Email: decodingpolitics@protonmail.com

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*Not financial advice, merely pointing out political and macro trends*

First off, this is our 100^th post after over four years on substack. Thanks to all the subs and paid subs who read our work! We will keep writing these and try to provide you value and understanding about global politics and macro. 200^th post will be here soon enough.

This post is going to cover the rapidly changing map of the Middle East. Since the start of the Iran war at the end of February, but especially since the signing and then breakdown of the MOU with Iran, the map has been redrawn.

New alliances, rivalries, pipelines and a potential new war have all come together in the past few weeks. We will go through the latest on Iran, and introduce all these new elements of what’s going on in the Middle East.

It will have interesting implications. We think we are more likely than not to see a resumption of regional hostilities that have gone on since 2023. But this time we think it’s more likely to erupt in Syria or even a new zone than the direct confrontation again of the US and Iran. Oil’s bull market should continue for the time being.

1. Latest On US v. Iran

2. Israel and Its Neighbors

3. The Mecca Alliance

4. Turkey versus Israel Conflict?

5. The Role of The Pipelines

1. Latest On US v. Iran

The dominant news in the Middle East this year has been the US vs. Iran war. That war seemed to have simmered down with the agreed upon ceasefire and MOU earlier this year. There was more conflict in July, and it’s now back to a prolonged ceasefire.

What’s the objective on either side at this point? We acknowledge that knowing the inner workings of both sides is difficult at this point. The divide in the US between hawks and doves is obvious to everyone, and it’s not clear which side comes out on top. For the Iranian side, we are largely relying on what the impeccable sources of journalists like Pepe Escobar are saying rather than the official statements in the US press. Those have simply been too wrong for too long.

It seems the likeliest path in the Iranian side is simply to wait out the US. As oil and diesel prices continue to climb globally, and the inventory levels everywhere fall, Iran believes it has time. It can simply continue to watch the global economy weaken, especially when strategic reserves in the US and Asia are breached, and put economic pressure on the US and its allies. The political pressure on Trump and Netanyahu will continue to rise too. With the House likely to go Democratic in November, and perhaps the Senate too, the Democrats will use lawfare to further hamper the objectives of the Trump team. Knowing this, they will keep waiting and applying select leverage to get a deal as close to the MOU deal as possible.

The Trump administration obviously know it has been outflanked on the original agenda. The US has accomplished none of its original goals: no nuclear deal, no political opening or regime change, no throttling back on Israel. And now Iran’s control of the Straits of Hormuz is a further black eye for the US. The American government claims it controls the Straits and have escorted 1,000 ships through- that’s because the Iranians have allowed it, not because the US has full control. Iran is still charging traffic and blow up the occasional offender. They will ultimately dictate final terms.

Some are arguing for further military operations to regain negotiating leverage. This could be raids on the nuclear sites at Pickaxe Mountain and Isfahan. This could be seizing or destroying oil at Kharj Island. This could be

In January, we predicted the likeliest outcome was that this conflict would go on for several months and produce a negotiated compromise. As usual, our base case was correct. Predicting things from here on out is much harder. We have no base case on Iran versus US as it has now been subsumed in the larger BRICS v. NATO and Middle drama. But we are 100% certain that the turmoil in the Middle East is not over yet. It may resume in direct conflict in Iran or it may shift to a new theater of Syria/Turkey.

2. Israel and Its Neighbors

In the Iran negotiations, Israel has never departed from the US positions and said they support what the Trump team negotiates. Yet a key condition of the Iran MOU was for an Israeli withdrawal from Lebanon and also Gaza. Instead, Israel has stoked a number of other fires in the past few weeks that could spill over into more conflict soon.

First, the Hamas and Gaza peace plan seems to have a hit a speed bump. It looks like the Hamas side is not disarming fast enough, and Israel may resume the long stalled conflict. The US is okay with that:

In Lebanon, there is no cease-fire. The Israelis have not withdrawn troops and constantly bomb the country. The Iranians are not happy and want this settled before a full negotiation on peace terms. Al Jazeera says Israel has killed over 4,000 since the start of the year. The Lebanese government and Israeli government both want Hizballah gone, but that will only happen if Iran agrees to wind it down.

The big development recently was in Syria. That government, as we wrote about last year, was sponsored by, trained by, and armed by Turkey. It was a way to knock out the Iran linked government of Bashir El Assad and install a more Turkey and NATO friendly one in Syria. It worked- current President Julani took power in January 2025 and was soon at the White House and on 60 Minutes. Israel seemed initially happy.

Finally, one mystery box has been opened in Syria that will bear close monitoring in the future as more details emerge. This new Syrian government found a rogue with lots of nuclear material. They reported it to the IAEA who have identified it as nuclear material and begun to remove and inspect the items.

