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Saturday, March 21, 2026

2026-03-21

 ***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic Fare:


The head of the International Energy Agency told the Financial Times on Friday that the world is severely underestimating the scale of the Gulf energy shock, and that it may take at least six months to restore disrupted oil and gas flows.

Fatih Birol described the conflict, now in its third week, as "the greatest global energy security threat in history", and said it would take time "to have oil and gas rehabilitated".

"It will be six months for some [sites] to be operational, others much longer," Birol warned. ......


The US-Iran conflict has reignited recession fears. Here's what the data from five decades of geopolitical shocks actually shows about when or how these events matter.

...................... The US-Iran conflict deserves serious attention. It is a real event with potential economic consequences, particularly through its effect on oil prices and energy costs. But serious analysis requires separating what is knowable from what is speculative, and what is signal from what is noise.

The historical record is clear: geopolitical shocks do not write their own recessions. They accelerate deterioration that is already in motion, or they pass through economies that have the underlying strength to absorb them.

It goes without saying that a shock can be large enough to overcome any set of initial conditions, like economic lockdowns. Shocks definitely come with varying magnitudes, and that matters.

Today, the important cyclical engine of the economy has been weakening for 20 months, which is a real vulnerability. The weakening has been long in duration but mild in magnitude.

On the other side, corporate profit margins are at historically elevated levels.

The economy does not enter this shock from a position of strength in the cyclical sectors, but it also does not enter it with completely depleted buffers that were present in 2001 or 2008.

Market Fare:



Malinen: Deprcon Warning
Financial market collapse: Second warning

............. But make no mistake, if the war does not end soon, the markets will catch up. We expect volatility, in all markets, to increase notably next week. We urge you to prepare accordingly. 



............................. Most expect gold to do well in environments as these. Speculation is that it is ME/Asian selling, however this isn’t clear.

What it does show is that single macro asset return distributions are relatively static and don’t change often. This isn’t an unusually weak month for gold.

What it does show is that it is leaning on cross-asset correlations in a portfolio is what can get you undone. If you were holding gold as a hedge, you were probably too long equities at the same time.


The chart above shows the oil-equities correlation in different oil environments. If anything, it shows that the damaging negative correlation can increase more if past episodes are a guide.


A critical week for the world economy lies ahead

The coming week will be absolutely critical for the world economy as it faces a binary road that either moves it away from, or over the figurative cliff. This post explains the reasoning behind this and the investment implications

To cut straight to the chase, the origin for this pivotal moment is the Iran conflict, and in particular the blockade of the Strait of Hormuz, through which c. 20% of global oil traffic and many other essential inputs such as fertilizer, LNG or helium flow. This creates a setup akin to a ticking bomb, where every shut day causes gradually more damage, until a large rupture occurs

To illustrate this dynamic, please follow me on the below simple math, focussed solely on oil for now:
  • Daily global oil demand is ~105m barrels per day. Most of the oil produced in Iraq, Kuweit, Bahrein, Saudi, UAE and Iran, 21mbd in total, is shipped to global markets via the Strait of Hormuz
  • Oil is an inelastic good i.e. we really need it irrespective of the price. It is mainly used transportation (cars, trucks & planes) and industrial purposes (plastics, energy production)
  • The current flow of ships through the Strait has decline from ~140 to 3-6 per day. Thus, Hormuz oil volume has collapsed to c. 2mbd (mostly Iranian ships to China) vs the 21mbd pre-conflict. In other words, a 18mbd deficit is now at hand
  • However, a range of offsetting measures has been introduced. A pipeline that cuts through Saudi with spare capacity is now fully utilised (+4mbd), and more oil now flows from Iraq to Turkey (+0.5mbd) and from UAE to Oman bypassing the Strait (+1mbd). A globally coordinated release of strategic oil reserves (“SPR”) adds ~2mbd
This leaves a daily deficit of ~10mbd if counted generously. For an inelastic good this is a huge gap. Economic theory stipulates that to balance the market, the oil price would have to go high enough for 10% of consumers to give up, i.e. not use their car, halt the factory assembly line, not take that long haul flight etc. The price to do this would be very high, in particular on the industrial demand side ($200-300bbl?)

For obvious reasons, this scenario would crush the world economy and lead it into a deep recession. So why is the oil price not there yet? Three reasons:
  1. The main reason is that there is still a lot of inventory that gets eaten into first
  2. A secondary reason is a disconnect between paper and physical markets, and the focus on US benchmark WTI. Many refined oil products as well as oil originating in the Middle East (e.g. Dubai/Oman) are already at nosebleed levels
  3. Markets are pricing in some odds that the conflict ends shortly
......... Summary: If the Strait of Hormuz is not opened very shortly, enormous damage will be inflicted on the world economy .......



Silver is down 25% this month. Gold is off 13%. The world’s largest gas field just got bombed. Energy infrastructure is burning across the Gulf. Central banks have been stacking gold for three years straight. The structural case for precious metals has never - and I mean never - been more obvious.

So naturally, we’re selling.

“Efficient Markets”, ladies and gentlemen.

Subscribe now

Let me walk you through the exquisite logic of it all, because it actually does make sense, even if it requires a brief visit to the asylum to understand.

The textbook says war = buy gold. Geopolitical panic = safe haven flows. Every finance professor that didn’t enlist will tell you this. And the theory is actually correct. Reality just doesn’t agree with it. What they’re not accounting for is what happens when the war is your income stream. ..........

........... This war turbocharges the case for silver.


So the market’s response is, logically, to sell silver 25%.

I can’t even argue with this. I can only observe it, take a deep breath, and reach for my IBKR account. ............



