GeoMacro
A blend of geopolitics and macro, synthesizing the new and old macro to generate alpha and identify the beta through probability-weighted market views.
Domestic politics suggest that President Trump needs to retreat from the war in Iran, but strategic factors suggest not. Stay defensive for now.
Our "miniature stagflation" episode is coming together on the back of the Iran shock, China slowdown, and American political division.
Over the past 48 hours, there has been a cacophony of statements back and forth between Tehran and Washington, DC, some suggesting that the probability of de-escalation is rising. At the same time, kinetic action has continued unabated. A Kuwaiti tanker was targeted by Iran off the coast of the UAE, followed by a Qatari tanker off Doha, and the US ramped up its attacks on Iranian industrial capacity. The world now awaits with great anticipation President Trump’s remarks to the nation on April 1.
The Iran war may not deescalate in the near term, and if it does, it will likely reescalate later this year, suggesting investors should take a cyclically defensive outlook.
When the fog of war is thick investors need hard facts and data to cut through the uncertainty. Unfortunately, when it comes to physical commodities, publicly available macro data obscures the reality of moving molecules around the world. Thankfully, we at BCA Research have spent the past eight decades building relationships with clients who do all sorts of things for a living. These folks may rely on us for help with the macro context, but they are all experts in their own subsets of the financial industry.
President Trump offered to deescalate the conflict in the Middle East on March 23. In a series of wide-ranging comments, President Trump said that regime change had already been achieved, that negotiations with Tehran were progressing, and that he was pausing his threat to target Iranian energy infrastructure for five days.
The war in the Persian Gulf has achieved a temporary balance thanks to the Cold War-era Mutual Assured Destruction (MAD) logic. After Israel attacked Iran’s South Pars natural gas field, Tehran retaliated across the region against energy infrastructure. Specifically, Iran’s attack against Qatar’s Ras Laffan natural gas field has taken approximately 2-3% of global LNG offline for up to the next three years.
The market narrative around the Gulf conflict rests on three flawed myths: the UAE is not “finished,” Iran cannot close Hormuz indefinitely, and the war is not fundamentally about China.
Our March 13 tactical insight into the ongoing Third Gulf War has incited a lot of client feedback.
The conflict in Iran has entered the “post-Trump taco zone” where it is now all about Tehran’s reaction function.