Things you need to know
- This is not the time to panic and make emotional decisions – quite the contrary – this is the time to take stock of the coming price declines.
- Try the Penne Rigate with Bacon, Peas, Mushrooms and Cream.
**Our thoughts and prayers are with our military and our allies in this effort to end this conflict and allow Iranians to be free.**
Recall what I said in Friday morning’s note –
“There’s still no agreement between the U.S. and Iran, and with the weekend approaching traders don’t want to be caught leaning the wrong way if a negative headline hits over the next 48 hours.”
Guess what? They HIT! Iran’s ‘head’ has been decapitated.
Global markets under pressure! Trump drew the ‘RED’ line and told Iran not to cross it, they did, so he responded. (very different from the response by the Obama administration when Syria crossed his ‘RED’ line). Iran is now under fire, the Ayatollah is dead along with top leadership, the country is beginning to crack, Iranians around the world seen celebrating as the fall of this theocratic regime begins….
Markets are under pressure this morning as global equities react to the coordinated weekend military strikes on Iran — action taken jointly by the US and Israel after nuclear negotiations failed to produce a breakthrough. Japan lost 1.3%, Hong Kong lost 2.1%, Taiwan and South Korea down 1%. China and Australia ended flat. European markets all lower by 1.5% +. Defense stocks surging! Contra trades surging!
US futures pointing lower – but they are OFF the lows seen overnight. Gold – the ultimate safe haven asset play – is up $115 or 2.2% now trading at $5,393 – after trading as high as $5,419. It closed Friday at $5,278
Oil is surging – WTI up 7.4%, Brent is up 8.1% on the idea that supply disruptions will be an issue. The Strait of Hormuz is not ‘technically’ shut down, it is open, but tanker insurance rates are spiking, so tankers are turning around and dropping anchor rather than risk trying to negotiate it. Remember – 20% of global supply passes thru the Strait on a daily basis – it is a critical chokepoint – there is no other way out for the tankers if the Strait becomes unnavigable.
Let’s be clear — this didn’t ‘just’ happen overnight. Talks had been dragging on without meaningful progress, with Iran unwilling to accept key conditions around enrichment limits and transparency. This all began decades ago – 1979 (I was in High School) – the Islamic Revolution replaced the Shah with the current Islamic Republic – a regime that has faced longstanding international criticism for suppressing political dissent, cracking down on protest movements, enforcing strict social controls on women — and maintaining one of the highest execution rates in the world while also building out their nuclear ambitions – for no other reason than to terrorize the mid-east and the world.
Diplomatic efforts to come to the table and negotiate their nuclear ambitions in good faith has been building for decades, not days, not weeks, not months — but years. Multiple rounds of diplomacy. Multiple deadlines. Multiple administrations – all with little to limited progress – that was until Saturday morning.
Trump has been clear – ever since he was campaigning…. Iran will never have a nuclear capability, and they will fall in line with international norms while halting the funding of terrorist organizations…..organizations that we all know…Hamas, Hezbollah and Houthi rebels… After a number of attempts to negotiate – Trump made it very clear – you have 10-days to reconsider — a deadline that would have fallen on Wednesday, March 4th. But that timeline was accelerated as negotiations around key nuclear issues stalled and failed to produce any meaningful progress.
Then came Saturday – Operation Epic Fury was launched – and Iran found itself in a bind…..A massive military action taking out the Ayatollah along with a handful of others. Within hours of the joint attacks, Tehran launched a broad wave of missile and drone strikes against U.S. military installations across the Gulf region — including bases in Qatar, the United Arab Emirates, Kuwait, Bahrain and other allied host countries — and also fired missiles toward Israel and civilian infrastructure. Those drone strikes have now gone beyond US military bases – raising the temperature in the region yet again – causing even more angst for global markets. The key here is that these Gulf states hosting U.S. forces publicly condemned Iran’s retaliation, warning that expanding the conflict only destabilizes the broader region. Instead of rallying neighboring governments, the strikes appear to have reinforced the military action causing those gulf states to distance themselves from the regime.
Now the markets are forced to price in geopolitical escalation, potential oil supply disruptions, and the risk of further retaliation – that appears to be decelerating.
And this is what investors need to remember: Markets hate uncertainty. They price fear fast and stocks fall. The VIX initially spiked by 22% overnight – causing Asian markets to fall, European futures and US futures to plunge, but it has since backed off a bit and is up 17% at 6:30 am, causing futures to take some of those losses back….But remember this too – as quickly as they price in fear, they recalibrate just as quickly once the facts are clearer.