A.I. Fare:



The evidence that artificial intelligence is a big fat bubble has, confusingly, gotten much stronger and much weaker at the exact same time.








QOTW:

Darius Dale:
Is it safe to buy the dip? 
Not Likely.
The US-Israel-Iran war remains far from resolved, and global liquidity will likely continue to ebb for as long as it persists. With the conflict exhibiting few signs of de-escalation, the probability that it devolves into a multi-month overhang for markets increases. Our deep study of economic and geopolitical history leads us to conclude that militaries don't destroy empires. Egos and excessive debt do.



Tweets of the Week:

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(not just) for the ESG crowd:



The South Pars Pulse: Why the ‘Energy War’ is Actually a Thermodynamic Singularity

The global media and geopolitical analysts are currently in a state of panic over the Israeli kinetic strikes on Iran’s South Pars gas field and the Asaluyeh onshore hub. Brent crude has breached $108 a barrel. Pundits are debating the economic fallout of blocked LNG shipments, the threat of Iranian retaliation against Saudi and Emirati refineries, and the implications for the upcoming US midterm elections.

They are entirely missing the point.

By treating the destruction of the world’s largest natural gas reservoir merely as a ‘supply chain disruption’, the geopolitical establishment is exhibiting a fatal, terminal blindness. We are no longer dealing with economics; we are dealing with physics.

The strike on South Pars is not an ‘energy war’. It is an unmodelled Thermodynamic Pulse that threatens to liquidate the biological carrying capacity of the entire Persian Gulf. .........

............... The methane forcing from the South Pars venting threatens to act as a localised atmospheric accelerator. If this localised greenhouse spike pushes the regional basin past the 35°C wet-bulb threshold during the upcoming summer solstice, the baseline carrying capacity of the region drops to zero. ............




Sci Fare:




U.S. B.S.:


Trump has escaped other predicaments of his own making, but there is something different about this one. The attack on Iran is so wildly inconsistent with the wishes of his own base, so diametrically opposed to their reading of the national interest, that it is likely to mark the end of Trumpism as a project. Those with claims to speak for Trumpism – Joe Rogan, Tucker Carlson, Megyn Kelly – have reacted to the invasion with incredulity. Trump may entertain himself with the presidency for the next three years (barring impeachment), but the mutual respect between him and his movement has been ruptured, and his revolution is essentially over.



War Fare:


................  The point is, though, that neither staying the course and trying to somehow outlast Iran via some attritional strategy, nor declaring “victory” and pulling out, is going to actually end the war. 

Even if Trump (with or without allied help) reopens the Hormuz Strait, declares victory and then simply suspends US airstrikes, Iran will remain at war with the US. It will look for every opportunity to strike back at the US and its allies including the Gulf states, and will do so with increasing creativity. ..................



Things really hit the fan earlier today after Iran’s largest natural gas field, the South Pars, was struck by Israel. This field reportedly accounts for 75% of Iran’s natural gas production and 80-85% of its electric grid. .........

............ But the claims that the Strait blockage doesn’t affect the US because the country doesn’t get its oil from there are specious: the countries that do get their oil from the Strait are not only intrinsically tied into the globalized economic system and supply chain network, but they provide products the US relies upon whose prices are tied to oil production in many direct and indirect ways. In short, the skyrocketing oil prices will have many second and third-order consequences beyond the limited ken of Donigula and his posse of myopic gnomes. ..........

Trump’s threats against Iran’s South Pars field and other oil and gas infrastructure are either hollow bluster or the rattles of terminal madness, because Iran’s response would likely finish off the region’s most critical energy hubs and send the world spiraling into an economic abyss for which the feckless orange bandit himself would be held accountable. .......


God help us all

........... Simplicius put it concisely enough that I’ll just quote the frame: Israel’s strategy is running on two tracks simultaneously. Kill the moderates to guarantee that only hardliners remain. Strike Iran’s most sensitive sites to guarantee that Iran retaliates against Gulf infrastructure, dragging the whole region into a fire large enough to force the world to “finish Iran off”. The South Pars strike this week - on the facility that powers 75-80% of Iran’s electricity grid - and the immediate Iranian retaliation against Qatar’s Ras Laffan LNG hub, were not accidents. They were that strategy, executing.

......................... Iran has thirty-plus speedboats patrolling the strait, boarding vessels, forcing unauthorised transits to turn back. “The Persian Gulf is now an Iranian lake”, as one analyst put it. That’s no exaggeration. It’s the geography, stupid.


......... The fact that Trump and Netanyahu seem momentarily chastened does not change the underlying dynamic. This war is a test to destruction. Reader ISL pointed to ISL March, 16-19: diplomatic impunity by NO1. This section summed up the state of play:

Iran’s declared terms are: reparations, closure of all US bases in the GCC, guarantees against future aggression.

The US’s declared goal is: regime change, denuclearisation, dismantlement of the “Iranian terror regime”.

Neither side has moved an inch. The only people who might have found a middle lane are either dead or sidelined.


batshit crazy:


I don't buy it (the supposed solution), but at least I like how he contextualizes the problem:



Israel just hit a major Iranian oilfield. Iran has said it will now hit Gulf oilfields in retaliation. Ali Larijani, probably the last person in the Iranian administration who could have negotiated an off-ramp, has been assassinated.

This war is about to enter the economic devastation phase. ...........

............ over the next few months expect shortages and increased prices and in some parts of the world straight up energy brown outs.

Unless you’re Chinese or Russian, don’t expect your government to do anything competent to protect you. Even if it can, it won’t, unless you’re part of the 1% at least.

