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Sunday, April 5, 2026

2026-04-05

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


Economic Fare:


…... Several major bond fund managers, including JPMorgan Chase & Co. and Columbia Threadneedle Investments, reckon that higher bond yields this month are misjudging the risks of a slow down, according to Bloomberg News. “What tends to begin as an inflation shock can quickly migrate into a growth shock, and we are on the cusp of seeing a significant weakening in the economy,”



In its latest review of the impact of the Middle East conflict on the world’s economies, the IMF summed it up: “Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth.” .......




Red Sea supplies are also at risk now the Houthis have joined the Gulf war

......... Trump says America “doesn’t need” the Strait of Hormuz.

Who put that idea in his head? The US imports eight million barrels a day (b/d), either refined products or heavy crude to balance its refineries. It has four times the petrol dependency per capita of the UK.

............ Trump says the bombing campaign has already achieved “regime change” in Iran. Indeed it has, consolidating the power of the most virulent bitter-enders. It has scotched the snake, not killed it.

“What we are seeing in Iran is a transformation within the regime itself, one that has made it more extreme,”

......... Vali Nasr, the author of Iran’s Grand Strategy, a political history of the country, says the White House has misunderstood the country on every level. The hated clerical regime was dying and would have collapsed internally if outsiders had left it well alone.

The US-Israeli attack – and Trump’s hideous delight in inflicting violence – has given it a new and more dangerous lease of life.

...... JP Morgan says the world is facing a “ticking time bomb” as physical shortages hit fresh regions one by one: first South Asia, then the Far East, then Europe and finally the Western Hemisphere, reflecting tanker travel days from Hormuz.

Every corner of the globe will be hit by Apr 20 or thereabouts. Regional prices will converge via arbitrage and there will then be a planetary oil crisis with very few places left to hide.


Albert Edwards: SocGEN: Global Strategy Weekly: “Crisis? What crisis?” (via The Bond Beat)

…I’ve been reading a lot of scenarios about what might happen in the Iran war with President Trump making many contradictory statements – even on the same day (the $64,000 question for me is what happens if Trump pulls the US out, but Israel continues to bomb Iran). Most commentators and investors appearto not expect this war to wreak the economic havoc some of us still remember from the 1970s. That smacks of complacency to me…........

.... as @PeterBerezinBCA points out on X, “The forward P/E ratio for the S&P 500 has fallen from a high of 23.1 in late October to 19.5 at present. About one-third of the decline in the P/E ratio has been due to the drop in stock prices, with the rest being explained by the rise in forward earnings estimates. The fact that earnings estimates have continued to increase in the face of growing macroeconomic uncertainty is less reassuring than it might appear. Historically, earnings estimates have lagged broader macroeconomic developments. Perhaps even more importantly from an investment perspective, earnings estimates have also lagged stock prices.”

…And that’s the problem. The equity market may be looking in the rear-view earnings mirror and taking comfort from such robust profits growth, especially in the Tech/AI-related sectors (see left hand chart below). Indeed, I see loads of commentary talking about buoyant US profits upgrades. By contrast I have seen only one comment (and believe you me I look at a lot of stuff) that concurs with my contention that profits momentum has begun to stall (right hand chart). It's the second derivative that matters here. And just like in 1974, the market will catch on eventually.


"The centre cannot hold; Mere anarchy is loosed upon the world..."

I’ll cut to the chase. The Trump-Epstein-Netanyahu War could cause more deaths than any war in history, including World War II. This will not be via its direct casualties, but via deaths caused by its economic and agricultural consequences across the planet. For someone who exalts in superlatives, Trump may be responsible for causing more deaths than any previous tyrant in human history.

This is because the world economic system resembles Trump himself: its self-image is one of robust power, but its inner nature is one of incredible fragility. One month ago, many people would not even have heard of the Strait of Hormuz—which Trump, in his bravado, has just referred to as “the Strait of Trump”. Now everyone knows where it is—if not precisely why it matters. We are about to learn the hard way, via the consequences of cutting off this vital artery in the global economy’s circulatory system. 

This should have been common knowledge. But, just like Trump himself, our understanding of the global economy is based on an elaborate set of delusions. ............


Andre Chelhot: What If?
What If America Loses the War

To understand what it would mean for America to “lose the war,” one must first understand the system it built after the collapse of Bretton Woods, because what is at stake is not a battlefield outcome but the architecture of global power itself, and that architecture was reconstructed in the early 1970s when the United States, having severed the dollar from gold under Richard Nixon, faced the urgent need to anchor its currency in something else, something that would preserve global demand for dollars in the absence of convertibility, and what emerged, quietly, strategically, and with extraordinary consequence, was the alignment of energy, security, and capital flows into what later came to be known as the petrodollar system.

