Monday’s Market Bounce Likely Little More Than a Calendar Quirk
The longer the Strait is closed, the greater the threat of a global recession.
Key Takeaways
Iran’s Oil Exports Now Severely Restricted: If President Trump takes control of Kharg, that could prove to be a pretty big deal. The island off Iran’s coast handles 90% of Iran’s crude exports (about 1.5 million barrels per day), and the U.S. just took out 90 military targets there — and is now poised to control the flow of oil.
Recession Risks Rising Due to Strait Closure: It is critical that the United States, and with little, if any, help from Europe, quickly move to unblock the Strait. Global recession risks rise each day that there is not a normal return to the pre-war traffic flow. The impact has not just been limited to oil but also has ensnared global trade in agriculture, which commands double the consumer spending share of energy.
Credit Bubble in Private Debt and Equity: The problems surrounding the bursting of the credit bubble in private debt and equity have not gone away and promise to get worse. A classic credit crunch is coming our way, and that is a self-inflicted wound (much like the mortgage market mess starting in 2007) that has nothing to do with the war in Iran. The amount of stressed debt in the market for leveraged and direct loans has ballooned to $768 billion, which tops the entire size of subprime mortgages heading into the 2008 Great Financial Crisis. The redemption wave and the growing risk that investors will not get their money back is the proverbial canary in the coal mine that has touched off credit crunches in the past.