Prepare. Perhaps we’ll be lucky, but don’t be count on it.




Geopolitical Fare:

....... This is the second stupidest war decision I’ve seen in my entire life. (The first was Ukraine refusing a very generous peace deal and, as a result, losing the majority of its fighting and breeding age male population.)

The war is lost. It was lost the moment Iran proved it could keep fighting and wouldn’t accept a peace without achieving its aims. The Americans, with, it appears, help from NATO nations, are going to try and open the Strait militarily. They will fail and it will be a military clusterfuck of epic proportions. There is approximately zero chance of opening the Strait, and if they are stupid enough to try and land marines, those marines are DEAD.

.................. America’s empire was doomed by Reagan and Clinton. Trump’s just bringing it to a messy end. But the decline could have taken another twenty years and been much, much less painful. Trump has decided to end it in the most spectacular and stupid manner unimaginable to anyone with the intelligence of a door-mouse. Meanwhile, Europe’s pygmy leaders are feeding Europe’s economy into a woodchipper, foot first and greasing the gears, “why is this machine so slow!? What can we do to speed it up?”

Welcome to the end of Western hegemony. It’s stupider, more venal and more darkly funny than I could ever have imagined.


The AI Bubble in 2026 (2/4)

............... For those who dream in marble, Pax Romana (Latin for “Roman Peace”) and its two-century span represents Western Civilization’s golden age: a period of relative peace bracketed by the rise of Augustus in 27 BC and the death of Marcus Aurelius in 180 AD. Nevermind that the Pax featured some of Rome’s bloodiest civil wars, foreign adventures, and revolts against imperial rule—the violence is the point, not a contradiction. Pax Britannica ran from the Napoleonic Wars to World War I and Pax Americana from the end of World War II through the Cold War—both are hailed as Long Peaces between major powers, even though revolts, genocides, and wide-ranging proxy wars were central features of these eras of supposed tranquility. To the marble fetishist, this is the selling point. A lack of scruples about using force to crush rivals abroad and irritants at home is the only way to deliver peace, justice, freedom, and security to our new empire. Every Pax has meant the same thing: the conditions an empire imposes on everyone within reach, named as though they were a gift.

............... Pax Romana had Britannia. With Pax Britannica, we have our pick of the litter but one resonant example might be the two Opium Wars against the Qing dynasty to force China into accepting British trade terms (buy from us the opium that is ravaging your society or else). For Pax Americana, we could craft a long list from Korea to Indonesia to Indochina to Latin America to swaths of Africa to Europe’s doorsteps—there are too many piles of corpses killed by Americans and their proxies to count. What will Pax Silica hold? As Helberg and company articulate in unambiguous terms: the targets are broadly any country that does not bend the knee—but specifically China. China controls roughly 90 percent of global rare earth processing—the materials refined into the chips that the entire AI edifice runs on—and so we must band together (on America’s terms) to undermine our great rival.

In his December briefing, Helberg said: “Our strategy is to create a competitive edge so steep, so insurmountable that no adversary or competitor can scale it.” We’ll speak in the language of peace but move with the logic of siege. Pax Silica will bind allied nations into a “coalition of capabilities”—Israel, Japan, South Korea, Singapore, the UK, and Australia signed on first—conditioning access to advanced chips on alignment with American supply chains and, implicitly, American foreign policy. It is, as Helberg said without apparent irony, a “new consensus” in which “economic policy flows from national security.” The Washington Consensus packaged structural adjustment as development. The Silicon Valley Consensus will package dependency as partnership.

Pax Silica does not need Pacific Rim signatories to be successful, however. It needs the Gulf. Qatar signed the Pax Silica declaration on January 12. The UAE followed on January 15. Between them, the Qatar Investment Authority and the UAE’s constellation of sovereign vehicles (Mubadala, ADQ, ADIA, MGX) control north of $1.5 trillion. Saudi Arabia’s PIF alone has nearly $1 trillion in assets. They also offer what few, if any, other partners can: patient capital at sovereign scale, cheap dispatchable energy to power the data centers that train the models, and a geographic position at the center of the India-Middle East-Europe Corridor (IMEC) that Washington has been trying to repurpose as a digital trade route. “For the UAE and Qatar,” Helberg told Reuters, “this marks a shift from a hydrocarbon-centric security architecture to one focused on silicon statecraft.” The dependency doesn’t shift, then. It deepens. Under oil diplomacy, the Gulf priced crude in dollars and recycled surpluses into Treasuries. Under silicon statecraft, the Gulf finances AI campuses, hosts American chips under American export licenses, and locks itself even more tightly into an architecture whose terms are set in Washington. ...................

All that aside, it’s worth asking: how long will Pax Silica last? Romana spanned two centuries, Britannica just shy one, Americana a measly half century. This is the multi-trillion dollar question that will determine what the next century looks like.

Six weeks, it turns out.

That’s how long the ink on the Pax Silica declaration was dry before the US-Israel strikes on Iran were followed by Iranian strikes on nearby Gulf states hosting American military bases and Big Tech infrastructure, as well as a closure of the Strait of Hormuz (through which 20 percent of the world’s oil passes through) and reports that Iran may be considering letting tankers through if they conduct trade in Chinese yuan instead of American dollars. .............



R.I.P. Fare:


................ As a scholar of communications and environmental history, I see Ehrlich’s difficult fight for the environment as emblematic of the vast chasm between science on one side and political culture influenced by the mass media on the other side.

