The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Lingering confusion
Headlines describing new positive steps for the US/Iran situation broke last night. Plausible steps towards a resolution seem to be happening. The risk-on moves in markets continued overnight. Overseas equity markets rallied, oil prices fell, US interest rates fell. The S&P opened up about 70 points and gave back 30 fairly quickly. The index treaded water about +40 for the bulk of the day. Iranian refutations of the negotiation claims made by the White House leave investors scratching their heads. Is the peace process in motion or not? Nobody is sure but markets are siding, slightly, on the side of yes. As far as anyone knows, the Friday deadline for the US pause of attacks still looms.
When it comes to the US/Iran situation, markets are struggling to figure out what’s accurate and what’s disinformation. At present, the lean is towards the White House. Time will shortly tell. The situation is on the clock and markets don’t really know what the consequences of getting to Friday without good progress might be.
While the latest news suggests progress, the lack of detail and the contrary statements from Iran confuse the entire situation. Investors still need to handicap the political situation in the absence of quality information. As such, what are we left to do?
Gage intentions. The White House, whether telling us the truth or not, has indicated that it wants to conclude the Iranian hostilities quickly. It wants the Strait of Hormuz to reopen quickly. That’s important for markets to know.
What does Iran want? That’s not so obvious. Markets are *presuming* that they want a quicky end to the hostilities as well. How stubborn might they be? Markets are rightly worried about higher oil prices, and other goods, for another 4 weeks. But how significant is that versus the costs that face Iran if they don’t negotiate a deal quickly?
It sure looks like it would behoove Iran to cut a deal now. If they do not, and the US and Israel resume large scale attacks… where will Iran be in the subsequent four weeks? Will they be in a better or worse position to negotiate? Sure the financial markets will be turbulent during that time. And GDP and inflation will shift in bearish directions, but the economies of the world, especially markets, will recover quickly at the end. The costs of an extension of the conflict will be relatively small and transient for the world. They will be huge and long lasting for Iran.
That’s what we know. We don’t know details. We only know the big picture. So what are the decision makers in Iran going to do? We find out in the next couple of days.
See you tomorrow.
-Mike
Visdom Market Commentary
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