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Sunday, April 12, 2026

2026-04-12

 happy birthday, brother

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


Economic Fare:


The Iran war and the closure of the Strait of Hormuz are a painful reminder that for all the changes of the past decades, much of the world economy still runs on oil. With every additional day of war, the effects ripple out through the rest of the world. Might our fate be decided by the price of oil? On a daily basis, I’m asked about the economic implications of the war. Here’s the not-so-good, the bad, and the ugly.

Can an oil price spike cause a global recession?

Absolutely. In fact, a significant portion of recessions, at least since the advent of fossil fuels, have been caused by spikes in the price of energy. Maybe you are still smarting from the collapse of real-estate prices in 2008, but historically, problems with energy costs have been a bigger problem. Those days are back. ............


Smells like Liberation Day.

Editorial note:

Before we start, a quick note: War is not a joke and I understand that real mothers and fathers are out there mourning dead sons and daughters. Honestly, I would rather not write about war and its effects on markets because I think the whole thing is gross. But this is my job, so I carry on.

Same deal with politics. I hate it. I dislike almost every U.S. politician on both sides equally. But normally you can quietly ignore all the political idiocy and hypocrisy because it doesn’t leak into the world of markets. In a sane world, good government works like a good referee: present, enforcing the rules, but invisible.

Bad and self-centered showboat referees and umpires make themselves the center of the game. The current government is the biggest, most interventionist, and most publicity-seeking of my lifetime and is constantly intervening in markets via direct state intervention or random policy shocks. So as much as I would prefer not to write about politics or war, I don’t have much choice.

My only other option would be to move to Maine and write novels—but I’m not quite ready to do that yet. Soon, but not yet. So while it often sounds like I am anti-Trump… Really I am anti-big government, anti-war, and anti-politics. I hated Biden’s 2021 fiscal stimulus and I hate the relentless government interventions in 2025/2026. I am an equal opportunity hater.

End of intro. Let’s get started.

I do believe there is a world where oil prices can remain high, supply can remain an issue, and stock prices just ramble on back up to the highs. Much like the cacophony in 2018 with China and the Liberation Day on/off switch, this feels like another situation where the fire gets hot enough that the arsonist finds a firehose, and that eventually leads to calm as people see the random policy shocks are fundamentally mean reverting as some or all of the actors have a finite pain threshold.

The simplest question in a world where 40% of the stock market is tech or tech-adjacent is: Will this thing hurt tech earnings or valuations? If the answer is no: ramble on. In 2022, the market thought the answer was: Yes, Fed hikes will torch long-duration assets. But that was not the case. Same deal in 2025 with the tariffs. Manufacturing is a tiny part of the U.S. economy and American consumers were able to pay the new tax. Even as tariffs created a new wave of inflation, it came on the heels of a disinflationary period so it all kind of cancelled out.

............... People like to make fun of the ECB for hiking in 2008 and 2011 but ultimately in the face of an oil shock, you have to make a decision. It could be right or wrong in hindsight, but you don’t have a time machine. If you don’t hike, oil might keep running and inflationary expectations could spiral out of control. If you hike, you crush demand, and oil prices will eventually drop in response. Sure, they can’t print oil, smart ass, but they can sure as heck dampen demand for it. :]



As the geopolitical theatre surrounding the ‘fragile truce’ between the US and Iran unfolds, a far more severe material crisis is quietly metastasising within the global supply chain. The physical reality of a month-long closure of the Strait of Hormuz is only just now preparing to hit Western shores, as the temporal lag of global shipping finally runs its course.

Orthodox economists and market commentators, trapped within the mechanistic worldview of the Strong Enlightenment tradition, are reflexively dusting off their 1970s playbooks. They are universally bracing for a massive, stagflationary price shock.

They are fundamentally wrong.

When the biophysical disruption of Hormuz finally collides with the current macroeconomic regime, the result will not be traditional consumer inflation. It will be a catastrophic deflationary liquidity crisis ..............

The modern global economy is entirely dependent on heavy industrial middle distillates—diesel for freight, shipping, mining, and agriculture; jet fuel for aviation. But to maximise those specific yields, the massive deep-conversion mega-refineries on the US Gulf Coast are physically engineered to process heavy, sour crude—the exact type of sludge that flows out of the Middle East.