And I see Ehrlich’s passing – along with others of his generation, such as Carl Sagan, E.O. Wilson and Jane Goodall – as a loss for a world that needs visionaries and public scientists now more than ever. Public understanding of science and technology is critical for political discussion, for environmental preservation and, in the words of British physical chemist C.P. Snow, for the sake of “the poor who needn’t be poor if there is intelligence in the world.” ..........



Other Fare:

Aurelien: The Morally-Challenged In Charge.
And it's getting worse.

.................... As it happens, and for reasons quite unconnected with these essays, I’ve been preparing to write something about George Orwell, whom I have always admired greatly as a person and writer, and I was struck once more by the way in which Orwell’s moral vocabulary, and even universe, now seem so utterly removed from ours. For Orwell, the greatest virtues were honesty and authenticity, and his philosophy could be described in one word as “decency.” He didn’t really care what people thought about what he thought, and what he wrote, which is why he was a relatively unsuccessful journalist until the end of his life, attacked from all sides. Likewise, Socialism, I think, was for Orwell primarily a question of the creation of a decent society, where people didn’t have to starve or live in unhealthy conditions. (He was always very critical of Utopianists of all persuasions: as he said, the point of Socialism was not to make things perfect, but at least to make them better.) Winston Smith’s famous observation 1984 that “if there was hope it lay in the proles,” was not a fantasy of some future revolution, but a pragmatic judgement that for any kind of society to survive at all, it was necessary to rely on the decency found among ordinary people, which the Party had abandoned as thoroughly as our current ruling class has.


The laudable loneliness of the Spanish prime minister.

............ Sánchez, Spain’s Socialist primer ministro since June 2018, has distinguished himself and his nation these past few years by taking strong stands against the Zionist terror regime’s genocide in Gaza, against the West’s support of it, against wasteful defense budgets, and more recently against the U.S.–Israeli war of aggression against Iran. He is currently in an excellently public confrontation with President Trump for his refusal to let the U.S. Air Force use bases on Spanish soil to service its bombing sorties over the Islamic Republic.

And here’s the thing—well, two things actually: By all appearances Sánchez revels in the isolation that befalls him due to his principled positions on the large questions of our time. And by all appearances this poised 54–year-old, an economist by training, shows up the rest of Europe’s purported leaders as a congeries of cowards who would not know a principled position if one were to bite them all on their backsides.

......................... But it is Sánchez who appears to have the larger picture in mind. Along with his government and his people, the Spanish leader signals repeatedly that the time has come to challenge the trans–Atlantic status quo and ultimately the world order altogether. .........



Pics of the Week:




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Monday, March 16, 2026

2026-03-15

 ***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic Fare:

Even if the Iran war ends quickly, governments will need to prioritise security of supply


Rationing, Abstraction, and the Thermodynamics of the IEA’s SPR Release

......................... But refineries do not run on financial tickers; they run on specific molecular profiles. The 20 million barrels per day currently trapped behind the Strait of Hormuz are predominantly heavy, sour crudes. These are the specific molecular inputs required to produce the diesel and asphalt that physically maintain the global logistical grid (Pmaint).

The US Strategic Petroleum Reserve, however, is heavily weighted towards light, sweet crude. Pushing 400 million barrels of light sweet into a global refining system desperately starved of heavy sour does not solve the biophysical deficit. It simply accelerates what I have previously termed the ‘Naphtha Clot’.

When refineries attempt to substitute light sweet crude for heavy sour, they produce an enormous excess of light distillates (like naphtha). Without the heavy molecules to balance the refining slate, naphtha storage rapidly hits tank tops. Once the storage is full, the refinery suffers a biophysical heart attack and must shut down entirely.

By attempting to manipulate the paper price of WTI with the wrong physical input, the IEA is not just burning the lifeboats; they are actively choking the very refineries they are trying to save. They are accelerating the systemic shutdown. 

If the IEA genuinely wished to manage this biophysical bottleneck, they would not dump light sweet crude to manipulate a stock ticker. They would acknowledge chemical reality and immediately implement demand destruction and chemical rationing. ........





Market Fare:




One thing that has become incredibly consistent during times of financial stress is all of the “green dots” on Bloomberg terminals on Sunday night. This Sunday night is likely to be no different.

There are plenty of questions being asked.... There will be time to figure out how we got here. What went right, what went according to plan, and what didn’t go so well. But now is not the time for that, at least not for investors and corporate decision makers. Now is the time to plan, adapt, and ensure the best possible outcome for what you are responsible for. .........


Breadth breakdown is becoming a tactical headwind at a time when the cyclical rally is struggling for support

In last week’s update, we highlighted our global trend indicator as it approached an important support level. This week’s update of that chart shows that it has continued to deteriorate, arguing that we are moving from a “return on capital” environment to a “return of capital” environment. Managing risk by moving to the sidelines is a well-tested approach to capital preservation. ...........


Honesty would fix all of this.

........... A fool and his money are soon gated.

The structural flaw was always in plain sight for anyone who wanted to look. These products sold “semi-liquid” access to 5-7 year illiquid loans. Quarterly redemption windows on assets that cannot be sold quarterly. It works fine in a rising market with steady inflows - you pay early redeemers with incoming capital, nobody notices the duration mismatch, everyone collects their fee. The moment net outflows begin, you discover you can’t sell the underlying assets fast enough to meet redemptions. So you gate. And then gating begets more outflows, because nobody wants to be last in line at a bank that’s already limiting withdrawals.

The people locked out of their private credit capital need liquidity from somewhere. Anywhere… NOW!!

They go to whatever markets still have it. Treasuries. Equities. Gold. Silver. Another hand on the sell button, for reasons entirely unconnected to the assets being sold.

