WAR!! HERE WE GO AGAIN

**Michael Zuber** (0:01)
Well, it appears that we need to break out the playbook for war. It looks like the, I don't know, ceasefire, pause, whatever you want to call it, was significantly disrupted last night, with the US taking shots at missile launchers and facilities and Iran retaliating. And, yeah, now we've got higher oil, we've got, you know, higher rates, risk assets are being sold off, Bitcoin, gold, stocks, the like. And, you know, the question we should all be asking is, was this always the way this was going to go? And as you've heard me say over the last, I don't know, has it been six months? This is just how this is unfortunately going to go.
I do not believe Iran is interested in any kind of negotiation.
And they, I'm not even sure there's a real leadership structure, so it's hard to kind of know who you're negotiating with. But at this point, Iran's stance is to every so often stir the pot, and, you know, cause as much chaos as possible. And again, that is going to have worldwide implications. We are already seeing it this morning in rates in oil. There is talks of, I think it was Goldman Sachs talking about a food shortage because of fertilizer, or nitrate, or whatever, some key ingredient in fertilizer. And you know, this will calm down, and then it will stir back up. And you know, the next six to nine months are going to be not great, right?
I think the solution to this is being worked on day and night, and that is to make the Strait of Hormuz less interesting by building oil pipelines to other places.
You know, that's unfortunately the long and short of this. And you know, infrastructure projects take time, not to mention, you know, big infrastructure projects could be seen from satellites and shot at. So again, this is just the way that I feared it would go. So again, stay tuned. Thankfully, no boots on the ground, at least as I have seen.
That is a red line. That is scary to think about. So again, very, very interesting. I don't know if you caught the interview with Dan Byrd yesterday. Dan's interviews always come out at 4 p.m. Pacific on Sundays when we do them. But in that interview, we talked about the Fed rate increase, and he brought up an excellent question that honestly I had not thought about. And that was, could the Fed go 50 in September? Now, you've heard me talk about a September rake hike. I had been locked into a quarter point hike in September for months now.
The Fed watch tool today is kind of 50-50 on that after being out of the money for a long time. But I think it's worth at least considering Kevin Warsh and the Fed surprising us.
Again, think about his speech on Friday, how many times he said the word hike.
He talked about short-term rates being their only tool. He talked about 58 months. Now, I'm not sitting here telling you that my base case call is for a 50 I just want to acknowledge it's a non-zero chance. I mean, you could sell the 50 basis point move in several ways. One, you could call it a make up for July, right? Again, the vote was 9-3, but if you read the Fed minutes, it was probably more like 7-5. If you really read the Fed minutes, you could call it a pre-October, right? I do think the Fed, if they had their desires, would raise in September and raise in October. But they can't raise in October, given the elections and historical precedent. So maybe you pop in a 50 now, and then you don't do October. The other thing, again, just looking at the logic, the other thing a 50 basis point move does, is it makes the Japanese Yen carry trade go on a little longer. Because what's going to happen two days after the Fed raises is the Japanese will raise.
So the pressure on the spread between the US notes and Japanese bonds stays the same, or theoretically stays the same. If the US wanted to create or gap the Japanese Yen, they could go 50
And the Japanese only go 25
And the last thing I will say, again, I've been thinking about this 50 basis point move. It's not my call, but I could see the logic, is Kevin Warsh has said many times, you know, no forward guidance. He wants every meeting to be live. And I think he wants to surprise Wall Street. I really do. I think he wants to have Wall Street not running the show.
So a 50, as of today, there's a 0% chance. So a 50 would be a shock of all shocks.