Now the key question is not the headline — it’s whether this becomes a prolonged regional conflict that materially impacts oil flows, global trade routes, and/or global economic stability. And that will become clearer in the days ahead.
This morning oil is up $4.80, or 7.1%, at $71.77 — and this move is about uncertainty. Period. The market continues to price in geopolitical risk, potential supply disruption, and the possibility of escalation. Expect gasoline prices to rise by about 25 cts if crude holds here. But unless supply is physically disrupted, those increases are likely to be temporary.
Now, there are reports that multiple Iranian naval vessels (9) were destroyed in the strikes, which could reduce the probability of conventional confrontation. But let’s be clear — Iran’s ability to threaten the Strait of Hormuz includes water mines, drones, and asymmetric tactics. So while naval damage lowers the odds of a blockade, it does not eliminate the threat to close it down and that may keep prices elevated – until that threat is eliminated.
And that’s why crude is reacting as violently as it is.
Bonds rallied on Friday – sending yields lower…the 10-yr ended the week yielding 3.94% while the 30-yr yielded 4.61%. This morning – yields are up by 3 bps – leaving the 10 yr at 3.97% and the 30 yr at 4.64%.
Crypto’s – unlike Gold- are NOT reacting……. Bitcoin is trading at $66k, Ethereum is at $1,950 and Solana is trading at $84.
European markets are lower – Spain – 2.2%, Euro Stoxx – 1.8%, Germany down 1.8%, France and Italy both down 1.6% while the UK is down 1%.
US futures are UGLY……Dow futures are -520 pts, S&P’s down 70, Nasdaq down 315 while the Russell is down 35. We will get ISM and S&P Manufacturing PMI’s – both expected to be in the expansion zone. – But none of this matters today…the focus is clearly on the conflict.
In addition – primaries across the country begin tomorrow – and that will set the tone for the mid-terms – and that will surely create more angst until that too becomes clear.
The S&P closed at 6,878 – down 30 pts – intermediate trendline support is at 6,830 and it appears that we will slice right thru that on the opening – expect the sell algo’s to kick in to overdrive, while the buy algo’s step aside – this creates a void in prices and vacuum in the markets. When that happens – stocks fall quickly, but in that fall is opportunity…. because in the end – geo-politics do not price stocks in the long term – it creates chaos – something we are seeing right now, but that is usually a short-term phenomenon.
Now, while the tone is decidedly negative and concerns are building, you should not be surprised…. We have been discussing this for months now. I suspect – a test of the long term trendline is now in sight…..If we go there, it would be a 6.5% pullback off the S&P high -a move that is well within a ‘normal’ trading range. Yes, some individual names will get hit harder, (and some already have) but the good names that get hit will be the ones you want to buy when this settles down.
And let me remind you of something important — for every seller there is a buyer. Under normal conditions that balance is routine. But when the narrative turns negative and the temperature rises, sellers become anxious. Buyers, on the other hand, are not, because if they were, they wouldn’t step in. Keep that in mind before you make an emotional decision.
Call me at 561-931-0190. Let’s talk about whether the risk in your portfolio actually matches your tolerance — because this works both ways. You may be taking too much risk… or not enough to reach your goals.
Take good care,
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Penne Rigate with Peas, Mushrooms and Cream
Yum…For this you need: the pasta, bacon, leeks, frozen peas, sliced mushrooms, heavy cream, s&p, butter, olive oil and plenty of fresh grated parmegiana.
Begin by bringing a pot of salted water to a rolling boil on the back burner.
In a large sauté pan – add the sliced leeks (the white part only) and cut up bacon to a pan with melted butter and a splash of olive oil. Sauté until the leeks are soft and the bacon gets a bit crispy. Next add the sliced mushrooms. Sauté until soft.
Now, add the frozen peas to the boiling water for just 2 mins…. now using a slotted spoon, add the peas to the sauté pan – keeping the water for the pasta.
Next add a cup of heavy cream and mix well.
Add the pasta to the boiling water and cook until aldente. Again, using the slotted spoon – add the pasta directly to the sauté pan and mix to coat. Now, add a ladle of the pasta water and mix again.
Top with freshly grated parmegiana cheese to create a delicious creamy sauce.
Enjoy.