Iran War and Consequences

Interesting interview with Michael Every on the Iran war and consequences: Kaos Theory episode 13

Hard to summarise the nuance, but the main points are:

• Base case is for middling peace till the mid-terms, war resumes afterwards.  But this could be disrupted anytime by a rogue IRGC commander with a few manpads.
• Saudis and regional countries are re-arming drones and interceptors, have a deal with Ukraine.
• Geopolitically, it would be a big loss for the US to just walk away from the middle east.  Harder to TACO.
• A realistic US victory means 1) Stop Iran from using uranium, they know where it is, monitor it and drop a tactical nuke if anyone goes near it 2) Keep the straits of Hormuz open 3) Bypass the straits, Saudis and UAE building alternative pipelines. 4) Stop Iran from rebuilding military capability by blockading them and cutting off belt-and-road links (eg: bridge bombing).
• No Iran regime change.  If it happens, its a lot later, after the above "victory" conditions and Iran gets choked a for few years.
• Israel is exhausted from fighting.  But the IRGC is an existential threat, they won't sleep at night until its gone.  Same with Hezbollah, Israel cannot accept peace with them.  Israeli election in Oct, Netanyahu is unpopular.  There is zero intersection between what the Israelis, US and IRGC need for a peace deal.
• Republicans win the Senate in mid terms, the House is a toss up.  If Trump doesn't win, he goes back to issuing Executive Orders on statecraft and foreign policy.  For the 2028 elections, one faction of the Republicans (Vance) and all the Democrats are isolationists.
• In the future, the US could create its own oil trading block: NAFTA + South America + UAE + a few more oil producers + Japan & South Korea (refiners).  Everyone else gets left out to die in the cold (Europe).

The key to everything is US disinflationary growth.

Covered most of my shorts

Covered most of my shorts at a small profit.  The market was overbought 2 days ago when news of the war hit, its not anymore.

I doubt the war will last, Trump cannot afford high oil prices into the mid terms. Cut my shorts on the dip,  as Trumpian news changes too fast.  

Cut most of my crypto and EM shorts, and all of my commodity shorts (mostly precious/industrial metals), and all the Mag7 shorts.

Will post my holdings tmr.

Update Monday 13 July before market open: My current holdings:

Cash includes cash from short positions.

Quick update. Short as hell.

 I am very short.  80% invested, 20% cash (excluding cash from shorts) and 41% short.

Green rows have new trades, black rows are unchanged:

• Sold the higher beta LATAM stock
• Added a few more longs, mostly rate sensitive.
• Shorted moar crypto.  And Mag 7.  And EMs.

We are in a short squeeze, which is starting to hurt, but I think its still part of a (probably) brief correction.  We'll see in the next 2 weeks - either my shorts make a lot of money, or I cut my losses.

Quick Update

 Made a few trades since the last update:

• Shorted some Mag7 stocks.  Unfortunately I shorted when they were oversold a few days ago, so the position has bounced into the red.  The addition of Marvell and SpaceX to the S&P500 and Nasdaq should squeeze out Mag 7 and result in selling pressure.
• Used last nights rebound to reload my MSTR short.
• Also increased positions in 'interest rate sensitive stocks' as they corrected a little yesterday.
• High-beta tech (longs) got kicked out.

If the market goes up tonight I may increase my Mag 7 shorts.

Only the last 3 rows here have changed:

After end-of-quarter window dressing tonight, I am bearish on the market for the next few weeks.

Market correction

 The correction is probably a buying opportunity:

• Have cut the EM shorts that were based on rising oil.
• I cut my Memory stocks before the correction, but only by 10%.  Bought it back on the first night of the correction.  Look to increase my memory holdings slightly.    I have to learn to trade around it cause its so volatile.  Daily 10% drops are normal.  And one day the bubble pops - probably not today.
• Sold off copper miners.  Another sector rolling over.
• Bought some lower beta stuff in other sectors.  Anything is lower beta then Memory stonks.
• Covered some crypto shorts last night, hope to reload.

I'm holding 30% net cash, with my fundamental plays (56%), and for short term trades, being long and short really high beta stuff like memory and crypto.

In the next few days/weeks I'd like to buy more Memory, plus lower beta stuff (as trades), and reshort crypto and EMs (the new short targets seem to be mostly oil exporters).  Longer term I'd like to buy gold royalties/miners, but no signal for this yet.

I've be too fast to buy into these past few corrections.  Need to earn to wait - when the market has a potential economic growth slowdown ahead, and VIX/VIXN are in the 20s or 30s, then wait 3 or 4 days into a correction for the market to fall before covering shorts and buying new longs.

Cut exposure

Drastically cut my trading exposure last night.  This week I'd been selling individual holdings as they went bearish, last night I cut a lot:

Why?

• Two spikes in VIX over the past 4 trading days:

VIX is still low compared to previous corrections.  But the spikes are too fast....intraday.

• Sector by sector turning bearish.  Last month Crypto.  Last week high beta tech and oil.  Last night mag7.
• *Possible* growth deceleration in July. 

Quick Update

Shot my load too early.  Was 100% invested Wednesday night, Thursday recovered, Friday the market got hammered:

High beta tech got hammered more:

Past Moves:

• I bought a little more midnight (mid-day) Friday, as my portfolio was down 2%.  It was down another 2% by close.  Now 105% long, 2% cash, 7% short.
• Covered my rate sensitive shorts on Friday.
• Hedgeye's ten year yield's trading risk range had 4 consecutive lower highs on Friday (based on Thursday's closing data).  

• After that (Friday), TLT did not fall when good employment data was released.  If high employment does not make interest rates go up, what will?  Covered my TLT short  and some other rate sensitive stuff.  We may be moving closer to buying gold.

Future Moves:

• Still think its a bull market.  Was going up to fast, everyone on the same side of the boat with too much leverage.  Needed a correction, someone got blown up.  The correction could go on for a few more days.  Or it could be a distant memory by middle of next week.

• But as we go out 3-6 weeks, I want to get more cautious.  Possible stagflation.

• Will probably cover my remaining shorts (EMs) on Monday, as they are down so much and the positions are too small to trim. Reshort on post-correction bounce.  I'll keep my MSTR short since its still sizeable and seems to be uncorrelated with the market, maybe add a little.