This system was never simply about pricing oil in dollars, as is often repeated in simplified narratives, but rather about creating a closed loop in which every economy that sold energy needed dollars and every economy that needed energy needed dollars, and every economy that sold energy accumulated those dollars and needed a place to store them, and that place was the United States, whose financial markets provided depth, liquidity, and political protection, while in return the United States guaranteed something far more valuable than any monetary arrangement: it guaranteed security, of regimes, of infrastructure, and of the maritime routes through which energy flows, and this implicit contract, oil for dollars, dollars for Treasuries, Treasuries for security, became the foundation of the modern global system.


Sleight of hand

You’ve heard it. Trump says it. Energy secretaries say it on Fox News with straight faces. “America is energy independent. We produce more oil than we consume. We’re a net exporter”.

It sounds great. It’s also, at best, a half-truth dressed up in a tuxedo.  ..............

The US produces a lot of crude. Record amounts, actually - around 13.6 million barrels a day in 2025. Nobody produces more. And yes, the US does export some of that crude to other countries.

But the US also imports crude. A lot of it. 6.2 million barrels a day, to be exact.

Do the math: 6.2 million barrels coming in, 4.0 million barrels going out. The US is a net importer of crude oil by 2.2 million barrels every single day. .............

Now here’s where it gets structurally weird, because even the crude picture has a twist.

The US produces light, sweet crude. “Light” means it flows easily. “Sweet” means low sulphur. It’s actually the good stuff - easier and cheaper to refine. The shale boom that made the US the world’s largest producer? Almost entirely light, sweet crude coming out of places like Texas and North Dakota.

The problem is that American refineries weren’t built for it.

Back in the 1970s and 80s, when the US was deeply dependent on Middle Eastern and Venezuelan oil, it built refineries to handle heavy, sour crude - the thick, high-sulphur stuff that’s harder to process but was widely available cheaply from abroad. Nearly 70% of US refinery capacity is optimised for that heavier crude. Then the shale boom happened, producing an ocean of light crude that most of those same refineries can’t efficiently process.

So the US does something that looks insane on the surface: it exports the light crude it produces to European and Asian refineries that can use it, and simultaneously imports the heavy crude its own refineries need.

Upgrading a refinery to switch between crude types costs between $100 million and $1 billion per facility. No1’s rushing to do that.

The result is the US running both sides of a crude oil swap trade with the rest of the world. Every day.

It’s not irrational. But it’s not called energy independence either in my book. ..............

The US shale miracle is real.

The energy independence narrative built on top of it isn’t.

And when you hear a government official say “we produce more oil than we consume” - ask them what kind of oil, processed through what kind of refinery, and what happens to the 6.2 million barrels a day that still needs to be imported from abroad. .....



Market Fare:

While a near-term bounce is possible, investors should position for more weakness ahead as deterioration has been significant but not yet extreme

As indexes pull back from their peaks, we tend to label the drawdowns based on their intensity. When an index is 10% off its high, it is “officially” in a “correction.” Once it is 20% or more below a peak, the “bear market” label gets used. The problem is that these “correction” and “bear market” designations serve only to confirm what has been experienced. They become study-able periods for historians, but there is little utility in telling investors that they should have reduced risk exposure a few weeks or months ago. Investors don’t need confirmation, they need real-time indicators that provide evidence of bull market and bear market behavior. ...........


The limits to growth are starting to weigh more heavily that the risk of inflation.

Bonds’ Silver Lining
Assumptions were made to be broken. An oil price spike automatically raises prices, so it’s bad for inflation. That generally causes bond yields to rise, as the assumption is that central banks will have to raise rates to combat the higher prices. But it also acts like a tax hike, forcing consumers and companies to spend less on things other than oil. All else equal, that justifies a rate cut, and lower yields.

Further, the logic of bonds is that they act as a shelter in times of stress — which means investors buy them during extreme uncertainty and conflict, like the past month. Thus it’s always been strange that the bond market unambiguously reacted to the Iran war’s inflation risk, but not to the threat to growth, and sent yields higher. Until now. .........


The Reflexive Rally Was Not Surprising

........... The difference between a durable recovery and a dead-cat bounce is almost always visible in the underlying fundamentals, not the price action alone. Right now, the fundamentals argue for caution.

