Duration Risk
What 36 hours of market action teaches us about the war.
“He who establishes his argument by noise and command shows that his reason is weak.” – Michel de Montaigne
Among the more predictable aspects of the war with Iran has been the thicket of propaganda saturating social media. Depending on what the algorithm thinks you want to believe, all manner of half-truths, exaggerations, and outright fabrications will be steadily fed to you, underpinned by the persistent mission of selling ads against your ever-decreasing attention span. The creators of what is being sent your way often have other motives, of course, chief among them shaping your opinion to fit their preferred narrative.
Yesterday, one content creator of note jumped at the chance to reset a particularly important narrative of his own. Never one short of audacity, California Governor Gavin Newsom laid bare his knack for raw opportunism when he sought to pin the long-festering gasoline crisis that is hammering his state on Trump’s fateful decision to go to war:
“Gavin Newsom sharpened his criticism on Monday of Donald Trump’s decision to strike Iran, arguing the president is pursuing a costly and open-ended war with little regard for American casualties or rising energy prices.
‘Look at your cost at the pump the last few days: That was an act of the Trump administration,’ the California governor told reporters…
‘They’re not doing a damn thing about affordability,’ Newsom said…
‘The only saving grace was gas prices,’ Newsom said, ‘and now they’re spiking up.’”
Political opportunism notwithstanding, the immediate aftermath of the outbreak of war has indeed significantly disrupted global energy markets, and much political fallout is surely just over the horizon. On Sunday, we published a preliminary set of predictions about how things were likely to unfold in the days and weeks ahead. Included among them were our views that the spread between Brent crude and West Texas Intermediate (WTI) would significantly expand, the price of liquefied natural gas (LNG) in Europe and Asia would explode higher, and international coal prices would catch a significant bid.
Two days have passed since that piece went live, and much market action has transpired. How did we do against the subsequent reality? What can we glean from the price action, and what do we expect next? Let’s do the analysis and ponder the possibilities from here.