The market will likely face correction. I expect a drawdown of 10% S&P/Dow and 15% Nasdaq until we get closer to midterm election or after.
Unlike tariffs (which can unwind), this Iranian conflict does not offer a simple solution. Trump will not be able to resolve it. Unless he is okay with the unrealistic terms that Iranian government proposing.
Iranian government will see to it that Republicans lose both congress and senate to rein down Trump's power.
At this point, even I am turning hawkish that the fed must raise the rate. If they don't, bond vigilantes will protest and sell off more long term treasury bonds. Raising the medium to long term market interest rate.
And Warsh will not provide any guidance as he raises the rates. There is also that uncertainty as well.
The price of diesel went up more than 50% the last time I checked. 70% for jetfuel. Both spot benchmark price. And it is still going up.
There are few tricks that the government can do. Relaxing regulation for banks to absorb the excessive bond supply. Or Fed committing operation twist. But these are painkillers, not antidotes.
During Russian war, the rest of the world (OPEC, the U.S., Canada, Latin America) were able to produce more to make up for it. When you take out Opec and Iran in this situation, we cannot make up for it.
Trump's administration heading to Russia is NOT about Russia/Ukranian war but trying to end Russian support for Iran. Iran helped Russians with their war. The Russians will help Iran. Iran's economy or national defence will not collapse.
We cannot turn on the money printer (Covid) because of inflation. Trump lacks capacity to end the situation (Tariff). I expect the market to correct itself meaningfully
I positioned myself 75% safe assets 25% stocks.