Thoughts from the markets

Between a Rock and a Hard Place

The Dual Mandate Is Cracking

The February jobs report was not pretty — the economy shed 92,000 jobs, well below the expected gain of 59,000, and the unemployment rate ticked up to 4.4%. A weak labor market would normally put the Fed on a clear path toward cuts. But inflation is the bigger concern right now, as the odds rise that oil prices scatter into the broader economy. That puts the Fed in a deeply uncomfortable position with respect to its dual mandate. The IRGC is still firmly in charge in Iran — despite strong revolutionary forces that were widely expected to tip the balance, they haven't, not yet. And as long as budget drones keep buzzing over the Strait of Hormuz, tankers can't move comfortably — and oil stays elevated.

The Debt Spiral

The picture changes now, and yes, it is tough. The US national debt crossed $39 trillion this month. Interest payments are running at roughly $255 billion over the past 12 months, with net interest projected to consume nearly 14% of all federal outlays this year. Everybody wants the Fed to cut, and now they can't, with oil sparking fresh inflation fears. Not good. The biggest fiscal fear of this century is a US default — and with these debt levels, the recent Moody's downgrade of Treasuries to Aa1, the last of the three major agencies to strip the US of its top rating, the extreme interest payments, and unstoppable government spending projecting a $1.9 trillion deficit for FY2026 alone — well. We're getting there. I'm definitely not in the doomer camp, not at all. Just pointing out the overall risk picture. Obviously, drill baby drill, the Venezuela pressure and the Saudi relationship were all part of a preparation for exactly this kind of energy shock, and that helps stabilize oil at the margin. But is it enough? As of right now, not really.

The Path — and the Exit

The war needs to end, the oil needs to flow, and core inflation should be flat. Then we're good, and we might postpone the default debt crisis to the next decade. But if Iran manages to terrorize the Strait for an extended period, high oil prices will weaken the economy, and at some point the Fed will need to cut to stop layoffs — ultimately unable to serve both sides of the mandate. Inflation might spike again, whereas it was not fully healed from last time. That's how we spiral toward default. Not there yet. But that's the path. And as long as there is no clear route to resolution, equities will stay weak, gold will trap everybody and trade somewhere between $3,000 and $5,000 for the next decade, crypto will outperform as the modern store of value, the USD will be stable to strong, and bonds need to be watched closely — because bonds are the number one indicator of what is actually going on. We're still in restrictive territory, so there is no need for hikes, but certainly no cuts either, as confirmed in the last meeting. A bond selloff will average out but tell us what's happening. And if it gets truly troublesome, bonds will be bought — and probably not just the shorter end — triggering a yield curve inversion before policy has even decided to act. AI is still very real and very strong, let's not forget that either. The best place to be right now, short term, is USD and crypto. Once the situation deteriorates further, the USD will become less attractive and bonds will take its place — but we need to see the Fed's stance before judging that more distant scenario. That's the path we're going down, and the question is whether we find an exit soon and return to normal, or whether we continue.

Skew This.

The Macro Setup

Since my last post, USD is up, EUR is down, gold has topped out, equities are weak, and crypto is in a potential bottoming process. Natgas is slightly up, and oil hit as high as $119 a barrel today — driven by massive infrastructure hits and the effective closure of the Strait of Hormuz, which handles roughly one-fifth of global oil supply. And while that might sound like a US problem — Iran exports just under 2 million barrels a day, over 80% of which goes to Chinese refiners, further weakening global markets.

The Options Market Is Talking

Two weeks in a row, the expected move priced by at- and in-the-money options was not hit in the SPY. And now, over the weekend, the VIX spiked to a now-elevated ~29 — while escalating Middle East tensions are showing up in the out-of-the-money options with an elevated skew reading — and high skew readings are nothing to joke about, especially when they're backed by real fundamental developments.

Brace. But Keep Perspective.

A weak market setup, strong compression in the SPY, and a VIX spike — it goes without saying what that means. It's not an unsolvable political setup, so it's not super terrible. But it's definitely a bias, and it is not the time to wear pink glasses.

Yields Moon but Gravity still Strong

Yields Up on a Supply Shock

The market is pricing a yield spike, yet there is no way the Fed hikes rates right now. Headline CPI may print hot due to energy, but core CPI — the only part the Fed can actually control with rate policy — remains the anchor, recently around ~2.5% y/y, while the Fed funds rate sits at 3.50–3.75% and the latest dot plot shows no projections above current levels. Raising rates into an energy-driven inflation pulse wouldn’t fix oil; it would just crash demand and the economy. The Fed does not need to forcefully bring down demand here. Under Powell, policy likely stays as is, and even if Kevin Warsh were to take the chair, the market expectation is not for hikes from here. Quite the opposite. Energy-related yield spikes are unsustainable, if the time frame too short to allow energy prices to make its way into core sectors. This is what we're not seeing, yet, but this would be the worst case scenario. Oil needs to be fixed, otherwise we enter a world of stagflation. But it will be fixed, as the party is not crashed by the powerful night club, but by its illegal bouncer who just blew off.

Equity, Yields, and What Comes Next

The S&P 500 trades 4% below its recent all-time highs and is vulnerable to high energy costs, yes — but this is not a policy-tightening cycle extension. If oil drops back into the 60s, inflation expectations cool quickly; if not, GDP slows. Trump wouldn’t like the latter and will fix energy, but in both scenarios, the Fed will continue its trajectory downwards. Yields can turn around aggressively once the market accepts the reality of gravity.

