Catching you up on the war in Iran as it goes kinetic again and what that means for energy prices and macro.

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All right.

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Welcome back to the Daily

Discernments, almost Daily

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Discernments we should call it.

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I did have something today

that, that jumps out.

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Obviously, it's the war kind of

being back on for now and what that's

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looking like, what the-- what has

gone into that and, and, you know,

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kind of where we may be heading.

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This started with the US hitting a

launcher that was trying to use rockets

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to launch some, mines into the strait.

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That was probably wor-worth,

you know, doing something to,

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like, not, not crazy at all.

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if it's true that we demine the strait

or at least, you know, even if we just

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half demine the strait, to have them

go, go putting it back, it's a big deal.

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So that, that made sense.

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No-- nothing crazy there.

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obviously Iran retaliated, but I

would, you know, I would say it

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was a pretty small retaliation.

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I think they left room personally for

us to kinda leave it at that for now.

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At most, it looks like maybe they hit a

hangar, aircraft hangar in, in Jordan.

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We, we claim that nothing,

nothing was damaged.

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So if nothing was

damaged, then again, I…

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it seems like a good moment to

go back and kinda climb down

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and go back to status quo.

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but something I'll add that maybe suggests

why we kinda kept going here was that it

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wasn't the status quo because it looks

like at least the Iranians were finally

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taking on the ship-to-ship transfer game

that has been, been played and really

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started to pick up, like, for weeks.

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I mean, we're getting kind of three,

four, five million barrels a day out of

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the strait through ship-to-ship transfers

with US, escorts through the strait.

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So basically, the idea here is you

get some oil from all over the Gulf,

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you put it on small ships, you sneak

it through, an area that has a little

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bit of cover, makes it hard to see

for smaller ships, from, from Iran.

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And then you…

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once you get it through, then

you d- you put it on the big-

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the bigger like VLCCs and stuff.

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They can be…

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kinda go on, you know, their way.

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it looked like maybe the Iranians

were smuggling some of their own out

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through, you know, some of their own

transfers with, with Iraq and stuff.

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So a lot of us, I think, speculated,

well, maybe they're just gonna

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turn a blind eye to this as long as

they can get some of their own out.

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Makes, makes some sense.

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But it looked like we went

from that kinda like three,

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four, five, six, three, four…

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back like three, four, five

million barrels a day to,

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like, pushing, like, seven.

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and that's a little bit of different game.

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That, that removes a lot of pressure

on the US, buys US a lot of time.

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kinda takes the initiative

away from, from Iran.

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And then the last couple days,

they started hitting more ships,

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and ships that were involved in

ship-to-ship transfer, that, that game.

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So it looked like maybe they, they

finally got serious about, you

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know, if not stopping that, at least

limiting it more than they were.

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You know, the Iranians talked a good

game about how the, the, the strait's

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shut and completely closed, and if

they can't export oil, nobody can.

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The reality is a good bit was getting out.

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Nowhere near the twenty million,

obviously, that From pre-war, and,

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and to be fair, the Houthis, like they

have kept, you know, what's getting

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out of the Red Sea pretty, you know…

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That, that has stayed impacted.

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but when you, when you combine, you know,

the two, you were kinda like getting

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close to like two-thirds of normal,

which ain't bad, broadly speaking.

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So, it looked like they took the

initiative to kinda stamp that out.

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Obviously, we hit that launcher.

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they hit two VLCCs last

night, two Saudi ones.

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Next thing you knew, every Saudi ship

changed their flag to Liberia and

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changed their name, which is interesting.

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But, so it looks like how much it

gets through the strait is going to be

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lower, at least, you know, short term.

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It was definitely lower, last--

yesterday, so for the full day

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of August 31st, a good bit lower

than it had been, the week prior.

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notable, and that's one of the reasons

oil's up, and then obviously the kinetic

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stuff is one of the reasons oil's up.

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So we started hitting them again today,

this after- this afternoon, US time.