By cutting off the Strait of Hormuz, the US has inadvertently starved its own refineries of their required feedstock. When these refineries are forced to run their own domestic light sweet shale oil through hardware designed for heavy crude, the diesel yield collapses while producing an immense, unmanageable glut of petrol and naphtha.

We are structurally trapped in a 19th-century yield profile while trying to operate a 21st-century heavy industrial supply chain. We have plenty of the fuel required to run consumer saloons, but we are running out of the specific biophysical exergy required to run the tractors, the container ships, and the freight trains that keep civilisation alive. ...............


Market Fare:




................. The most crucial dynamic to understand is that this parabolic melt-up is a purely financial phenomenon. While the indices explode upwards, a fatal divergence is occurring on the ground: the real, physical economy is being systematically starved of capital.

This is the mechanical result of the Resource Entropy Singularity. Real economic activity is not made of money; it is made of work, and work requires physical exergy. When the Middle East is blockaded and diesel crack spreads hit $74, the physical friction of doing anything in the real world—mining iron, manufacturing goods, or transporting food—becomes thermodynamically prohibitive

........................... The Linguistic Thinkers in the financial media are pathologically incapable of observing a terminal margin call. When they see a green arrow on a screen, their operating system immediately forces them to map it to a positive, grammatical narrative.

They attribute the hyper-inflationary explosion of the Nikkei to ‘cautious optimism’ over a geopolitical ceasefire. They cannot comprehend that a ceasefire does not instantly manifest the physical molecules required to restart the Asian petrochemical industry, nor does it reverse the 15% US tariff vacuum that is actively destroying the Yen. The market is not rallying on the hope of peace; it is melting up on the raw panic of base collateral destruction.

The financial press is looking at the thermal signature of a dying fiat currency and reporting it as a triumphant victory for diplomatic statecraft. ..............


Investors questioning private credit’s numbers could do the same at private-equity funds

............ Private-equity funds, for example, have ample opportunities to book large gains with subjective valuations and hold them in place for years. Unlike a debt-focused fund, where the upside is capped, a private-equity manager can manufacture home-run performance on paper by marking up ownership stakes in closely held companies or other private-equity funds


Today’s Private Credit Isn’t the GFC
  • In 2008, banks were levered anywhere from 25 to 40 times, primarily funded by short-term deposits and heavily exposed to subprime housing. The underlying assets were 90%+ loan-to-value mortgages, layered with complex derivatives that obscured the risk.
  • Simply put, this in no way resembles what is happening today.
  • In private credit, Business Development Companies (BDCs) typically borrow less than 1x their own capital. They use structures that don’t rely on deposits or overnight capital. And they lend to companies, not subprime homeowners, usually only around 40% of what the business is worth.


A.I. Fare:

Why Claude Code changes everything



............... Ciriello is one of five skilled workers aged 50 and older who spoke to the Guardian about how, after struggling to find work in their fields, they have turned to an emerging and growing category of work: using their expertise to train artificial intelligence models.

Known as data annotation, the work involves labeling and evaluating the information used to train AI models like Open AI’s ChatGPT or Google’s Gemini. A doctor, for example, might review how an AI model answers medical questions to flag incorrect or unsafe responses and suggest better ones, helping the system learn how to generate more accurate and reliable responses. The ultimate goal of training is to level up AI models until they’re capable of doing a job as well as a human could – meaning they could someday replace some of these human workers.

The companies behind AI training, such as Mercor, GlobalLogic, TEKsystems, micro1 and Alignerr, operate large contractor networks staffed by people like Ciriello. Their clients include tech giants like OpenAI, Google and Meta, academic researchers and industries including healthcare and finance.

For experienced professionals, AI training contracts can be a side hustle – or a temporary fallback following a layoff – where top experts can, in some cases, earn over $180 an hour. But that’s on the high end. For some older workers like Ciriello, it represents another thing entirely: a last refuge in a brutal job market that is harder to stay in, or re-enter, the older they get.



Quotes of the Week:

ChatGPT: Punchline: The market got a ceasefire, not a cure—so bonds are dating peace, not marrying it.



Charts:
1: 
2: 
3:



(not just) for the ESG crowd:

Study shows thawing permafrost releases much more greenhouse gas than expected

............... Globally, permafrost is estimated to contain about 1,700 billion tons of carbon, roughly three times the amount currently in the atmosphere. 

If warming causes more of that carbon to be released as carbon dioxide and methane, it risks creating a feedback loop: warming causes thaw, thaw releases gases, gases cause more warming. ...........



