Global markets are still only pricing for modest disruptions from Iran war.

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Today’s Links

Tracking the Hormuz Strait in real time
Here is a useful site showing a live picture of the vessels in the Persian/Arabian gulf, showing the lack of ships transiting the Hormuz Strait. The red dots are tankers that are standing still, the green dots are other cargo vessels that are standing still. When they are on the move, they turn into arrows.

The US strategic playbook: a dumb blunder or 4D chess?
I don’t think this US move against Iran was taken as lightly or naively as some claim, and I would think it was driven by rather deep strategic considerations linked to its own allies and perhaps as well as to Iran’s allies and whether the US could disrupt the Russia/Iran/Chinese alliance in some meaningful way. But how strong or weak the US position is relative to China is one major point of uncertainty, as well as what might happen next. Here is one maximalist view that the US is launching a “geopolitical blitz” and is in the driver’s seat, ensuring that it will force a US-alignment of much of global energy output and that this is step 2 after a step 1 in Venezuela, with more to come. This is partially echoed by Anas Alhajji (use the X translation feature), who argues that the US is looking to demonstrate to China that the US can also disrupt vital supply chains China relies on, and not just for oil and gas. The longer term US strategy is to ensure that the energy prices are lowest in the US and much higher elsewhere, including in China, to ensure that production moves to the US and that it maintains a lead in AI data center capacity.

And then there are other views less sympathetic to idea that the US will succeed.
There are others out there that are not sympathetic to the idea that the US will succeed in this power gambit and claim rather that the US is stumbling into a trap coordinated out of Beijing, Moscow and Tehran. ‘And there is the angle of Iran’s asymmetric war and what would constitute a US strategic defeat (HT FTAlphaville for the linke). Time will tell who is correct, but at this point, the market is not pricing the implications of such big picture machinations and what the fallout may be would the one or the other side feel that it is losing the conflict or falling behind in the rivalry, however it should be phrased. One thing for sure, the US is operating completely outside of multi-lateral norms of the last many decades, which has enormous consequences for how the world “works” from here and will severely damage trust in the US.

Chart of the Day - Nvidia

What are we doing highlighting Nvidia on a day when virtually all concerns are linked to Iran and the Strait of Hormuz? Partially as a reminder of where we were before this conflict broke out and partially to consider what happens to markets if these high energy prices are sustained. Recall that the largest of all global companies in market cap reported its earnings on Wednesday the 25th of February, after the market close and days before hostilities broke out after the market close Friday. It was a very strong report with very strong guidance and the market sold the stock quite heavily on Thursday the 26th. The inference could be that the market is questioning the long term sustainability of Nvidia’s top-line and bottom-line growth beyond the coming handful of quarters at most. Hardware of almost every kind, after all, has eventually proven very cyclical throughout history and the spending on AI-data center hardware solutions can’t grow forever at high rates relative to the broader economy or the funds to drive the spending. Remarkably, the stock has and the US market has hung on to the range for a full week of this war in Iran and the huge ramp in energy prices even aside from the weak price action after the earnings call. Fair enough if energy prices rapidly normalize in coming days, but what if they don’t and we have to worry about higher energy prices almost across the board - data center growth would be even more constrained. Either way, the US market and Nvidia stock need to resolve one way or another. The 200-day moving average looks key and is hovering just below the recent price action.