War Note: A Crude Time for Patience, TACO-Howitzer, Latest Hormuz Developments, Asia Situation Part 7

In this War Note we discuss the latest energy market price action and relentless headline with a potential 'Hormuz announcement' tomorrow afternoon, we look at midterm can-kicking, and more...

Don Johnson (@DonMiami3), Chief Economist

Good Tuesday evening MacroEdge Readers & Community,

Today marked another ‘TACO-driven’ melt-up day, starting from the very early morning. At about 4am, we got another headline that Qatari mediators were confident they could have the Strait of Hormuz reopen within 24 hours… To match, the Secretary of the Treasury (who now comments on war matters) says that by the afternoon, or tomorrow afternoon, there would be an announcement to reopen the Strait of Hormuz. We’ve seen this same playbook now for almost 6 months - and the nominal-train continues to run itself hot (and off the tracks). It remains a very murky environment - with things like crypto actually starting, from a technical perspective, to look more constructive, while the high-beta names have all shot right back near or to all-time highs. The S&P and Dow both hit all time highs, with the Russel and Nasdaq not particularly far behind. This was expected with midterms now just 3 months out, and measuring the true ‘borrowed time’ in nominal terms remains a very complicated task. The action once again looks similar to April - when the Administration began a major sequence of TACOs against war escalation. Needless to say, this pro-asset melt-up regime remains inflationary, and it is unlikely that much changes, at least in midterms, from a policymaking standpoint towards assets now - barring a shock to the system at the moment, like 1987 - that some very smart minds are now highlighting. I think it remains difficult to get very bearish nominally - barring a black swan event like such - and until crypto leads lower to a greater degree - they’re going to continue the game of musical chairs:

I think an oil/price shock remains one of those potential events - as the Administration is simply kicking the can on a day of reckoning in oil markets. By pushing the front-end of the curve lower, they are only pulling forward relief in the interim. Broadly speaking, the technicals for the energy space continue to look positive and overlooked, amidst relentless government intervention on a global basis (a line once used frequently by Charif Souki, for those around in the Tellurian days). While the environment is unpredictable, we can simply play what is in front of us - and continue to watch for a major inflection point in energy markets that finally pushes things past the point that interventions can no longer stop momentum (ie: a snowball rolling down the mountain). We’re not at that point yet, but it’s something that by September could start rearing its head if the Strait of Hormuz remains in this *effectively closed* status. I find it highly unlikely that the IRGC will hand back control over the Strait - and it appears that there are battling factions now over the matter in Iran.

This evening - we’re going to take a look at what we’ll be covering the remainder of the week - including with our new offering release tomorrow evening with Oil and Gas Research, Portfolio Strategy, and Oil and Gas Economic Advisory services, and then shift into the discussion on our report topics:

• A Crude Time for Patience

• TACO-Howitzer

• Latest Hormuz Developments

• Asia Situation Pt. 7

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Remaining Reports for the Week

• Wednesday: MacroEdge Offerings Arriving in August, Non-Op Oil and Gas Opportunities

• Thursday: Midweek Macro Note

• Saturday: Redeye Macro Note - Reviewing the Week

• Sunday: Weekly Macro Note

A Crude Time for Patience

Crude oil was *once again* down relatively sizeably today on the back of a double-TACO before market open. The first came from the Qataris - and the second came from the Treasury Secretary, who stated that the Strait of Hormuz would be reopened by this afternoon (8/4) or the following - leaving this statement one more afternoon away from being false, yet again. It’s the same playbook we’ve heard over and over again for the past 5 months - a deal is around the corner, Iran is begging for a deal, on and on… The bigger reality is the US’ inability to wage war against a large regional opposing force that has significant natural resource control. The equity market and bond market have rendered the US in a fragile state, and escalation is something that the Administration will continue to dance around even as the wheels come off of the bus for one reason or another.

Yet another ‘TACO’ headline for the evening as of about 11pm ET:

More and more jawboning with little to no context - but proving successful time and time again - and they’re now almost 1:1 to each tanker attacked. I had this discussion earlier in the day - but it’s important to remember who’s at the levers of power right now - with one of them being a man who made a living manipulating the markets. Until we see a sustained bounce, or a retest of the uptrend and a move higher - this bleed lower has almost become mechanical - sort of like a volatility instrument:

While I am not sure it will be positive for equities on the aggregate for Hormuz to reopen - because the magnitude of damage will then have to be analyzed - I could absolutely foresee a situation where they announce that Hormuz is reopened and do a press conference even if it’s not. Going into midterms, I don’t think there’s going to be very many brakes applied to another nominal impulse - and they will be trying to spool up another blowoff at all costs, as we saw from April to early June in equities.

(Continued below: A Crude Time for Patience, TACO-Howitzer, Latest Hormuz Developments, Asia Situation Part 7)

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