U.S. B.S.:

Notes on American exceptionalism, militarism, and the much-needed force of antiwar politics.

............... The media scribes who feed Americans information evade both America’s habit of war crimes and the false pretenses on which war crimes are being committed; they channel your attention only to these sociopathic cost-benefit questions about whether despicable acts of evil are maybe good (or not so good) for Americans. 

................ If the language of opposition to one war is the language of much larger war preparations elsewhere, then we are lost. At minimum, it’s a sign of just how hegemonic militarism is in American life.



War Fare:


........... We are seriously concerned about strikes that have hit schools, health facilities, and homes. The Iranian Red Crescent reports that “67,414 civilian sites have been struck, of which 498 are schools and 236 health facilities.”





............ Then there’s the fact that two C-130s were used to extract a single downed pilot—a plane meant to carry nearly 100 passengers. Does that strike anyone else as a little suspicious?

........ This puts the failed US clandestine operation 35km southeast of one of Iran’s main uranium sites.

It is therefore only logical to speculate that the F-15E “rescue” operation was a fake meant to smokescreen and conceal something more nefarious.

........................ Iran’s actual airforce, ballistic missile force, etc., has hardly been touched. It’s all underground and bunkered up in the east of the country, with the IRGC dispersed all over and simply “waiting the US out” until key offensive munitions run out.

....... This is precisely why Trump has now shifted to hitting only civilian infrastructure, as per his deranged rant earlier. He has nothing left to hit that could possibly move the needle at all—he’s out of options.


The consequences of the war with Iran will break Western hegemony and place significant resources and power into the hands of the Global South much more quickly than would have been the case under peaceful scenarios. Trump is merely deciding how deeply the world will be drenched in blood along the way.

It is truly staggering to realize that the Western media still have not recognized that this war against Iran—which Israel and the United States are waging in a manner that defies every legal and moral standard—is already lost, and that the consequences are already written in bold letters on the wall: Western hegemony is a thing of the past; the fate of the EU and NATO hangs by a thread; West Asia will have new masters; and Iran, as one of the oldest civilizations on Earth, will once again assume its rightful role in the future. 

In this article, I will first examine the final outcome, which is already foreseeable, since the balance of power and the parties’ sustainability are obvious, and the fanatical aggressors’ capacity for escalation is far more limited than it appears at first glance. The war may come to an end in various ways, but the result will be the same in any scenario. The question is “only” how deep President Trump is willing to wade through blood. The death toll is directly proportional to the duration of the conflict.

So I’ll start with the end of the story, since the ending is easier to outline than the path leading up to it. ...........



................. Eleven: Iran is not going to sign a ceasefire deal, because they know that Israel and the US will keep assassinating their leaders and eventually launch another war. Well, I was WRONG. I suspect Iran’s making a mistake, but we’ll see. Iran is saying Trump accepted their 10 point proposal, if so Iran won the war and this ceasefire makes sense.

Twelve: There can be no peace deal which leaves the US any bases in the region, because the US is, to use the delightful Russian phrase “agreement incapable.” The US has never kept any agreement it didn’t feel like keeping and it certainly won’t do so with Iran. Any promises to never attack again and stop assassinations cannot and will not be trusted by Iran’s leadership. This means Iran must win the war decisively, in a way that makes it as difficult as possible for the US to attack again (no bases in region) and Israel too scared to do so because they know any attack or assassination will mean immediate and savage retaliation.

Thirteen: The Iranians have included Lebanon and Hezbollah in their demands: Israel will have to withdraw from Lebanon and stay out and not bomb it ever again. Again, this is a maximal goal and requires a complete victory.

Fourteen: Iran is never giving up control over the Strait of Hormuz. This is especially true now that their industry and civil networks have been hit hard. They will need a lot of money to rebuild. They have also said they want reparations. I don’t think that will happen, but I could be wrong. The more damage the US and Israel do, the more Iran is incentivized to use Hormuz as a lever to get money. ....................

Nineteen: Barring the use of nukes, Iran will win this war. The longer it takes and the more damage that is done to them, the more they will use their control of Hormuz and their ability to hit any Gulf State, to obtain the needed reconstruction funds and assistance.

........... Twenty-One: The economic impact of this war, even if it stopped today, would be bad enough to cause a major worldwide recession. If it continues, we will see economic devastation which will last for years. There will be famines. There will be brown outs and blackouts. Jet travel will only be for the wealthy. ............