Goldman’s own scenario analysis puts a moderate slowdown path at 6,300 on the S&P 500 and a severe oil-shock path as low as 5,400. Neither of those scenarios is priced into current earnings estimates. S&P 500 companies are still being modeled at roughly $309 per share in earnings for 2026, figures built on assumptions about GDP growth and energy costs that the past eight weeks have materially challenged. When earnings revisions begin in earnest, they tend to hit in waves. We’re likely in the early innings of that process, and it will impact forward returns. The reason is that the market trades off forward earnings expectations; if those expectations fall, the market reprices for lower earnings growth.



In his televised address last night Trump said the US was going to keep bombing Iran for another two or three weeks, and if Iran didn’t make a deal, the US would bomb them “back to the Stone Age.”

More on that phrase later.

But first a bit on the economics.

Promising to keep doing the thing that has brought the world to the brink of a global economic catastrophe, and threatening maximum escalation, didn’t go down well with the people who make numbers go up or down. The oil price rocketed, and markets sank. It seems the people behind the screens might finally be waking up to the looming disaster. They might be realising, belatedly, that very soon the molecules are simply not going to be where they are wanted and needed in the quantities required.

You can’t decouple the numbers from the atoms forever and you can only deny physical reality for so long.

And the physical reality is stark and stunning.  ............



Private Credit Fare:




A.I. Fare:





Shady, shifty, unethical chatbot behavior is rising fast, and now we know why. Call it the ‘No Body Problem.’


Regurgitated texts produced by technology are 85pc to 90pc similar to the original, study finds



"AI psychosis" or "delusional spiraling" is an emerging phenomenon where AI chatbot users find themselves dangerously confident in outlandish beliefs after extended chatbot conversations. This phenomenon is typically attributed to AI chatbots' well-documented bias towards validating users' claims, a property often called "sycophancy." .........


Heavy users of artificial intelligence report being overwhelmed by trying to keep up with and on top of the technology designed to make their lives easier


Experiments show large majorities uncritically accepting “faulty” AI answers.



Yesterday Dana, the kids, and I went to the theater to watch The AI Doc: Or How I Became An Apocaloptimist, the well-reviewed new documentary about whether AGI will destroy the world. This was surely the weirdest family movie night we’ve ever done. Firstly, because I personally know probably half of the many people interviewed in the film, from Eliezer Yudkowsky to Ajeya Cotra to Liv Boeree to Daniel Kokotajlo to Ilya Sutskever to Jan Leike to Yoshua Bengio to Shane Legg to Sam Altman and Dario Amodei. But more importantly, because this is a documentary that repeatedly, explicitly, earnestly raises the question of whether children now alive will make it to adulthood, before unaligned AI kills them and everyone else. So pass the popcorn, kiddos!

(We did have popcorn. And if the kids were scared — well, I figured we can’t shield them forever from the great questions of the world they’re entering. But actually they didn’t seem especially scared.)

I thought that the filmmaker, Daniel Roher, did about as good a job as can be done, in fitting into a 100-minute film a question that honestly seems too gargantuan for any film — the question of the future of life on earth. He tries to hear out every faction: first the AI existential risk people, then the AI optimists and accelerationists like “Beff Jezos,” then the “stochastic parrot” / “current harms” people like Emily Bender and Timnit Gebru, and finally the AI company CEOs (Altman, Amodei, and Hassabis were the three who agreed to be interviewed), with Yuval Noah Harari showing up from time to time to insert deepities.

Roher plays the part of an anxious, curious, uninformed everyman, who finds each stance to be plausible enough while he’s listening to it ...........



Quotes of the Week:

anon: “The market’s consensus seems to be that 30-50% of Gulf energy infrastructure getting wiped out will have zero lasting consequences. No plastics shortages, no fertilizer crunch, no chip supply issues from helium depletion. The tail risk is so catastrophically bad it can’t really be priced — so the default is just buy the dip and pray everything goes back to normal.”



Charts:
1: 
2: 
3:



(not just) for the ESG crowd:



From the Pacific Northwest to Antarctica, it’s extraordinary warmth that’s punching through climate norms with the most force.


And is there still potential?



Sci Fare:






U.S. B.S.:


The New York Times has printed an article with the headline “A North American Treaty Organization Without America?”, apparently having spent the entire Ukraine war completely unaware that NATO stands for North ATLANTIC Treaty Organization.