And then there’s AI. Which is private credit’s dirtiest secret.

The entire AI buildout was underwritten on the assumption of either perpetually low rates or revenues materialising faster than costs. Neither happened. But there’s a layer underneath that is worse.
GPUs - the hardware the whole thing runs on - depreciate on paper over five years. In reality they’re obsolete in 18 to 24 months, because each new chip generation makes the previous one redundant. The book value says one thing. The resale market says something considerably more honest. Which means these companies aren’t just burning capital on growth. They’re burning capital to stay still - borrowing constantly just to replace hardware that’s carried on the balance sheet at a fraction of its real economic value.
Forty percent of private credit loan books are exposed to software companies running on this hardware. The loans were written against collateral marked at book value. Book value that always was a fiction. When credit tightens and those loans need refinancing or honest marking, you ‘discover’ the collateral backing a hundred-cent loan is worth sixty cents on a generous day. The ‘trillion-dollar oops’ is still unwinding. The house of cards was built on the carpet of cheap credit - and the carpet has been quietly shrinking since rates went up. Pull what remains of it.  ..........


Liquidity is deteriorating, margin is stretched, and the BTD crowd hasn't gotten the memo yet.

Summary: The weight of evidence favors more downside near-term. Bulls need to reclaim key levels — they haven’t. MO Liquidity Gauge hit its lowest reading since early ‘23 and is trending in the wrong direction — bad omen for forward 3-month equity returns. Sentiment and positioning nowhere near a full washout. Retail buying and margin levels near highs. Not a great look for risk assets. On the opportunity side — 2y USTs broke below a key range within a large compression, signaling a potential trend change. Coal is a major beneficiary from the conflict in the ME. And crypto is coiling.

QOTW via @Jesse_Livermore: “Best analogue I can think of for today’s market vibe is the period in mid Feb 2020 bf Covid when the news flow was uniformly negative but people weren’t selling bc they were bulled up on other themes and were scared of missing the uptrend that was set to resume once Covid faded.”

Jesse is spot on. We’re living through a major paradigm shift — multiple, actually — and the market remains deeply anchored to the recent past (as it has a tendency to do, see my AI Micron bull these from back in 2020 to learn why). The vol suppression, BTD mentality isn’t going away quietly. The next 6-12 months could be a very rude awakening. .................

3. We started last week short the Qs and added to the position as the week progressed. They’ve since closed below key levels on the daily and are now trading under their 200dma — the tape is confirming the thesis.

Nomura’s Charlie McElligott framed the broader dynamic well:
“The ‘Lazy Leverage’ that accumulated during sustained low vol is now being mechanically risk-managed lower as Commodity/Inflation/Rate-Vol risks simultaneously reprice... because the dirty secret is that every asset class is short interest rate volatility.”
Hard to say it better than that. ............



Bubble Fare:


 

 




When we think of the word “equilibrium,” a whole range of meanings may come to mind
  • “Supply equals demand.” (market clearing)
  • “All deficits and surpluses add to zero.” (accounting identity)
  • “Things are temporarily stable, with no impetus to change.” (steady state)
  • “Every action has an equal and opposite reaction” (Newton’s Third Law)
  • “Nature keeps perfect books. What changes on one side is balanced on the other. Every change in spin, charge, and momentum in one place is exactly accounted for elsewhere, so the totals never change.” (Law of conservation)
  • “Nothing is lost, nothing is created, everything is transformed. (Lavoisier’s maxim)
The word “equilibrium” is an invitation to recognize that nothing exists by itself, alone. Subject and object are two sides of the same coin – their interaction is a single phenomenon.

Even at the tiniest level of the universe, if we look at the polarization of two entangled photons, the spin of two electrons, or the state of two qubits in a quantum computer, we find that measuring one immediately determines the correlated outcome for the other, even far away, without sending any signal. While there’s no theoretical limit to entanglement, the record distance measured to date was between two entangled photons – separated by 747 miles – which is kinda cool.

All of this may seem very abstract, but we can see that the workings of “equilibrium” pervade even the most ordinary aspects of daily life.

At the most basic level, for example, we realize that there’s no such thing as a buyer putting cash “into” the market without a seller taking that same cash “out of” the market. Every share someone just bought is a share someone else just sold (or issued). The buyer, the seller, and the exchange are inseparable – their interaction is a single phenomenon. Talking about “cash going into the market” is like talking about the sound of one hand clapping.

This month, we’ll examine a whole range of examples involving equilibrium, all of which are directly relevant to current economic and market conditions. First, we’ll review the strikingly lopsided equilibrium that’s emerged across various sectors of the economy. This equilibrium helps to understand the record level of corporate profits in recent years – although the distribution of corporate profits is more closely related to whatever innovations and industries are dominant at any particular point in time.

Next, we’ll examine equilibrium in the securities markets – why prices fluctuate, what “flows” actually mean, and how fundamentals, information, and investor beliefs collaborate to determine prices and trading volume.

We’ll then examine the current insensitivity of investors to valuations, and what aspects of the current speculative bubble can and cannot be well-explained by passive “money flows.”

Finally, we’ll share some perspectives, rooted in finance theory, that help to understand how “glamour” companies gain market capitalization, and the beliefs behind the “bubble on a bubble” that we’ve seen in the information technology in recent years.

We’ll do more than the usual amount of math, because equations impose discipline – allowing us to escape from the muddy trap of hidden assumptions and verbal arguments that can often sound very convincing. ..................................



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(not just) for the ESG crowd:



World Oil Production Has Surpassed Another Peak. All’s Good, No?


