IEEPA and Iran

… I won’t do what you tell me

There is some chance of an IEEPA ruling today so make sure you’re on the desk at 10 a.m. Wall Street time today.

While a part of my job is to predict market reactions to these sorts of events, I believe this ruling, whichever way it goes, can be interpreted in so many different ways that it’s not useful to predict the market reaction. A ruling against Trump is positive, in theory, because it removes a tax on U.S. companies and consumers and possible refunds could further stimulate the economy. On the other hand, it’s bad for deficits and it’s unlikely to be the final word. And it’s priced in.

The administration will likely pivot to other random statutes as new justification for the tariffs, even as the President admits they are not always about national security or economics, but just politics and hurt feelings.

e.g. 1     Trump: I hiked Swiss tariffs because their prime minister was rude to me.
e.g. 2     Trump raises tariffs on Canada after controversial ad during World Series.
e.g. 3     *NEW US TARIFF ORDER FOR BRAZIL CITES BOLSONARO ‘PERSECUTION’

A Trump-friendly IEEPA ruling allowing the tariffs is a surprise. It may help some companies and initially be seen as bullish for stocks, but it will create new policy uncertainty and more confusion over the U.S. government’s tariff strategy. That will lead to a whipsaw up and down but no real direction as the market quickly moves to try to figure out what’s next. Neither outcome is tradable IMO.

With regard to what is priced in for an Iran attack this weekend here are two datapoints.

The chart below shows the probability of a U.S. attack on Iran (black line, left y-axis) and the volume traded by contract (gray bars, right y-axis). The 28FEB contract has been listed longer than the others, hence the larger volumes there.

Short FEB27 vs. long MAR2 is probably a good bet! Lots of leverage; betting on next weekend.

---

Final Thoughts

As usual, I am keeping it short because it’s Friday.

1. We are in a bit of a holding pattern waiting on Iran, etc. My hunch is that the new Fed will not be all that different from the old Fed. There is a lot of inertia. Despite all the grandstanding on mega rate cuts and angst about a captured Fed, Warsh, the ultimate insider, will come to the helm. Even Miran’s extremism is fading:

2. If you want to see the latest advances in AI from Google, both of these are impressive. Many startups are probably getting one-shotted by releases like this.

Immersive video game worlds with a simple text input.
Generate on-brand content for your business.

I hope your weekend is unbearably fun.

---

Late morning update (sent by email and copied here):

Two things.

First, after publishing am/FX, I realized I am bullish gold. Two-week time horizon. China comes back from Lunar New Year next week, and retail loves gold right now. Retail traders are about to get a money drop from much-larger-than-normal tax refunds and I think some of this money will flow into gold. Stonks and crypto are so 2021.

If you look at the most popular securities on r/wallstreetbets right now, GLD is number one. Often that would be a contrarian sign, but with retail about to get more ammo, I think it’s bullish.

https://swaggystocks.com/dashboard/stocks/market-sentiment

And the Iran story is still percolating.

Long gold here (GCJ6 at 5072). Stop loss 4845, take profit 5399. Risking 227 to make 327.

Or you could do 2-week 480/500 call spread in GLD.

This chart shows spot gold and the key 5115 level.

And here is next week’s calendar. Fairly sparse; Nvidia as the highlight.

“Arctic” is from the Greek arktos, “bear,” because the constellation Ursa Major (“the greater she-bear”) is always visible in the northern polar sky.

“Antarctic” literally means “opposite the bear”.

Coincidentally, the Arctic has bears and Antarctica does not.

 

HT Clark!

good luck ⇅ be nimble