Covering Delta

Tim Dillon on MAGA: “It’s the greatest con in history, truly. To run as America First and you’re gonna take care of America and then turn around and go all of these things daycare, Medicare, we have nothing to do with that, we’re fighting wars. It is the greatest scam in history”

I believe that the corruption of this administration is so brazen and that the evidence in email communications, text messages, etc., that will eventually come out will become a perpetual drag on its ability to use the bully pulpit to move Trump's agenda forward in his first term. They are still cashing in on the honeymoon period and don't realize the damage they are doing. Plus, the people in his inner circle who are pushing these initiatives don't care, because they are just looking to loot as much of the Treasury as they can before the window closes.

Arguments that this is a move to choke China off from its oil imports ignore the possibility that any importing country watching this disaster unfold — and deciding it needs to electrify faster — would become MORE dependent on China's clean energy supply chains, not less.

Equity bears are at the brink of insanity given resilience in the indices, but odds of a breakdown are increasing now. Equities top slowly as passive flows and rotational dynamics can hold up indices for a long time. There are many structural forces rigged to push them higher, and thus it takes a lot to make them go down. Over the course of an equity bull market, buy-the-dip behavior continually gets reinforced, and the majority of capital will be controlled by adherents to this mantra. In theory, the longer prices remain coiled, the larger the move once they exit the range. This nuke in gold suggests there are liquidity issues brewing under the surface. It feels like a preview of what is going to happen to crowded trades. My theory is the Middle East is selling gold to shore up capital, as they have lost their revenue, and have many expenses around defence. They will also need to rebuild lost energy infra, and eventually, new pipelines to reroute around Hormuz. The buyback window is starting to close, and the sugar rush of higher-than-usual tax refunds is starting to fade. Retail has been a key marginal buyer of equities in these past weeks, and the fading of the tax refund tailwind is critical. The market is gradually coming to terms with the fact that this conflict may last for a long time. On a conventional level, the US and Israel have completely dominated Iran, but Iran has an asymmetric edge when it comes to controlling world oil prices through Hormuz. Trump can still end it, but the issue is that the US cannot simply leave, a ceasefire with Iran must be struck in order to guarantee that Hormuz is reopened. In order to strike a ceasefire, Iran wants to see a guarantee that the US and Israel won't attack them again (at a bare minimum), and it will be difficult for the US to get Israel to agree to that. Trump is used to being able to quickly maneuver according to his whims, as he did with tariffs, but the complex interlocking physical realities of war are different. Oil shocks often contribute to the end of bull markets, since they constrain consumer spending, hit manufacturing, and lower the ability of central banks to offer support. Indeed, the Fed came out slightly hawkish yesterday, and Powell also hinted that he may stay in his Governor seat post his role as Chair ending, which would constrain Trump's plans to unleash liquidity. We have a stronger dollar and long duration bond yields are going up over the world, which tightens liquidity. The Middle East is tight on money now and they were the marginal bidder in many assets. In particular, they were a key funder for AI capex through their investments in the frontier labs. They've been 40-50% of recent big rounds. Remember other deep pockets like Softbank are close to being tapped out. Any dollar that goes into these rounds will have to come out of something else, like liquid stocks (look at my pinned post for this broader thesis). And if we have any signs of risk to AI capex expectations, this will be a major shift that the market needs to contemplate. I've said this before, but puts are a difficult way to express bearish equity views because timing is so uncertain. Equities can hold on for a long time, because they are structurally rigged to go higher. Easier expressions are simply being in cash, or gradually shorting cash stocks over time, which helps avoid getting chopped. This is a very difficult market, stay safe out there.