Things you need to know
- The confusion continues. US sends Iran a proposal.
- Iran says, ‘No Deal.’
- Oil up, Bonds up, Gold up.
- SpaceX IPO filing could ‘confidentially’ be filed by month end. (I guess it is not so ‘confidential’.
- Try the One Pot Creamy Chicken Thighs
Good morning…. Let’s go –
Markets continue to trade in headline-driven swings as the conflict in the Middle East, oil prices, and shifting Fed expectations dominate the narrative. The swings came after reports that the U.S. delivered a 15-point proposal aimed at ending the conflict and reopening shipping through the Strait of Hormuz, which briefly sent oil prices lower and helped set a Risk On tone for stocks.
While stocks did close higher – they were well off of their intraday highs…and that speaks to reports suggesting the Iran ‘thumbed their nose’ at Trump.
At the end of the day – the Dow gained 305 pts or 0.7%, the S&P added 35 pts or 0.5%, the Nasdaq added 167 pts or 0.8%, the Russell rose 31 pts or 1.2%, the Transports added 112 pts or 0.6%, Equal Weight S&P added 35 pts or 0.5% while the Mag 7 took back 235 pts or 0.8%.
Ok – back to the middle east –
Iran has effectively rejected the U.S. ceasefire proposal, all while they said that they were “reviewing” it. They made clear that the initial response was not positive, calling the proposal excessive. So, you ask, what did we propose? Well here is a taste –
Iran needs to permanently abandon its nuclear weapons program, they need to agree to NEVER pursue nuclear weapons. Uranium enrichment has to stop. Nuclear facilities like Fordow, Natanz, and Isfahan have to be dismantled or taken out of operation. The IAEA would get full inspection authority to verify compliance.
Iran has to end their ballistic missile development and regional proxy support – think terrorist organizations – Hamas, Hezbollah and Hootie (and the blowfish) in Yemen…
And the kicker – the Strait of Hormuz must be reopened and maritime security guaranteed. Iran would allow free commercial shipping (and that includes oil tankers) through the Strait of Hormuz. This is critical, because the conflict has threatened global oil supply.
And now you’d say – wait – the Strait of Hormuz is in int’l waters – Iran has no authority. Well, you are right and wrong…..
Yes the Strait is considered int’l – BUT the waters are ‘technically’ parts of two countries – Iran and Oman – so ‘legally’ you could say they are correct. But let’s be clear – Oman is in NO position to defend the Strait.
And there are a couple of more BUT’s –
Because it is a critical global shipping route, int’l law created a special rule called “transit passage.”
Under the UN Convention on the Law of the Sea (UNCLOS)- All ships have the right to pass through continuously. Countries bordering the strait cannot block commercial traffic. Military and civilian vessels can pass as long as they don’t threaten the coastal states – so again – Iran cannot just shut it down.
BUT – Tehran claims that the rules don’t apply and this is where Int’l law slams into geopolitical reality.
Geography -Iran controls the north side of the strait and it occupies several strategic islands inside the strait. Oman controls the south side of the strait.
Military proximity -Iranian missile batteries, drones, mines, and fast boats can reach the shipping lanes quickly. (So what? That doesn’t mean they control it)
Chokepoint dynamics – Yes the Strait is 21 miles wide (seems big enough), but the shipping lanes are only about 2 miles wide in each direction – separated by a small buffer zone.
And here is why this matters – because the lanes are narrow – You don’t have to “close” the Strait to disrupt it. All Iran has to do is – Lay a few naval mines, sink one large tanker, threaten ships with fast attack boats and/or launch missile or drone threats.
And suddenly – Insurance rates explode, tankers refuse to enter, shipping slows dramatically as shippers refuse to put their assets at risk. And that means that oil stops moving even as the Strait is ‘technically’ still open. Thus, the spike in OIL and insurances.
Now – as you would imagine – Iran has offered their own demands that include – compensation for ‘war’ damages, closure of ALL US bases in the middle east, ongoing security guarantees, and recognition of Iranian sovereignty in the Strait of Hormuz (Yeah, how’s that working?)
So, while diplomacy is not dead, it is far from resolved, which means the geopolitical risk premium in oil and global markets is likely to remain elevated for now so expect markets to remain volatile. Period.
As a result of all this drama – Oil traded in a $5 range yesterday – a low of $88.50 and a high of $91.70 – to end the day at $90.25. This morning oil is once again trading higher – on the back of Iran’s ‘supposed’ refusal to accept the plan. At 6 am – WTI is trading up $3 at $93.50 – leaving it in the $84/$101 trading range. A range defined for us on Monday, March 23rd.
If we continue to get this back and forth without more bombs being dropped, then I expect oil will stay within this range. Now that all goes out the window if we 1 of 2 things happen.
We get an agreement and ceasefire – oil will retreat – most likely to the mid 70’s…and if Iran tells Trump ‘Shove it’ then expect oil to surge up and thru resistance at $101 and in that case – expect more bombs to drop.
Bonds pushed higher – the TLT and TLH up 1% and 0.8% respectively as investors sought safety.
The 10-yr yield fell to 4.33% down 2 bps, but this morning it is up 5 bps at 4.38%.
The 30-yr fell to 4.88% down 4 bps, but this morning they are up 5 bps at 4.93.
And all this does is continue to reflect investor angst. One day the fight is on and one day its off….and so the circus continues.
And gold??? Which has been all over the place – continues to be all over the place. On Monday – we tested long term support at $4,100 and then Tuesday we kissed intermediate term resistance at $4,620. This morning – gold is down $85 at $4,420. The moves being credited to the ‘headlines’ around the US 15 pt plan and Iran’s refusal. And so, like oil and stocks – gold will continue to reflect investor angst. For now – the range is exactly that – $4,100/$4,620.
