The Fed Behind Us

With the Fed Behind Us… The 10-year Treasury sold off after the Fed bounced Thursday, only to resume selling, finishing the week just under 5%. Stocks, which seemed to move up and down with Treasuries, decided to move to the beat of their own drum into the close on Friday. Similarly, for the past few weeks, it seems that if you knew oil was up/down, you could predict yields would be up/down. Not on Friday. On this special day we will build on Thursday’s post-FOMC report: Back to Regularly Scheduled Programming. You might be wondering “what makes today special”? Well, for the first time ever, the T-Report has the same access to the White House as CNN, though not quite how we hoped it would happen. The ban definitely seems weird. Not sure what to make of it, and maybe it will be nothing, but it does seem strange at the very least. In Thursday’s report we touched on: • Oil and energy prices, which we will focus on more today. • Japanese Yen. Support has broken the 155 level solidly (closing at 156.9), which is likely to cause it to weaken further as a lot of people were willing to bet on I Am the House Now Bessent. • Compute Build and AI Spend. Increasingly, this is likely to be a focus of this week’s Trump/Xi summit. • Space. We need to do more to focus on the opportunities and risks (commercial and national security) for space. Working with some of Academy’s GIG members to more thoroughly assess this, as the national security aspect seems to be gaining more attention. The Houthis and Saudi Arabia Should we be treating what is going on between the Houthis and the Saudis as a subset of the Iran/U.S. war? The Houthis are, after all, a proxy of Iran. The Saudis have been working with the U.S. and the President, so are they merely just an ally? A subset, an extension, or something in its own right? While Iran is likely influencing the Houthis and certainly has given them the tools to cause havoc and mayhem, the Houthis seem to be taking the initiative. Maybe they see the U.S. as distracted with Iran. Maybe they see the U.S. testing the Saudis’ loyalty as an ally. In any case, it seems like they have seen an opportunity and are taking strides to set their agenda in and around the Red Sea. They have seemingly gone out of their way to avoid any attack against U.S. assets. Instead, they are hitting the Saudis where it hurts: their energy industry. And according to reports, that includes jet fuel facilities at the airport. We cautioned about getting excited that the pipeline damage inflicted on the “alternative to the Strait” pipeline would be repaired quickly. One, the damage seemed more extensive than just to the pipeline. Two, and more importantly, there is no evidence that new strikes could be thwarted. It seems like we should start pricing in “disruptions” to the energy complexes that are outside the scope of the U.S./Iran conflict. Will the Saudis be able to defend themselves? Will they “beg” America to get involved more directly? If they do, will the U.S. get involved? Will they try to disrupt traffic through the Red Sea? If so, how much can they do before the U.S. gets involved? I’d ask how much before Europe would get involved, but that seems like it is too unlikely to even think about (they probably should, but it doesn’t seem imminent).

With The Fed Behind Us… Markets seem to only react badly when actual events affecting energy prices occur. Markets seem to react positively to any story, rumor, or hope that is positive. That relationship may need to change… Even My Mother Knows Diesel Prices are High! Usually, by the time my mother knows something is affecting financial markets, it is a pretty good time to fade the trade as it has become totally consensus. I’m not so sure about that this time. Since the war began, we’ve been focused not as much on oil, but more on LNG and Diesel. Both are “tighter” than oil itself. More susceptible to supply chain disruptions. Less flexibility to work around. So rather than “fading” something we’ve argued that people should focus on, we should just embrace that people (including my mother �) are now thinking about the dangers of rising diesel prices: for industry, transportation, and…