Irreversible rifts in the global water cycle are driving shortages and droughts worldwide

................. This report declares that the global human–water system as a whole has already entered the era of Global Water Bankruptcy. While not every basin or country is water-bankrupt, enough critical systems around the world have crossed these thresholds—and are interconnected through trade, migration, climate feedbacks, and geopolitical dependencies—that the global risk landscape is now fundamentally altered.

Declaring Global Water Bankruptcy is not an exercise in rhetorical escalation. It is a necessary act of diagnosis. Without naming the condition accurately and adopting a proper discourse, governance will continue to be organized around the wrong question: how to “get through” a crisis and go back to how things were, rather than how to manage a permanent, post- crisis state and transform its institutions to establish a fresh, more sustainable relationship between societies and water.



War Fare:


........ Not this time. They forgot that in a real war you either have to completely win or the other side has to agree to end the war.

General Mattis once said “No war is over until the enemy says it’s over. We may think it over, but in fact, the enemy gets a vote.”

Now here’s the problem Iran has, they can’t negotiate with the US.

I mean, they could go thru the motions: send some diplomats, talk about terms, but there is no deal the US (or Israel) has ever made with Iran which they’ve kept. Worse than that, during negotiations they’ve killed negotiators and leaders.

Not only is there no point in making a deal with the US or Israel, since they won’t keep them, doing so is dangerous. Negotiations are just a time for them to re-arm and find new targets.

Russia pointed this out years ago, calling the US “Agreement Incapable.” There’s no deal you can make with the US which they won’t break. This was true before Trump, but he’s ramped it up to eleven out of ten.

So Iran has to keep going. They have to win the war. What’s a win for them? Well, at the least, all US bases out of the Gulf States and Saudi Arabia.

............ Iran let the US and Israel off the hook during the twelve day war. The US asked for a cease-fire and they agreed, then the US and Israel came back and tried again.

Iran must, and its leaders personally must, if they don’t want to be assassinated, war this win so decisively that neither Israel nor America will even think about attacking them again. Then, if the new leader is wise, they’ll get some nukes.

This war is, I suspect, far from over. This time America has really fucked around, and it’s really going to find out. Nor are the majority of its allies going to be happy about this as they run out of oil, gas and fertilizer. Further east-Asians have now realized that US bases don’t protect your country, they only make it a target. This is going to reign hell of the willingness of other nations to militarily cooperate with America.

Good chance this is America’s last big war. They’ll push around some Lat. Am countries, but this is it. If it isn’t their last big war, they’ll regret it, there’s no possibility now of winning a war with China or Russia.



........ We sincerely doubt that it will take anywhere near as long as six months for investors to recognize that this situation is not like financial upheaval, where a Greenspan-Bernanke-Yellen-presumed Powell put to bail them out. This is an accelerating real economy crisis, with downsides far more vast and comprehensive than even in the 2008 global crisis. That merely threatened the critical payment system but would have left productive capacity intact. As we have explained previously, the exposure here is not merely an energy price shock, as bad as that is. Nor is the risk even just that of energy shortages. The closure of the Strait of Hormuz also risks food supplies, chemicals, apparel, chips, and other key sectors which depend not simply on affordable but also on petrochemicals as a key production input or the Strait for transit.

Keep in mind that new tipping points are about to start kicking in. Kuwait has said will need to halt oil production in the next few days since it will have filled up its storage by then. We have pointed out repeatedly that not only can oil and gas production not be restarted quickly, but the “back to normal” time increases disproportionately based on how long the facility has been shuttered.

Even though Trump has projected enough confidence to apply balm to rattled markets,1 the content of his statements and his actions confirm that he is seeking an exit when Iran is not going to open one for him. Oil at a mere $90, charitably assuming that the Administration can keep feeding the delusions that go along with that pricing, will produce enough sticker shock at the pump and to other costs so as to fatally sink the already very poor prospects for the Republicans at the midterms. The Hill broke the story yesterday, Trump job approval sinks in new poll, showing a further 3 point fall to a net negative of ten points. The sample period was February 27 to March 3 and so would not capture the impact of energy price increase on voter views.

As we’ll detail below, Trump is trying to declare victory and exit, when the Iranians will have none of that, and neither will the hawks and apocalypse-seekers in his inner circle. His call to Putin on Monday to discuss Iran was an admission that Trump is scrambling for a way out. .............

If you doubt that Iran retains the upper hand, this video from Richard Medhurst, documenting the damage Iran has inflicted on US bases, should convince you otherwise.


America and Israel May Have Bitten Off More Than They Can Chew

............. Iran’s strikes cannot be dismissed as acts of scattered retaliation, the flailing lashing out of a dying regime. Rather, they represent a strategy of horizontal escalation, a bid to transform the stakes of a conflict by widening its scope and extending its duration. Such a strategy allows a weaker combatant to alter the calculus of a more powerful foe.


An asymmetric war that brings the global economy to a standstill could exhaust the US and force a ceasefire



Twelve days ago, Iran fired in response to being bombed. They fired again in response to the next bombing. And the one after that. The principle: You bomb us, we bomb you. Always escalating, yes, but still inside a framework. Reciprocal. Proportional. A war with rules.

That ended today.

The IRGC announced that Tehran’s policy of “reciprocal hits” is over. From now on? Continuous strikes. Not in response to anything. Not after a trigger. Continuously. The framework isn’t suspended. It’s been dissolved.

