Iran anymore.

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We're gonna, we're gonna pivot to

this massive, huge, unprecedented

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economic warfare against Iran."

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And we saw perhaps the first leg of

that with the Emiratis announcing that

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they are basically delinking themselves

financially, economically from, from Iran.

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Now, I've also seen some reporting that

says, "Yeah, but that's actually…

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What-- The way they're actually gonna

roll that out is gonna be tiered.

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It's not gonna be all at once.

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They're gonna start with some small

stuff and maybe keep moving up."

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So that may not have the teeth in it

that it sounds like early on, which

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could be more, kind of like we've

had a lot of information warfare

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without anything to back it up,

obviously, in the last six months.

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So even, even this UAE is gonna do

this thing could be a little bit of

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a more of a information warfare than

an actual economic warfare thing.

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We'll see.

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Maybe it ends up being very real.

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And if it is, like, like I've said,

that is substantial if the UAE,

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really, really were to like cut

every cord between them and Iran.

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But it's hard for me to imagine, because

if they do, they're just gonna get bombed

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by Iran, and that'll be problematic.

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Obviously, they lose out on a

lot of income, as well from…

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Because they…

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The reason they have a lot of

financial and economic ties is 'cause

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they make a lot of money doing it.

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It's fruitful.

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so that'll be interesting to watch.

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Next week, I guess we're gonna

have a presser Monday about all the

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economic warfare stuff we're gonna do.

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And they're, they're teasing

kinda like secondary sanctions

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on countries that do business.

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We're gonna crush the countries

that do business with Iran.

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The problem is, the countries that

do business with Iran are people

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like Russia and China, in the Gulf.

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So like, are we gonna crush the Gulf?

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Are, are we gonna, are we

gonna do something to China?

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Like, that's the area where,

like, I don't think so.

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Are we gonna secondary sanction

China in a, in such a meaningful

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way that they reduce ties with Iran?

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I'm gonna get out on a limb and say no.

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And in fact, if we try that, then

they'll just cut off rare earths, and we

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won't be able to make stuff in America.

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Just like, we've already, we've

already played this movie out.

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I, I've seen some people

speculate like, "Yeah, but Xi

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is coming for this big meeting.

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Maybe he'll agree to help us out."

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That would be bidding against himself.

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Like China wins on such a big level

strategically from the US bogging

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itself down in the Middle East.

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this just further makes Iran a

massive client state for them

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as, as it weakens Iran and makes

them more dependent on China.

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So I, the last thing I'd really expect

them to do is like stab Iran in the back.

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could they help out in some way that,

that is, window dressing and meaningless?

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Sure.

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I wouldn't be surprised, and I have no

doubt like China would really love to

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get, more oil and chemicals, feedstock and

everything out of the Gulf or fertilizers,

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whatever, like whatever it is they need

that they don't make for themselves.

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Yeah, I have no doubt they would

rather get all that stuff out.

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But I think what they win long term from

this conflict is a lot bigger than, a few

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missing barrels, in twenty twenty-six.

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so I'm highly skeptical we're gonna

actually do anything on secondary

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sanctions in a way that matters.

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But what I will say is if we do

something that bites, the, the failure

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of this thinking is that, Iran is

helpless to do anything in, in response.

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The reality is obviously they

can play the energy card.

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They can, they can bomb,

en-energy infrastructure.

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They can mine the whole strait.

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They can, hit economic targets

instead of just, energy targets.

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So data centers, they can cut

undersea cables, they can go after

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the banking system and all of

our ties with the Gulf through,

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financial and banking system stuff.

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They can go after ports.

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They, like, there's a, there's

a lot of targets they can hit.

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Like, we can't forget that they have

really capable drones and missiles that

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they can do a lot of damage with, and

to include significant economic damage.

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As far as economic warfare goes,

we've spent a lot of our, a

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lot of our cards there, right?

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Like, we have played

most of our good cards.

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We've been sanctioning the living

hell out of Iran for decades.

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We've ratcheted it up

in the last few years.

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We ratcheted it up more during the war.

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So the thought that there's this, like,

low-hanging fruit that's gonna devastate

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their economy and take down the regime,

like, seems pretty, pretty wishful and,

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and kind of fanciful in my, in my view.

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But that's, like, that's the

narrative Besson was going with today.

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Like, they were gonna take down the

regime with this economic warfare.

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Well, if we could have done that,

why would, why would we not have

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done that instead of having to, put

troops in harm's way to begin with?

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Why would-- Why did we wait six months

to, to implement this great strategy?

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Like, the, all these questions kind

of answer themselves, obviously.

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so, but it'll be, I'll be interested

to see what they say Monday, and

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if they do something real, then

I'll look for very significant

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pushback, kinetically from Iran.

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And to that point, Scott Besson also

said today, like, "Oil, oil's spiking

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today, and I don't understand that.

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Like, they, they're misinterpreting

what this economic warfare thing is."

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No, they're not.

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Like, the, what the oil market is saying

is like, "Oh, well, Iran's gonna hit

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back and probably do some damage to,

to energy markets, so I'm gonna p- I

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have to price that in a little bit."

