The Opera Ain’t Over II
The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood – Otto von Bismark
Since I wrote the first part of this theme in late April, things have largely advanced like I expected including the current locations of important US warships designated for what’s coming. https://geovestadvisors.com/the-opera-aint-over/ And as expected, the noise has been deafening even as little has changed.
The “noise” has been a brilliant “cat-and-mouse” game with the media and the markets to keep the price of oil down and the price of stocks up. Each time investors pile onto levered longs on oil and shorts on stocks, we get news of a deal within hours. This is ultimately followed by one party not liking something, followed by an analysis connected to MI6 suggesting the US is stuck with no off-ramp.
The US is setting conditions for the next phase of the attack which will include moving the USS Tripoli, USS Boxer, USS Comstock, USS Portland, USS New Orleans, and USS San Diego, all loaded with Marines and every bit of kit needed to control the islands of the Persian Gulf. Before they can pass through the Strait of Hormuz, all mines need to be swept, and communication with Chinese satellites jammed.
Just as important, the US needs the locations of all the caves that are storing missiles aimed at the Strait and destroy them. Lastly, the US Treasury will need to have an alternate payment system set up that bypasses the European banks and Asian banks.
The next phase will need to start soon because I expect that the White House will want lower gas prices for the summer driving season and a triumphant procession of enemy combatants and European bankers down Pennsylvania Avenue on July 4th. A big show to commemorate 250 years removed from the Bank of England!
No Deal Without Tribute
The Iranians and Persians are excellent at the art of negotiation – Donald Trump
Any deal with Iran is worth less than the price of the paper it’s printed on unless there is something that forces them to keep to the terms. In ancient days, conquerors would insist on hostages of family members but that form of collateral carries no value these days. The US needs the jewel of Iran – the source of their wealth and fortunately, it’s located 15 miles off the coast of Iran. It’s Kharg Island.
When the US Marines take Kharg Island, they will control Iran’s oil export terminal – the place where tankers get filled for their journey to Europe and Asia. Hold Kharg Island in trust and the US Treasury can administer where funds are banked, deployed, and in which currency they’re denominated.
Iran adheres to the agreements or they don’t get the oil revenue. Try to stop transporting oil to Kharg Island and back-pressure destroys their system. Try to blow it up once the US takes it and you’ve just burned down your own house.
Dubai’s office vacancies will rise because Iran won’t need to shield their revenues from US eyes and because nobody will be using those funds to pay for arms and contraband. European bankers and fund managers will lose relevancy overnight – not to mention the influence they buy in their respective Parliaments.
Demand for crypto will decline along with those nefarious deals, likely replaced by stablecoin and potentially marking the start of the end of the Eurodollar markets. When combined with shutting down the Caribbean narco trade, London bankers are going to have tons of free time in the future.
The biggest insult will be when the US Navy gets to collect the rent that formerly went to the Lloyd’s syndicates for passage through the Strait of Hormuz. Keir and Tony will be sharing a room in the Tower of London within a fortnight of the US taking Kharg Island.
Markets
I’m a bit of P.T. Barnum. I make stars out of everyone – Donald Trump
SpaceX has started trading. It’s going to be a great day for tech because the Iran “deal” is really, really close – probably this weekend! Wouldn’t that be a great time to move the attack carriers into the Gulf? Right when everyone is celebrating Elon’s “brave new mission?”
The political theater would be unmatched – a spectacle for the ages and just as traders begrudgingly sold their Vix calls going into the weekend and after all the oil longs pawned their last Rolex to cover margin calls. In a world of levered trading positions, predictability is vital yet President Trump is anything but predictable.
Meanwhile, the European banks need to act quickly and aggressively to take global markets down if they hope to wrest control of Congress away from Trump in November. This is the real fight and the real threat to the global economy.
The Trump Administration is willing to wield the full power of the US government for the first time since WWII, including, it appears, acting in the markets. When combined with Trump’s aforementioned unpredictability, it’s proving difficult for global financial elites to bend markets to their purposes.
Over the next few years, I expect the price of oil to test new lows because I believe demand is going to collapse around the world as the Liberal Democratic Order, in place since WWII, is dismantled. But over the next month? It’s like 3D chess on steroids! Yet, too many players are in the game wielding leverage in their trading books. That’s insane!!!!
We’re in the midst of a negative credit cycle in the US – everything from private credit to credit cards is a mess. Asset managers are gating withdrawals from funds because there is no market for the crap they own. And yet, the equity markets, supposedly the riskiest part of our collective capital structure, are thriving. Even after the Mag 7 begs for new equity!
There is nothing in human history that can prepare us for the next six months in the markets – the AI bots are going to have collectively apoplexy. Investors are caught in a war between Titans where the US is trying once again to disengage from the insanity that is Europe et al.
Conclusion
Progress is man’s ability to complicate simplicity – Thor Heyerdahl
Everyone has a narrative and everyone is attempting to make their own narrative the dominant one but if you really think about the present situation in Iran and in the Caribbean, things are clear. The Trump Administration is at war with the European financial elite. The UK government has actually admitted that UK banks and their subsidiaries launder 40% of the world’s dirty money. Where do you find dirty money? Drugs, weapons, political influence, contraband, and Iranian/Venezuelan/Russian oil.
UK and Dutch banks are everywhere in the Caribbean. The US Navy now has a huge presence in the Caribbean and with it, all forms of electronic signal intelligence – everything is under surveillance. They’re not there to make deals – they are there to destroy money laundering operations for the drug cartels.
Some have joked that Dubai is New London yet the UAE was “convinced” to leave OPEC recently. That’s not a deal, it’s a chokehold.
Iran is a goldmine for creating volatility in oil markets and for extracting rent from bypassing restrictions on oil exports. Not only that but the IRGC is believed to be deeply involved in the drug trade with product grown in the Beqaa Valley of Lebanon and distributed through the Middle East and Central Asia.
The Trump Administration isn’t looking to make a deal with Iran; they are looking to destroy the cash flows that support terrorism and global instability. In the process, they are going to destroy the financial entities that benefit the most from these artificial frictional costs.
Talk of deals has always been about distraction and manipulating markets. Both sides are playing for all the marbles. If Trump can grab Kharg Island and open the Strait, it will be the equivalent of Sherman capturing Atlanta before the election of 1864. Oil prices will drop and inflation will be broken.
The financialization cycle is over after 125 years. The future is about re-building a destroyed industrial base, not about trading crypto and Mag 7 stocks. If you’re interested in learning more, visit us at https://geovestadvisors.com/ and give us a call.
Philip M. Byrne, CFA