Col. Ali Razmjou, speaking for Khatam al-Anbiya - the joint command running all of Iran’s armed forces - issued three declarations that should raise every US commander’s hackles:
“We will never allow even a single liter of oil to pass through the Strait of Hormuz for the benefit of America, the Zionists, or their partners”

“Any vessel or oil shipment [...] will be a legitimate target for us”

“You should prepare for $200 per barrel”
That’s it. That’s the new doctrine. ............


Why there is much more at stake here than rising prices

Oil markets started the week in a sense of panic, briefly pushing oil prices above the $115 mark. Then, as the initial shock eased thanks to some reassuring comments from G7 countries, panic gave way to complacency as usual. The rest of the week then saw a slow rise in price—as if we were seeing some minor disruption—showing how utterly disconnected traders are from reality. Despite claims to the contrary the Strait of Hormuz is in a choke for two weeks now. Gulf countries affected by the blockade used to export 14 million barrels of crude and 6 million barrels of refined products through that narrow strait. ............


And to put current missile strikes into context: “Iran’s military actions on a zero-to-nine scale of its overall capabilities have barely reached two yet”—the same source added. In other words: Iran is fully prepared to wage a long—very long—war and keep the Hormuz Strait closed till conditions for a “permanent peace” is reached. .........................



Yves here. Das, while he makes some acute observations in this article, appears to have gotten his information about Iran, as English-speaking readers overwhelmingly have, from mainstream sources that amplify deep-seated, Orientalist hostility towards Iran. Iran’s objectives are not hegemonic. They are, however, exceedingly ambitious: to force the US out of the Middle East militarily, or at least so greatly reduce its footprint that it poses not much of a threat to Iran. IMHO, that is a minimum requirement. If the US were to have a Damascene conversion and concede that right now (as in agree not to rebuild the base that Iran has pulverized), Iran might be willing to allow traffic through the Strait of Hormuz on a metered basis, based on performance by the US versus agreed targets. But Iran looks likely to have to achieve that end through force. ........


Ignorance Isn't Always Bliss



The biggest story of the day is that Iran has muscled its way into both cowing and overpowering the US Navy into submission in the Strait of Hormuz.

But first, let’s back up a little bit and acknowledge that the IRGC appears to have went fully “to the mattresses” in this war. They are no longer playing games, and no longer willing to compromise. They have gained momentum and achieved military, political, and propaganda initiative and are now pushing their advantage. ...........



Yes, the Americans and Israelis are inflicting a lot of damage. But that damage does not appear to be degrading the military enough to really matter. It’s mostly hitting civilians. There is zero possibility of stopping Shahed drone production, they are made with fiberglass bodies, there are hundreds if not thousands of facilities which can make them. The US can’t interdict ground supplies from China and Russia, either, meaning that everything Iran needs to build more missiles, it can get.

And if you think China, especially, won’t send Iran everything it needs you’re whistling past the graveyard. China is winning big time from this war: its ships are allowed into the Strait and every single America ally in the East is seeing that the US not only can’t protect its allies, it can’t even protect its own bases.

Every major US base in the Gulf has been hit and as far as I can tell they’re evacuated. US forces in Iraq are being hit hard and can’t evacuate. Hezbollah is slamming the North of Israel hard, and so far they’re doing very well against Israeli ground forces (as expected, Israel ground forces are crap because they’re occupation troops used to beating up people who, at most, have some homemade weapons.)

The Strait is closed. It cannot be opened till Iran allows it. Period. Iran is hitting oil infrastructure across the Gulf and despite propaganda otherwise, no Gulf interceptors cannot stop Iranian missiles enough to matter, and they WILL run out of interceptors before Iran runs out of missiles, if they haven’t already.

I see zero prospect of America and Israel winning this war, and if Iran has any sense they won’t allow a ceasefire till they have done enough damage that the US and Israel will be scared to start a new war.  ..............

.......... As Iran I would accept nothing less than all Gulf States and Saudi Arabia kicking out all US bases and the US withdrawing entirely from Iraq. That’s the very least I would tolerate.

In the larger strategic position, this is genuinely the end of the American global Empire. The US had a “one shot” military, to use Will Schryer’s term, and this is the shot. It has proved that the US can’t defend itself or its allies and it will take at least a decade to restock interceptors, if China allows that, which, if they’re smart (and they’re usually smart) they won’t. Remember, the US can’t make ANY advanced weapons without supplies from China.

I’ve lived a long time now and I’ve seen a lot of stupidity from America, but this war is the stupidest thing I’ve seen America do other than making the original decision to send its industrial base to China.


Why the oil shock may push inflation higher - before monetary policy decides the outcome

............ With no clear path to an end that would satisfy all three participants in the war, I doubt the market has fully grasped what could happen then. It feels reminiscent of February 2020, when markets strongly downplayed the economic disruptions from Covid.



........... It is not surprising that a genocidal government would commit more crimes against humanity in this war, but it is important to recognize and condemn those crimes when we see them. Poisoning the air that the entire population breathes is a horrifying crime. The U.S. and Israel are inflicting monstrous collective punishment on one of the largest cities in the world in a war they started.



Canada’s prime minister Mark Carney said today he condemns Iran’s attacks on civilians and the de facto closure of the Strait of Hormuz.

Not a word about the 1,300 Iranian civilians murdered so far by the US and Israel, attacks which break numerous international laws. Not a word about the attacks on civilian infrastructure in Iran including schools, hospitals and the international airport. Not a word about the 170 school girls burnt to a crisp by American missiles. Not a word about the 10 million people breathing poison gas after attacks against oil storage facilities in Tehran.

The same Mark Carney who, I’ll never get tired of pointing out, was being lauded for standing up to Donald Trump just a few weeks ago is now siding with the unhinged, murderous conman some naively believed he was going to help contain.

