What Happens After the Five Days Are Up?
President Trump may well just be buying some time — as the marines make their way to the Gulf
Key Takeaways
A Reprieve, Not a Resolution: Let’s try and put things in perspective. All the President really did was offer a five-day reprieve not to destroy Iran’s electricity grid. He offered an olive branch that, when you come to think of it, the clerics will never accept. The war isn’t over. So, I suggest that nobody gets over their skis on this one.
The Case Against a Panic Rate Hike: New Zealand’s central bank governor, Anna Breman, seems to be the only global monetary official with a head on her shoulders, stating that she is in no rush to raise rates and is prepared to wait things out to see if the supply shock morphs into a broadening out of inflation. This stands in stark contrast to Chicago FRB President Austan Goolsbee’s comments on CNBC yesterday that he stands ready to hike rates because his focus has shifted to inflation from the labor market — which is nonsensical because weakness in the latter will forestall the former. Not to mention that the last thing the economy needs is for the Fed to layer on an interest rate shock on top of a war shock.
Private Credit Risk Still Looms: If, indeed, President Trump is now in a mode to wind down the war with Iran, we will now just go back to the other shocks that were hitting the economy but had fallen off the front pages this past month — in particular, the credit shock looming from what has happened with private debt and equity; just as Apollo capped withdrawals at 5% of outstanding shares, following in Blackstone’s footsteps. A private credit fund jointly run by Future Standard and KKR just lost one of its investment-grade ratings by Moody’s due to “continued asset quality challenges” (taken down to a Ba1 junk rating).
