The sounds of peace are louder now.
As Trump’s schmeasefire with Iran and Israel stumbles again this week, so does his latest jawboning of markets. The bond market returned to rising yields again upon the news of wider breakouts of fire in the Middle East. Stocks saw the action in bonds in anticipation of soaring inflation, so stocks plunged across the board. Bessent did some emergency lying with a smarmy smile, which included reverting, again, to the failed language of the former inflation makers, Janet Yellen and Jerome Powell.
Bessent assured the nation that inflation is once again transitory. Yay for that! We have learned the hard that that particularly empty promise means inflation is going to go extra hot because those who should be watching out for it and doing something about it are resorting to empty assurances that sound like snoring as they sleep at the switch. Bessent based his prediction, like he did last month when he said the same thing, on the basis that oil prices are now quickly settling back down. That was almost fractionally true a day ago when he recorded the interview. Then today came along, and oil and stocks and bonds called out the falsehood.
Whether he calls it a “blip,” “transitory” or “transient,” Treasury Secretary Scott Bessent has taken to describing inflation in a way that came back to haunt his predecessor and the previous administration.
The new jawboning didn’t work for Trump either. He just assured everyone that Iran has now agreed to ditch its nuclear program. We all know, also by experience, that Iran will shortly issue its own statement, as has been the case every time Trump has said something empty like that to calm the markets, by retorting, “Nonsense. We never said any such thing.” Therefore, Trump, this time, tacked on the backdoor caveat that “they can [of course] change their minds.” According to him, they always have changed their minds. According to them, they have never been anything of the mind Trump says they are. According to Trump, they are still dying to make a deal quickly … as he has been saying since last summer and they have been denying equally long.
Apparently, cussing out Netanyahu more than once yesterday didn’t work for Trump either because Netanyahu laughed it off in a television interview with the customary reassuring smile, which trails like a snake across his face, as having been a mere tactical disagreement between the very best of friends, as he went right back to bombing Lebanon.
Israeli officials said Hezbollah had publicly rejected the formula of halting attacks on northern Israel in exchange for Israel refraining from strikes in southern Lebanon and Beirut’s southern suburbs. The comments came one day after Trump said he had received commitments from both Jerusalem and Hezbollah to reduce hostilities.
So, the pummeling in Lebanon continues from both sides, and that’s why I call it the “schmeasefire.”
The spreading of fire throughout the ME was a little broader today than it already had been during the first two days of the week when Iran called an end to negotiations:
The Kuwait army said in a social media post that air defense systems were “intercepting hostile targets.” U.S. Central Command later said that American forces defeated Iranian ballistic missiles and drones, and they also carried out “self-defense strikes” on Qeshm Island “in response to attempted attacks by Iran across the Middle East.”
Iran is heating the war back up because Israel never stopped fighting it in Lebanon. Israel is saying, of course, that it is all Hezbollah’s fault because they never stopped fighting it either.
The thirty-year US Treasury bond is now a bare whisper from the bombs-away 5% level. In fact it blew above that level for about an hour midday today, and then settled to 4.99% and change at the time of this writing.
The turmoil of the week reignited on Monday with Iran’s announcement that talks were off:
Iran has severed all diplomatic talks with the United States, accusing Israel of violating the ceasefire by bombing its proxy militia Hezbollah in Lebanon.
Iran’s top negotiators on Monday stopped exchanging messages with the US through Pakistani intermediaries as Tehran vowed to fully shut down the Strait of Hormuz, according to the Iranian state-affiliated news outlet Tasnim.
All HELL BREAKS LOOSE as WAR BREAKS OUT in MIDDLE EAST!
The fear in markets should run much deeper than it is running because Iran also said,
‘No dialogue will take place’ until Israel fully withdraws from Lebanon and also stops attacks in Gaza, according to Tasnim.
And that doesn’t seem any more likely to happen than Iran giving up its nuclear program as Trump said they have now said they will do.
However, the chill should intensify in markets even more because …
‘Also, the resistance front and Iran have resolved to completely block the Strait of Hormuz and activate other fronts including the Bab al-Mandeb Strait, in order to punish the Zionists and their supporters,’ a regime official told state media.
Blocking that second strait would block the Red Sea and, therefore, the Suez Canal, as the Houthis did so effectively last year. We saw how much shipping turmoil those little guys can create in a hurry. So, imagine doubling the trouble the whole world already has from the closure of Hormuz. Shutting down the Red Sea route would not only shut off what remains of Saudi oil via its east-west pipeline route, but it would severely shut down cargo traffic all over again, forcing longer, slower, more expensive shipping around the Cape of Good Hope, requiring more ships to offset the 10-15 extra days of travel time, forcing much higher shipping prices.
Then watch what inflation does!
A simultaneous closure of the Strait of Hormuz and the Bab el-Mandeb Strait would block approximately 25% of the world’s oil and gas supply and threaten up to 30% of global container shipping, creating a catastrophic “double chokepoint” crisis. This scenario places an estimated $10 billion in global trade at risk per day, severely disrupting energy, food security, and manufacturing supply chains across Asia, Africa, and Europe.
And that’s why I will continue to call this the “schmeasefire.”
You can only put off the inevitable so long before the diminishing returns on all your jawboning kick in to where no one believes a word you say and before the war, as a result, goes more hostile than ever because there is no one you can trust to negotiate with. Trump, however, likes to keep believing that his “magical thinking,” as one psychologist called it a month or so ago, actually works—that he just speaks what he wants to happen into being or what he wants everyone to, at least, believe, and his godlike powers assure his words will change reality. Apparently, that is one of the ego-defense mechanisms by which narcissism sustains itself when things go bad for the blimp-sized, hot-air ego.
So far, Trump’s war has still accomplished nothing good for anyone (other than the entire MIC and the insider traders at the White House who are all making bank) … unless you consider, as one of my detractors recently did, that re-obliterating the nuclear storage and enrichment facilities that you already “totally obliterated” last year is a second major Nobel-worthy accomplishment. On that basis, I was told I should give Trump credit where credit is due if I had any integrity.
I will give him credit for, at least, holding the schmeasefire together and talking markets back down more times than I thought his empty words could muster. He’s very good at selling Netanyahu-brand snake oil. Bigger and better than anyone has ever seen before!