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and the president immediately to-

said, you know, "Hey, if they, if they

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respond to this, then we're gonna like,

you know, annihilate them," you know,

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use the big scary words or whatever.

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Iran didn't care about that

and, and very quickly launched

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their retaliate, retaliations.

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there's video surfacing of

definitely some hits in, in Jordan.

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we have a lot of people in Jordan.

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We have a lot of important

aircraft in Jordan.

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So depending on where those

impacts were, that could be bad.

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The problem, of course, is now we

either-- now we have to go with a big

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escalation or kinda lose some face

as far as what we've been saying.

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With that said, every time we have

promised to, like, annihilate Iran,

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so far in this last six months, that

has always ended in, you know, someone

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magically calling and asking us not

to, and we're very close to a deal.

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We're, you know…

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Now, now this is, this is the real deal.

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We're, like, really, you know,

optimistic that this time is the

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time we're gonna get the deal.

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So that has been the playbook

so far, and is-- o-on that note,

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it, it's kinda crazy to see today

unfold directly from the playbook.

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You know, we hit them and say, "If X

happens, we're gonna annihilate them."

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Straight out the playbook.

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So if we're gonna play the same playbook

for, like, the eighth time, it would

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be, you know, threaten total disaster,

and then in the 11th hour, you know,

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Ax-Axios reports that everything is gonna

be fine, and we're, we called off the

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strike because we're nice and because, you

know, Pakistan asked us to, or the Saudis

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asked us to, or every Gulf state asked

us to, or, wh-whatever the case may be.

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So kind of on the lookout for that.

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Obviously, if that-- if we don't

get that, and if, if both sides ramp

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up, the strikes, then, then you're

in a totally different ballgame for

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oil because oil doesn't have much

risk premium in it, in my opinion.

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Like, oil mostly has just the math in it.

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Not even that, in, in my personal opinion.

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so the right tail in oil all of a

sudden is kinda wide open again.

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but that's also the exact reason we will

likely, you know, find, find peace before

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long is because oil's on the bullet

train to one twenty, and then that's

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very, very uncomfortable, especially, you

know, two months from the midterms now.

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but It just gets awkward when

you play the same playbook

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maybe over and over and over.

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Iran today, at least someone in Iran

made it sound like they're not even

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really wanting to go back to the MOU.

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Now, the president said they

would, but I think the president's

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losing political power in Iran.

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The Supreme Leader basically came out

and, without naming names, scalded

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him and the Speaker of the Parliament

because they were basically saying like,

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alluding to the fact that the economic

stuff is hurting and that at some point

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you've got to find a way to have peace.

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And I think the Supreme Leader viewed that

as like showing weakness, which it is.

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But, I mean, those guys

aren't wrong either.

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Like they do have to – both

sides desperately need an

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offer up here at some point.

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But the strategic stuff at play

here is too big for Iran to

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kind of squander, I would say.

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So I think their pain tolerance is, of

course, going to be longer and stronger

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than ours, especially given the election

cycle here and the fact that the price

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of oil, you know, is starting to put

in some less, you know, fun new highs.

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One other thing I wanted to mention

was there was one strike, U.S.

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strike, that hit in Iran that was in the

same town that they have some important

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petrochem – or I think they have some

chemical facilities as well as, you know,

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some gas production facilities and stuff.

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So Last time we hit that facility, and I'm

not saying we hit that facility today, we

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hit that area, but if we hit that facility

or, or, you know, important energy

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infrastructure there again, that was what

prompted the Iranians to hit the massive

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LNG facility in, in Qatar last time.

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So if we are gonna ramp back to energy

infrastructure, you can definitely bet

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that the Iranians will also ramp to energy

infrastructure and that of course, that,

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that's like the real right tail in oil.

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Like, all this tit for tat,

like we're gonna hit your radars

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and, you know, you're gonna

hit, you know, an aircraft on…

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or a radar on our base or whatever, like

oil doesn't have to freak out about that,

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but it does have to freak out about, you

know, infrastructure coming into play.