At the same time, CNN ran a segment on an American bomber whose plane was shot down over Iran in which analyst Amy McGrath suggested that the Iranians might help the pilot because they’re “happy” he’s bombing their country, saying the pilot would be worried because they don’t know “if you’re gonna be picked by somebody who is going to turn you over to the Iranian forces that are gonna use you and capture you, or is the population happy that you’re there?”

Really illustrates how fucked western journalism is, doesn’t it?

I mean, this is some serious baby-brained thinking on display here. That New York Times headline made it through multiple checkpoints before publication without it ever even occurring to anyone to at least do a quick Google search to find out if the A in NATO really does stand for “American”, and, if so, why are there so many European countries in it? That CNN analyst really does have such an infantile, children’s cartoon worldview on American wars that she thinks the people being bombed by American pilots will want to hug them and kiss them and give them presents when they emergency eject into enemy territory. It’s kind of amazing that any of the people involved in either of these incidents are working in news media at all.

If you’ve ever wondered why so many Americans are so ignorant about what’s going on in their world, it’s because for generations these have been the kinds of people informing them about world events. These are the news outlets who’ve been responsible for creating an informed populace. And their reporting is shared with the entire western world.

I constantly criticize the western press for its role in propagandizing the public to manufacture consent for evil wars and normalize an abusive political status quo. You cannot despise these manipulators enough for their role in the world’s dysfunction today. But these two incidents highlight the fact that the people running the western press aren’t just evil — they’re also really, really stupid. ........



War Fare:


“If this scenario is right, Israel fails. She brings down the Philistine temple, but hers is the only death, a suicide.”
—Yours truly

This is a Unified Field Theory of the Israel-Iran War. I think I know where it’s going, where it will likely (but not certainly) end, and why. Let’s take a look.

Note: This doesn’t present what I think will happen. It presents what I think is most likely. Please read in that light.

Background: Players and Goals
The players involved have these goals.

Israel wants Iran’s permanent destruction. This means all of the following:
  • The war must run until Iran surrenders, and any ceasefire must work entirely to Israel’s advantage.
  • U.S. military must stay engaged to the end.
  • All other potential regional threats must be neutered.
Iran wants an enforceable end to Israeli and U.S. attack. This means all of the following:
  • Withdrawal of the U.S. military from the whole Middle East
  • Permanent Iranian control of the Strait of Hormuz (like Egypt or Panama’s control of their own canals)
  • A ceasefire with Israel that Israel cannot break
Iran’s additional goals, like reparations and sanctions relief, may be negotiable.

The U.S. is mixed in its wants:
  • Neocons want to break Iran to secure control of all Middle East oil.
  • Zionists like House Speaker Johnson want to bring on imagined “end times.”
  • Most people with ongoing state power — like military and intelligence pros — want to avoid a loss that will end the Empire.
President Trump wants all of following:
  • To enrich himself and his family
  • To not be exposed via release of Epstein files and tapes
  • To not be labeled a loser (one of his great fears)
  • To live to the end in “a state of insatiable self-worship”
Players and wants, some of which overlap. Keep this in mind as you read on.

What Would End the Fighting? Only Defeat
For the war to end, all players must stop fighting. What does that mean in practice?

Iran must meet all of its goals before it will stop. Otherwise, there’s no guarantee the attacks won’t restart. Yet for Israel to stop, Iran must be completely defeated.

This alone guarantees that the fighting will go on until one of these two collapses — either Iran loses the ability to fight and its government surrenders, or Israel collapses as a state and a secular Palestine rises from what remains.

This could be the last big Middle East war for years. Its outcome could remake the world. .......





.................... Now, Saddam’s revenge.

If you’re old enough you remember the first Gulf War. Iraq invaded Kuwait. Saddam had asked for permission from the US and the response was one Saddam believed was positive. And, after all, Saddam had fought an entire very destructive war against Iran for the US: he was an American proxy. Kuwait was created explicitly over a huge oil reserve as a way of keeping it from Iraq, which it really should be part of: it’s a colonial era legacy state.

Well, the US didn’t approve and the Iraqis got slaughtered, their power, sewage and water infrastructure was systematically destroyed, then Clinton subjected them to savage sanctions which killed million. Estimates of child casualties were over 500,000, based on population studies. Clinton’s secretary of state, Madeline Albright, when asked about this, infamously replied that the deaths were “worth it.”

Anyway, Kuwait’s military is a joke, it’s right next to Iraq and conquering it would be trivial, since there’s no easy way for the US to get troops there. So, switch to China and the Yuan, finish kicking the Americans out, and conquer Kuwait. (No one will cry, Kuwait’s rulers are absolute scum.)