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But this also reminds me of,

of what I said yesterday.

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Like, hey, what if this thumb on

the treasury scale is the thumb

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that was on the energy scale and

they're, they had to take it off?

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Like, we can't, we can't put our thumb

on energy anymore for whatever reason.

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Again, maybe it's people not

wanting to be the, the mouthpiece

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that destroys credibility anymore.

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Maybe our relationship with Pakistan,

took a step back, and they're not gonna

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do it anymore, whatever the case may be.

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Well, we have another day of energy up.

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No, no jawboning there.

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Not only no jawboning there, but

kind of like a, an admission that the

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prices are up, and it's frustrating.

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again, not that I'm saying

we can't jawbone oil again.

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Like, we can.

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We probably will.

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but still, still interesting.

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The other thing I was gonna talk about

really quickly, honestly, I'm probably

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just gonna note it, is, is Walmart's

earnings were pretty, pretty bad, and

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Walmart got hit pretty hard today.

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notable to me just because it's kind

of a validation of what should be kind

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of clear already, but, like, the, the

real income's taking a hit from, from

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the inflation that we see from, from

the war and, and honestly more and more

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every day it's gonna be from El Niño.

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Not to mention, the AI build-out

and all the other things that

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are inflationary right now.

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Like, that inflation is, is outstripping

wages, which, it goes without saying,

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that hurts people's spending power.

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So to see, to see some earnings

misses from, from p- people

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like Walmart is not surprising.

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I think we're gonna get more of it.

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Obviously, some retailers are

gonna still do surprisingly well.

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It's not gonna be some giant

earnings catastrophe for

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everyone that sells something.

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But worth noting, when real incomes

get hit, like, yeah, well, so

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does, so does consumption, right?

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Unless you take the savings rate to

absolutely nothing and people are

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running u-up on credit cards, like,

you're gonna have consumption problems.

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So worth noting.

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another thing, Anthropic.

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Now everyone, all of a sudden, I'm

seeing all these reports that people

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are expecting them to raise more money

than SpaceX just notable for me because

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again, this goes back to the supply

thing I keep talking about and how the

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reason I don't think the market can be

strong is because as soon as it gets

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strong, someone's gonna sell you some

stock, and it makes it really difficult.

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And I think that's one of the,

the, the problems actually

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Chinese market has right now.

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They've had some blockbuster tech IPOs,

which is awesome for them long term,

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and it's gonna add tons of value to

their equity market over, over time.

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But right now, it's just adding

a bunch of supply and, and

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that's makes it hard to go up.

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And you've seen that.

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so for the US market, I think

that Anthropic, IPO is gonna hurt.

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Now, it's gonna be interesting

to see the way they structure

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the lockups and everything.

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that was the interesting thing

with, with SpaceX was, interestingly

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engineered lockup, situation.

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They, they tried to engineer a squeeze on

the front end that people could sell into.

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basically none of it's really worked,

but, that's something to keep in mind

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here come, coming this fall that it could

hurt markets is an- the Anthropic IPO.

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And the last thing I'll mention

is, is a trade deal announced

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between China and Switzerland.

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Notable.

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you basically just have

almost a full-blown free

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trade agreement at this point.

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The, the Swiss already weren't

really charging any tariffs on

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China, very, very, very, very little.

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But China's got a good bit on Switzerland.

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They, they essentially dropped them.

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Ninety-nine point eight percent of

Swiss exports to China are now tariff

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free and all the important stuff

that they build that is now tariff

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free, like watches, like we all know.

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and that was interesting because

that was like a big give from

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China, which you just don't see.

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Like usually China extracts

every inch they can in any kind

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of negotiation economically.

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They don't give for the sake of giving.

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It's just, it's just not how they roll.

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They shun soft power at every turn, and

they always seem to maximize what they

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can get for themselves in like a very sort

of zero-sum game way e-even though they

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always present themselves as very win-win.

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In a lot of ways they are, like

from a market's standpoint, from

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a free-- basically a frankly an

Adam Smith kinda way, like, right?

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we'll help you, you'll help us.

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But they're also very predatory in many

ways, like as we, I think all know.

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very, very well done pre-predators.

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Like they're, they're good at it.

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so to see them like basically give and

not get much back in this update to

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the free trade agreement was notable

'cause it felt like, are they like

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giving something to a European economy?

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To gain like goodwill and soft power.

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Like, because if that, if so that's

interesting, especially considering

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the fact that, Switzerland's

had tough negotiations with the

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US that haven't really worked,

haven't really been finalized.

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so to see them do this deal where they

get, they get a lot, from, from China,

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where they basically have free trade

going back and forth, that felt notable.

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And if I, if I'm right that maybe this was

a turning point where China does a little

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more to gain soft power and not just to

win every negotiation on, on the purest

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terms, that will be important to watch.

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but that's it for me today.

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That was two in a row.

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I expect kinda two to three a week,

so maybe a few days before you see me,

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unless, unless we get some more, some

more interesting things happen tomorrow.

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We've had a cluster of, of good stuff for

two days, but we may, we may go a week

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now with nothing worth talking about.

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We'll see.

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But, until next time, cheers.