Today’s eco data includes Initial Jobless Claims and Continuing Claims along with the Kansas City Fed Manufacturing Activity and while this is all expected to be supportive of a strong US economy – NONE of this will drive prices or action today.
On a separate note — SpaceX is reportedly preparing to file its IPO paperwork by the end of the month. Now this does not mean the company is coming to market immediately — it simply means they are starting the process. The actual offer could still be months away. Many on the Street expect the IPO sometime in late summer or early fall and given the company’s valuation — potentially north of $1 trillion — it could become the largest IPO in history.
The big question will be how the shares are allocated — whether the deal is dominated by institutional investors or whether SpaceX decides to give retail investors a meaningful allocation, which they absolutely could do if they choose.
My gut says that Elon Musk is a man of the people, and he may very well push for broader retail participation — something he’s talked about before when discussing democratizing access to markets.
But here’s the issue.
When companies allocate a large portion of shares to retail investors, the investment banks underwriting the deal often give up ‘some’ (not a lot by any means) pricing control and some of the typical institutional support that helps stabilize the stock in the early days of trading.
Institutions tend to buy large blocks and hold them, which helps keep the deal orderly. Come on now, let’s be honest –
If the stock soars on IPO day (which it most likely will) – who is kidding who? I represented institutions for 40 yrs in the marketplace, they are the first ones to ring the cash register, so stop.
In any event – the real question becomes: does SpaceX prioritize maximum price and institutional stability — or does Musk push for broader public participation even if it means giving up a little control of the process?
That will be fascinating to watch. Can’t wait to see who wins and what marketplace Elon chooses – NYSE or Nasdaq. (The prediction markets say Nasdaq).
Asian markets traded lower overnight as investors reacted to Iran’s apparent rejection of the U.S. proposal and continued uncertainty surrounding the conflict. Rising oil prices and the potential for further escalation kept risk appetite subdued across the region. South Korea lost 3.2%, Hong Kong down 1.9% and China down 1.3%.
European markets are modestly lower this morning for all the same reasons. Euro Stoxx – 1.3%, Germany down 1.4%, Italy down 1.2%, France down 0.9% while the UK is down 1.1%. Spain the biggest ‘winner’ only down 0.8%.
US futures are down…..Are you surprised? Dow futures down 330 pts, the S&P’s down 50, the Nasdaq down 220 and the Russell down 28.
The VIX remains elevated, and that is also contributing to the churn in equities. This morning the VIX is up $1.81 or 7% – a level that signals a bit more anxiety and nervousness in the market. Thus the weakness in futures. Remember – When the VIX sits in the mid-20s, it tells you that traders and algos – that dominate daily trading – remain nervous and reactive and when it gets closer to 30 – all that does is create even MORE nervousness, anxiety and reactiveness.
But remember – the anxiety creates opportunities for investors that have a strong constitution. Day traders will play all-day, long-term investors will be more strategic. That said, long-term investors see these periods very differently. Elevated volatility tends to create opportunities – as high quality companies get pulled lower (mispriced) along with the broader market. Something I have emphasized over and over again.
Meanwhile, the Gulf States – think the UAE, Kuwait, Bahrain, Saudi Arabia, Qatar and Jordan have issued a joint statement condemning Iran’s “blatant and criminal” attacks on their energy infrastructure, calling it a clear breach of international law.
The attacks coming from Iraq are believed to be carried out by Iranian-backed terrorist organizations loyal to the Ayatollah – groups like Kataib Hezbollah, Asaib Ahl al-Haq and Harakat al-Nujaba — all part of the broader Popular Mobilization Forces network that Tehran has spent years funding, training and directing across the region.
The Kataib Hezbollah group (different from Lebanon’s Hezbollah group) is considered the most capable of carrying out serious attacks on gulf state energy infrastructure and US interests.
The S&P closed at 6,591 – up 35 pts leaving the index below the long-term trendline at 6,630 for the fifth straight day – not what anyone wants to see.
We remain in the 6,500/6,630 trading range. If we fail to hold onto 6,500 – then look for the S&P to test 6,400/6,450 ish.. If we pierce resistance at 6,630 then I suspect we will have trouble moving much higher.. The short term trendline (6,835) is now crossing over the intermediate trendline (6,830) to the downside. Just another technical signal that suggests a sustained move higher at the moment is not in the cards – UNLESS of course we see an end to this conflict.
Call me at 561-931-0190 and let’s talk about risk and reaching your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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One Pot Creamy Chicken Thighs
You need bone in Thighs – skin on, olive oil, butter, diced shallots, sliced garlic, s&p, lemon zest and rosemary, heavy cream, Dijon mustard and lemon juice.
Start by seasoning the thighs with salt.
Melt a dollop of butter and olive oil in a frying pan – when hot – add the thighs skin side down and let them brown.
Once they are nice and browned, flip and brown for another 3 mins. Now transfer to a baking dish and put in a 375-degree oven for 20 mins.
Back to the frying pan, add the diced shallots and garlic -next add in some lemon zest and rosemary – cook for 3 mins…. Now add a ¼ c of water, ½ c of heavy cream, a tsp of Dijon mustard and a squeeze of lemon juice. Mix well and allow to thicken.
Now remove the chicken from the oven. Place thighs on a plate – use a bit of water to deglaze the roasting pan – add that juice to the frying pan. Mix well and allow to thicken.
Serve this over a bed of rice. Place the chicken on top and spoon the sauce over the thigh.
Buon Appetito.