This is a historic opportunity for Iraq, and they should take it.



Geopolitical Fare:


............... But by the 90s the last smart competent American elites were dead or retired, and the triumphalism over the fall of the USSR made them think, a la Fukuyama, that their system was superior, their shit didn’t stink, and they’d be on top forever. Everyone would have their system, and everyone would just keep buying and selling in dollars no matter what: it no longer mattered where things were made.

The key moment was when Clinton let China into the World Trade Organization (WTO) with developing world status. ...........

And that, folks, is the end of the Western order. No one needs to buy from us any more. They’d still like to sell to us, sure, but they don’t need to because they don’t need dollars. If it’s something they need they can get it from China or, to a lesser extent Russia, India and so on. We don’t have a monopoly on anything that matters any more: the last real one was chip manufacturing, but the Chinese are catching up fast and confident that in a few years they’ll be there. In the meantime, they can make all but the most advanced chips and those are the ones that go in almost all manufactured good: the most advanced stuff is only useful for things like AI, and China’s find its way around that.

Now we come to Iran. Iran is showing that a fairly modest kit: missiles and drones, is sufficient to keep the US navy and air force far away and make any attack prohibitively expensive in men and material. Plus everyone knows that expensive US military gear needs Chinese supplies: the West doesn’t have the full kit any more, the Chinese can and in some case have, cut the West off any time they want. All those expensive radars the Iranians blew up? Well it’s not the cost (that’s irrelevant) it’s that they require materials on the Chinese have. They get rebuilt if the Chinese let America and there’s basically nothing the US can do about that. ..........

Anyway, the structure of Western dominance is now dismantled, by Westerners. Perhaps the Chinese could have industrialized fully without us, but it would have taken a lot longer and as long as we had our own industry and tech stack, it would have just meant a cold war situation with two blocs and, absent de-industrialization, perhaps the West could have held its own, though China is innately stronger than the USSR ever was, especially with Russia as an ally.

We did this to ourselves, or our elites did, because of sheer stupidity and arrogance. Don’t underestimate how bad this will be. I’m in the “better China as hegemon than America” crowd. I think they’ll kill a lot less people. But be clear, they are going to be a hegemon, at least in industrial terms and this is going to mean a serious standard of living drop in much of the West. .........


As shown by the Iran crisis.

I have argued previously that the defeat the West has been suffering in Ukraine is above all an intellectual one: not being able to understand what we are seeing means it’s impossible to respond effectively to it. But the problem goes beyond the fighting on the battlefield, to the nature of that War itself, and in particular its economic and political dimensions. This is even more the case with Iran, where not only is there no overall US strategy (as opposed to half-formulated fantasies and wish-lists) but where in addition Washington appears to be incapable of understanding that the other side does have a strategy with economic and political components, and is implementing it. As a result, all the media concentration recently has been on the movement of US troops to the region and their possible uses, as though that in itself was going to decide something. Yet in fact, the real issue is the development and deployment by the Iranians of a new concept of warfare, based on missiles, drones and defensive preparations, and the inability of the West, with its platform-centric mentality, to understand and process these developments. ...............

I’ve referred several times in previous essays to theories about changes in human consciousness over the millennia, and what this might imply. Iain McGilchrist has famously written about the increasing role of the left side of the brain (the Emissary) at the expense of the right side (the Master.) In his conception the left brain, which is concerned with precision and detail, should be the servant of the right brain, which deals in the “big picture” and is capable of setting objectives. He argues that the left-brain with its technocratic orientation has become increasingly and dangerously powerful in recent times. I would add that this increase in power is not necessarily experienced in the same way in all cultures, and that in the West it is very far advanced indeed. Why is this? .........................


No Plan for Hormuz, No Off-Ramp -- a New Phase has Begun



Other Fare:

Strategies for Employment, Housing & Loneliness

As the first fully online generation, Gen Z rejects pretty lies. As I documented in my piece on the increasing unattainability of the middle class, economic life is much harder for the rising generation, and they’re angry about the WWII and subsequent generations’ pulling up the ladder to enrich themselves and shifting inequality to extremes. I’m still working on an upcoming piece on the “postwar consensus,” but a lot of the more extreme positions taken by this generation are, in my view, driven by frustrating economics. When they see a narrowed path to family formation, little opportunity beyond hustling to get rich or die trying, and of course, all exacerbated by the envy engine of social media, they will reject the myths of a society that has, it seems, rejected them.

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