The equity dip, if there is one, will be buyable.

Headless Chicken Market

Energy Shock at the Core

The US strikes Iran, leadership gone, Iran retaliates by hitting refineries and threatening to block the Strait of Hormuz — the chokepoint where roughly 20% of global oil and petroleum liquids consumption, around 17–20 million barrels per day, flows through. Oil price up, yields up due to inflation concerns, US stocks under pressure (because of oil price and high yields), EU stocks even more. Higher energy costs feed directly into inflation expectations, forcing bond markets to reprice the path of rates. Gold continues its run, even strongly overbought.

Crypto: Liquidation First, Leadership Later

Crypto should see some light under this setup, too. Crypto has heavy capital ties to UAE, Qatar, and Saudi flows, so it can act as a liquidation pool for regional players while under pressure; since the sell-off in crypto already happened, prices can develop cautiously optimistic. Add to that low to none effective global regulation on insider trading, and you get the usual dynamic: it sells off first, it leads the way up, too.

Europe Under Structural Pressure

EU hit even heavier, as a Hormuz blockade causes an LNG spike as well, pushing Europe deeper into long-term US energy dependence at elevated pricing. That combination risks another inflation jump in Europe and structurally weaker growth expectations compared to the US. Bond yields were seen as one directional pre-conflict, but the conflict changes the course, putting downward pressure on pretty much everything except safe haven assets. I wouldn’t say this is cause for a total crash, but an already hesitant market seeks new orientation and higher volatility — which, as we all know, leads to de-risking in equity. War doesn’t automatically mean equity goes down, but global energy infrastructure is what moves the markets.

Duration and Resolution

The question is: how long can the conflict really last? Is the problem solvable? The answer is very likely yes. Iran’s capacity to sustain prolonged escalation is limited, and a reopening of Hormuz would quickly normalize energy flows. That would mean US yields down again and a return to a more constructive domestic backdrop, while the EU may be left with expensive long-term energy contracts and only moderate growth after this is all over. I wouldn’t be too optimistic for the next four weeks. But absent a true global escalation scenario, the problem is pretty much solvable.

The Real Trade

Even gold is not the place to be at these levels. In this situation institutions don’t want to sell, because the upward pressure is real — but you also don’t want to buy and chase an overbought asset, as violent sell-offs can start any time. That’s exactly how thin liquidity and sharp price spikes are created. So where is the short-term trading opportunity? Assets that have already seen meaningful sell-offs, like crypto and the USD, yet are structurally favored in this setup. Reluctancy in equities will force partial liquidations, and that flow naturally supports the dollar — even if Trump politically prefers to fight a strong USD. Equity markets are not in apocalypse mode, but they are far from optimistic, which means selective sectors may outperform. For a short timeframe from here (maybe longer, but potentially no longer tradable), natural gas and oil could continue to see upward pressure. This is a tactical 1–2 month view, assuming the situation persists; resolutions would quickly change the picture.

Kevin the Hawk

Is the Nomination a Done Deal?

Washington is signaling that Kevin is the front-runner for Fed Chair, and barring a political surprise, the path looks clear. Markets are already treating it as a high-probability outcome. The real question isn't if he gets the seat — it's what version of Kevin shows up once he has it.

Trump vs. Powell — Why a Change Was Needed

The friction between Donald Trump and Jerome Powell has never been subtle. Trump wants speed — rate cuts fast and now — while Powell has consistently leaned toward caution, often accused of being late to act. Trump's broader agenda is clear: rebuild U.S. manufacturing, deploy the $10 trillion wave of investment, boost exports, create jobs, and possibly even eliminate income taxes. For that, he doesn't want a weak dollar — but he certainly doesn't want an endlessly strengthening one either.

Jerome “Too Late” Powell, a stubborn MORON, must substantially lower interest rates. — Donald Trump, Truth Social

The Ultra Hawk Narrative

Kevin is considered an ultra hawk. He has openly discussed reducing the Fed balance sheet by "TRILLIONS", and he favors a structurally strong dollar. That stance alone hit precious metals hard the day the nomination became public. Gold and silver had already priced in a weakening dollar, and what we saw was a textbook parabolic blow-off — a technical exhaustion move that typically marks the end of a cycle. The final trigger for that blow-off was the Japanese yen carry trade unwind and the Fed's commitment to buy JPY — that blew the lid off an already strong gold market.

Context Matters: The Commodity Setup

Back when the commodity index printed multi-year lows, it was the perfect base for a surge. Then came the roughly $2 trillion injection via aggressive Fed bond buying — liquidity that naturally flowed into hard assets, especially metals. When Trump entered office, it was clear he wanted to reverse two decades of relentless dollar strength; gold as a hedge became inevitable. That cycle has now climaxed.

The Real Trade

Right now, the market prices Kevin as a hawk. But here's the bet: how hawkish can he really be under Trump? If jobless claims stay contained and inflation continues to normalize, there's room for maneuvering. Inflation is cooling but still above target, with headline CPI around 2.4% y/y and core CPI about 2.5% y/y (latest CPI figures). A chair nominated to play the political game may not stay ultra-tight for long.

The problem zones? We'll map those out next.