How the United States lost control—and Iran gained it


(there are no good ones)




This will not last for long... 

...................... Whether the war lasts for a few weeks or months from here on, it will continue. Do not trust any ceasefire nonsense. It’s here just to provide a short breather and for markets.


The Netanyahu government wants different things than the US, so even if Trump wanted to pursue peace, his 'partner' is likely to make things difficult


Killing the Negotiators Doesn't Help

........ On Tuesday evening (April 7th) when the American press began reporting the alleged details of the cease fire agreement, it quickly became apparent that the Americans hadn’t read the Iranian proposal. The American press was reporting that the Iranians had agreed to the Trump administration’s ’15 Point’ plan while the Iranians were under the impression that the US had agreed to the Iranian ’10 Point’ plan. There is little overlap between the two plans. In other words, there is no conceptual basis for peace negotiations.

......... Recall that Donald Trump’s first announcement regarding the alleged cease fire deal was that the Strait would be immediately reopened and that ship traffic would transit the Strait smoothly. Had Iran capitulated on control of the Strait, its main source of economic leverage against the West would have been given away. That the Strait is still closed suggests that the Iranians finally understand who they are dealing with.

................................ With respect to Iran, Trump is calling on NATO to open the Strait of Hormuz for the US. Apparently, no one has explained to him that through both strategy and geography, Iran will control the Strait for the foreseeable future. Trying to enlist other nations in a fool’s errand is a fool’s errand. It indicates that Trump simply does not have the mental capacity to lead the US back out of the mess that he has gotten us into. The triumvirate of crazy, stupid and evil are coalescing. But again, Trump is but a symptom. Biden brought us to the same place in Ukraine.

..... With the Iranians knowing most of what is written here, their choice to move ahead with negotiations suggests either knowledge of facts that we aren’t privy to, a need to keep China on Iran’s side at whatever the cost, or a basic human willingness to talk in order to work through problems. Again, it appears that they know who they are dealing with now.

................

The complete statement from Iran regarding the alleged cease fire with the US can be found below my comments in bold. It the best explanation of recent Iranian actions that we are likely to get.

.................. The honourable nation of Iran must know that, by the grace of their children’s struggle and their historic presence on the scene, the enemy has been pleading for over a month for the cessation of the fierce fire of Iran and the Resistance. However, the country’s officials—because it had been decided from the very beginning that the war would continue until objectives were achieved, including the enemy’s regret and desperation and the removal of long-term threats from the country—gave a negative response to all these requests, and the war continued until today, which is the fortieth day.

Furthermore, Iran has so far rejected several deadlines presented by the President of the United States and continues to emphasise that it grants no importance to any type of deadline from the enemy.

We now give tidings to the great nation of Iran that almost all war objectives have been realized and your brave children have driven the enemy to a historic helplessness and a lasting defeat. Iran’s historic decision, backed by the unified support of the entire nation, is to continue this battle for as long as necessary until its massive achievements are consolidated and new security and political equations are created in the region based on the acceptance of the power and sovereignty of Iran and the Resistance.

.......... To this end, while rejecting all plans presented by the enemy, Iran drafted a 10-point plan and presented it to the American side via the country of Pakistan. It emphasized fundamental points such as controlled passage through the Strait of Hormuz in coordination with Iran’s armed forces (which grants Iran a unique economic and geopolitical position), the necessity of ending the war against all components of the Axis of Resistance (which signifies a historic defeat for the aggression of the child-killing Israeli regime), the withdrawal of U.S. combat forces from all bases and deployment points in the region, the establishment of a secure transit protocol in the Strait of Hormuz such that it guarantees Iranian dominance according to the agreed protocol, the full payment of Iran’s damages according to estimates, the removal of all primary and secondary sanctions and resolutions of the Board of Governors and the Security Council, the release of all blocked Iranian properties and assets abroad, and finally, the approval of all these items in a binding Security Council resolution. It is worth noting that the approval of this resolution will turn all these agreements into binding international law and will create an important diplomatic victory for the nation of Iran.