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So if we did hit some energy

infrastructure, and it's not at

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all clear we did yet, just that

area, that, that would be kind of

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a, a right tail unlock short term.

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So the way I'm thinking about this is,

you know, I've been, I've been long

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and strong oil since the war began.

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the way I'm, the way I'm viewing

it is, yeah, now that we're

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about, now that-- I've been range

trading it for, for months now.

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So now that we're up here, I'm taking

some off because my assumption is

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Axios is going to report imminent

peace, you know, in the next couple

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weeks, and the price will get

smacked, and then I wanna add back in.

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so it's really just playing those ranges.

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The, you know, you, you, you, you buy

whenever peace is imminent, and you

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sell whenever we're about to annihilate

Iran, and that's what I'm doing.

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Not all.

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It's a dimmer switch, not all the way,

you know, not zero and not a hundred.

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It's just dimming back and forth.

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It's kinda way I'm viewing it.

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And, you know, diesel got to a hundred

and six dollars on the crack spread today,

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so you're gonna have diesel prices just

in the stratosphere, which is going to

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create significant inflation impulse.

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The Fed's gonna have to hike.

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I know a lot everyone says they're

not going to, because political stuff

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like, I'm sorry, but, you know, six

dollar diesel, you're gonna hike rates.

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You're just not gonna away of

get a-- you're not gonna get

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away with not doing it, I think.

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And I don't care if Warsh doesn't want to.

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There's gonna be enough people on the

committee that do want to, and he's

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not gonna be able to do much about it.

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that doesn't have to be September,

but I think it will be September.

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and speaking of the kinda the downstream

impacts, obviously you have, you know,

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a new high in ten-year yields today.

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And you're close to putting in a new

high for the last two years and, and

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basically for the entire presidency.

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Because I think people forget, like

when Trump took office, we were

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right about here on the tenure.

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so really all you've done is go

down one percent and round trip it.

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but that's not nothing.

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Like, you know, when you were close

to a full percentage point lower

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than here, you were starting to get

a lot of economic activity unlock

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in, in areas like real estate.

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now AI still has you growing at

four percent and, you know, like

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you're-- the economy's fine.

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It's just that, you know, if you're

gonna have this kind of inflation that's

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going to pressure the cost of capital

up into, you know, the highest levels

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they've been in twenty, thirty years,

then, you're gonna break some stuff.

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Like, now Google may be able to keep, you

know, selling bond, bonds at these yields

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or, you know, paying SOFR, these SOFR

rates or whatever, but, you know, you get

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a couple hikes under your belt and if,

if the ten year's at, you know, five and

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the thirty year's up at six or whatever,

like, and, and, and continues to climb

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if the, the war's still going on and El

Niño is making food expensive, et cetera.

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Like, you starting, you start to

see like a rate, a rate of change

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on like cost of capital that starts

to hit people that don't have,

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you know, deep pockets and a great

reputation like, like the hyperscalers.

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So that's something that's kind of

top of mind for me is, is who cannot

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handle the cost of capital changes

that have happened and may continue

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to happen, especially the speed.

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You know, it's one thing to have

bond yields go up, one thing

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to have short-end rates go up.

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It's, it's different to have them

reprice rapidly due to, you know,

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all the different inputs we have

pressing into them right now.

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But that's it for me today.

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Wanna keep it short.

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we'll see, maybe back with

some more this week, maybe not.

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Depends on, depends on

what happens each day.

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But that's it for me today.

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Don't forget, check us out

on YouTube to watch it.

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tell your friends about

the podcast or the YouTube.

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and, and speaking of, there are

gonna be some times in the future

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where I'm gonna do some charts that

are gonna be worth the YouTube.

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I understand.

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I'm sure a lot of you just listen

to this in your car real quick.

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that's usually how I, I take these things

in myself, but there may be some episodes

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where I kind of allude to the fact that,

like, "Hey, we're gonna throw up some

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charts here 'cause it's too hard to talk

about without pointing to pictures."

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But, yep, that's it for me today.

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Cheers.