There is a deep moral rot at the heart of the western elite ..............



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Related Fare:


.................. Our brains aren’t wired for prevention

So why don’t we learn from close calls?

Psychologists have long understood the human brain is terrible at processing invisible risks. We overreact to dramatic events but underreact to near-misses. We confuse luck with safety. And we discount what “almost” happened.

Three psychological traps are especially pernicious:
  1. Availability bias: We remember big disasters, but not the hundreds of times catastrophe was narrowly averted. This skews our risk radar.
  2. Confirmation bias: We assume a system is safe because it didn’t fail. But many systems survive not because they’re strong, but because nothing has lined up to break them — yet.
  3. Optimism bias: We know bad things happen to other people but assume our skill or luck will protect us.
Reason’s “Swiss cheese” model describes how disasters happen when weaknesses in multiple layers of defence align. A near miss is when they almost line up and something, often by chance, blocks the path. But unless we plug those holes, the next time, we might not be so lucky.

There are exceptions. Aviation, nuclear energy and air traffic control, so-called “high-reliability organizations,” understand this. Ideally, they treat every close call as a data point. They institutionalize reporting. They never forget to be afraid.

These organizations cultivate a chronic unease, a kind of productive paranoia. It’s not pessimism; it’s realism. They know that systems often drift toward failure unless they’re constantly corrected. That mindset is why they’re among the safest sectors in the world. ...........



.................. I repeat a question that I have asked before, but to what avail I know not: Why do Americans think the United States has 750 + military bases in over 80 countries, supported by a bi-partisan consensus? The answer is blatant except for idiots and those willfully blind, and there are plenty of both.

The United States is an imperial warfare state and these bases exist to wage wars around the world, as the U.S. has done.  End of story. ...........

One of the saddest realities of political life is the way people are fooled again and again by the propaganda these people and their media at the entertainment circuses that they own and that pass lies for news feed them. That it is the same slop dished out endlessly from different media cooks means nothing. The conservative media simply shout for war and more war, while the liberal play both sides (anti-war and pro-war) against the middle in a hypocritical manner to support the wars that the U.S. wages endlessly. The most insidious garbage is swallowed by those who consider themselves “intellectuals” and highly educated. ......................................

............ Enter Trump, who seems to be and may be clinically insane or just plain evil like his Israeli counterpart Netanyahu, and who on the face of it seems to contradict much of this inside-out approach to controlling the masses. Like a bull escaped from a pen, he just bellows threats and wages wars at home and abroad, seemingly not caring whether or not he convinces the population that his actions are just and in their interest. It’s as if he is announcing to all who voted for him, that they were fools to believe for a moment that he wouldn’t start any new wars and would end America’s “endless wars,” and to those who didn’t vote for him, “Fuck you, too.”

In the past, presidents felt compelled to try to justify through propaganda the wars and coups they waged, from Vietnam to Iraq to Libya, etc. No matter how obvious their lies, like Colin Powell holding up a little vial to show how Iraq had weapons of mass destruction (which he later said was a mistake and not a lie to cover his complicity), they told them and used all the propaganda at their disposal to make them sound true, having “journalist” friends and assets provide justifications. Trump seemingly doesn’t care.

Some say that is because he is a complete anomaly and was able to twice become president by some strange twist of fate. If that is so, it would be the first and second time in modern history that it happened. A man with no political experience, a comical reality-tv joke, a bombastic fat party boy with weird dyed hair who talks like a version of an East Coast Valley Girl, a womanizer, a very wealthy New York real estate wheeler and dealer, etc. gets the votes of middle Americans who are losing their farms and factory jobs and are angry at the government. All sorts of explanations have been given for this “anomaly,” except that it was not one, except in appearance.

Before Trump was first elected in 2016, it was accepted that one could never be elected president of the U.S. unless one checked off a list of boxes approved by the inner controllers of the Democratic and Republican parties. Independent or small party candidates like Ross Perot, Ralph Nader, Jesse Jackson were never given a real chance but were viewed as spoilers. In 2000, Trump entered the primaries seeking the Reform Party’s nomination but dropped out. He had no chance, even if he had won it, and he knew it. Then came sixteen years of burnishing his establishment credentials. So by 2016, and then again in 2020 and 2024, he was the Republican Party’s nominee, clearly a member of the establishment’s two-party club that had (and has) a lock on the presidency. He was an insider.

So if this insider is no longer following the traditional propaganda script of inside/outside, it is highly likely that those who control the political parties for the imperial ruling class have invented a new technique of mind control to serve their purposes. Since more and more people are starting to question the conventional propaganda as U.S. society cracks up, a new technique must be added to the old – a turning of things inside-out and further out, so to speak. Give Trump free range to say and do the most outlandish things, the things that many have come to suspect were previously said only by the hidden manipulators like Bernays and the CIA, and one side of the western “free press/media” will rip him for his grotesquely brazen mouth and actions, while the other will praise him. The latter will claim that he has finally liberated the country, while the former will rip him as a maniac. Both, however, owned by the same imperial ruling class that might disagree over tactics but not U.S. long term strategy, and knowing Trump got elected because he is a political insider which they must deny, will be satisfied that the masses are confused, angry, and divided, and therefore more easily controlled.

They call it “transparency,” and no one has to answer the question of why, under Republican and Democratic presidents, the U.S. has 750 + military bases in over 80 countries all around the world from which they have been waging wars for many decades, some of which have recently been attacked by Iran, after the U.S./Israel waged the current savage war of aggression against it in a continuation of The Great Game.

Orwell called it Doublethink in Nineteen Eighty Four ..........



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