Now, the honourable Prime Minister of Pakistan has informed Iran that the American side, despite all outward threats, has accepted these principles as the basis for negotiations and has surrendered to the will of the Iranian nation. Accordingly, at the highest level, it has been decided that Iran will engage in negotiations in Islamabad with the American side for a period of two weeks, based solely on these principles. It is emphasised that this does not mean the end of the war; Iran will only accept the termination of the war once the details—given the acceptance of Iran’s preferred principles in the 10-point plan—are finalised in the negotiations. ...................

If the enemy’s surrender on the battlefield is transformed into a decisive political achievement in the negotiations, we will celebrate this massive historical victory together; otherwise, we will fight side-by-side on the battlefield until all the demands of the Iranian nation are met. Our hands are on the trigger, and the moment the slightest error is committed by the enemy, it will be responded to with full power.”

End of Iranian Statement


............... This is probably why Trump is considering blockading access to the Strait himself, but countries will start sending military escorts, especially China if he does, because many countries are going to have serious problem: no cars on the road, no fertilizer for farms, no diesel for tractors, no bunker fuel for ships crises if this goes on much longer. Plus, of course, Ansar Allah will then shut the other Strait.

However much they may be scared of the US, however much they may be trained to be vassals, East Asian countries NEED Gulf Oil.

And if the US fires on escorts, well, that’s how World War III starts



...



Geopolitical Fare:

Hormuz and the end of American hegemony

The closure of a strategic waterway by a besieged nation ranks among the rarest and most consequential events in the history of the global economy. It has happened only twice in the postwar era. In 1956, Egypt closed the Suez Canal for five months – an act that broke Britain’s imperial currency and inaugurated the petrodollar age. It demonstrated for the first time that a small country could inflict serious damage on the economic order that had subjugated it. Now Iran has effectively blockaded the Strait of Hormuz, through which a quarter of the world’s seaborne oil passes. The question is whether this crisis heralds the end of American hegemony – and marks the beginning of the struggle over who or what will replace it.

............................................. In retrospect, then, Suez did not quite mark the end of an era. Rather, it was the moment when the transition from sterling to dollar hegemony first became visible. Much the same is true of Hormuz. The question is: what is the next order going to look like? ....................





Other Fare:

Or: If you're so smart, why aren't you happier?

...................... Today you might hear self-help gurus talk about flow so constantly that the monosyllable has become a cliché without a clear definition. Csikszentmihalyi summed it up this way:
The best moments usually occur when a person’s body or mind is stretched to its limits in a voluntary effort to accomplish something difficult and worthwhile.
That’s pretty good. But of all the passages in his 1990 book Flow, I think this one comes closest to capturing the nearly spiritual quality that he was trying to convey:
The optimal state of inner experience is one in which there is order in consciousness. This happens when psychic energy—or attention—is invested in realistic goals, and when skills match the opportunities for action. The pursuit of a goal brings order in awareness because a person must concentrate attention on the task at hand and momentarily forget everything else. These periods of struggling to overcome challenges are what people find to be the most enjoyable times of their lives
Flow suggests a waterway—something liquidly effortless, an unimpeded stream. But the wisdom of Csikszentmihalyi was to recognize that well-being is no lazy river. It is neither ease nor effortlessness that leads to the highest happiness. It is something close to their opposite. It is immersion in an activity that is hard, but just hard enough; it is the discovery of comfort at the outer realm of difficulty. Life feels best, not when it is smoothed with frictionlessness, but when it is filled with achievable challenges. ..................

I’ve come to believe that something similar has happened in pop culture. Entertainment and tech companies have gotten smarter about putting consumers into bastardized flow states that leaves people feeling drained and sad rather than challenged and enlarged as selves. Modern leisure recapitulates the goal of flow while evacuating the purpose, which Csikszentmihalyi summarized as “to make life more rich, intense, and meaningful.” Algorithmic flow is flow without achievement, flow without challenge, flow without even volition. What Wu calls “passive flow” and Bloom calls “shitty flow” deserves a harsher and more specific label. To be lost in the lazy river of algorithmic media is to be lost the current of life without a mind. Zombie flow. .............


Wealth and asset concentration in the United States, by the numbers.


The real cost of building a home is measured in thousands—not hundreds of thousands. The rest is extraction.


Thus Spoke Zarathustra?
Zoroastrianism: Religion of Ancient Iran

Zoroastrianism is one of the world’s oldest religions. Otherwise known as Mazadayasna by those who follow it, the roots of Zoroastrianism date back as far as the Second Millennium BC and served as the state religion of Persia and other Iranian Empires for more than a millennium.


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