If this is just peaceful nuclear power plant stuff from the Assad regime (who were supposed to have turned over all chemical weapons in 2013), that’s one thing. If so, why not come out and say that but instead say it was a rogue site and with no further details? Was there weapons grade uranium? Enriched uranium? A program? Actual nuclear weapons found?

All of that will bear investigation. Furthermore, who put it there? How long has it been there? Was Assad developing nukes, similar to North Korea? Was this Iran developing nukes in Syria, away from international scrutiny in Iran? Israel, which has nuclear weapons, would not want hostile governments in Iran, Syria or Turkey to acquire their own. Where would they use them?

Was this a rogue program to sell it to the highest bidder, including terrorist groups, or for a sovereign country? Given the byzantine relations that went into South Africa, North Korea, Pakistan, Israel, and Iran’s nuclear programs, nothing in the end would surprise us. No deal is too crazy when nukes are on the table!

3. The Mecca Defense Alliance

In the beginning of August, a surprise defensive alliance was announced in Mecca by three of Iran’s neighbors:

At first, this would seem to be a similar to NATO arrangement to box in Iran. But Pepe Escobar and others have reported that is not the case. Pakistan especially values its alliance with Iran and wants to retain good relations. This is essentially for anyone else in the region that would stir things up.

Just after this, these nations and five other Sunni Muslim countries issued a statement condemning the latest plan for Israeli settlement in Palestinian areas:

And in proof that this is not anti-Iran….on August 23^rd, the news came out that Iran had been invited to join the alliance.

With this plan and alliance, we can state a few things have now happened. One, the Abraham Accords are dead. Two, this is splintering into a Middle Eastern faction (Turkey,Saudi, Egypt, Iran etc) against the US/Israel/Cyprus/Greece really quickly. The link between the US and these nations has been torn to shreds by what the regard as America’s reckless foreign policy and America’s defensive failures. The war has put all of the region’s powers together and allied against Israel.

One may ask- Turkey is in NATO, so if someone attacks this alliance, are they attacking NATO? Apparently the interpretation around the region and in NATO is that attacks on Turkish troops away from Turkish soil is Turkey’s problem. Anything against Turkish troops within Turkey, or NATO troops in Turkey (The US keeps dozens of nuclear weapons in Turkey, as an example) would be grounds for NATO retaliation.

Finally, as history teaches us over and over: proxy wars when regional alliances are in play turn into big ugly wars eventually. The little Ukraine conflict over Crimea in 2014 has dragged in several nations now. The initial fights between Israel and Hamas and Hizballah of the past has become a full regional war against Iran. Dragging in other Sunni nations and NATO nations can only increase the risks of major conflict.

4. Israel versus Turkey conflict?

The likeliest point of the next proxy war is now over Syria. Turkey has continued to move in troops and fighters and technology to Syria. This past week, Israel attacked Turkish assets in Syria. They were worried a continued buildup that would prevent them from using Syrian airspace in an attack on Iran.

Tom Barrack chalked it up to a misunderstanding. But both sides in Israel and Turkey have threatened retaliation and moved assets all around the region. Turkey is moving tanks to Syria, and Israel is threatening to move assets to the border with Syria and to deploy assets in Cyprus. Turkey also threatened to arrest Netanyahu and to issue a Code Red alert over Interpol so Netanyahu can be arrested anywhere globally. And prominent outlets like the Jerusalem Post argue that Israel should go toe to toe.

There is a decent chance that this continues to bubble over into a full conflict. But it will certainly see more proxy battles in multiple places as both countries jockey for position in Syria and Lebanon, and over pipelines.

5. Oil and Pipelines

“But Decoding, we get why the Gulf nations and Iran would start to work together. But why is Turkey going to fight Israel in Syria??”

This is not news. Over the past year, Israel and Turkey have exchanged notes calling each other the biggest threat.

Why the big buildup in tensions over the past year? Frankly, this is mostly about the oil. With Syria opened up to NATO again, new deals were possible. The Iran War has highlighted the vulnerability of the moving oil through the Straits of Hormuz. Now the Gulf nations are looking at the alternative routes to send oil through the Red Sea or Mediterranean routes rather than through ships in the Straits of Hormuz.

Although we know including the unofficial data and the rerouting through pipelines has moderated some of this, official Straits of Hormuz data has not shown any recovery.

Here are the current and proposed Middle East pipeline networks:

By contrast, the Israel wanted a different one from the Gulf, in addition to their current ones with Egypt and their deals signed with Cyprus and Greece for natural gas:

These alliances are just two teams for whole controls the geography of pipelines and who gets the revenue that won’t flow to Iran.

Investment Implications

Oil should continue its bull market. Inventories are low, Hormuz is not fixed, and a full pipeline and refinery fix is years away. The diesel crack spreads shows this dynamic perfectly- diesel now trades at double the price of its largest input, WTI oil.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

We have published and republished a piece on how we see the current AI driven market as comparable to the 2000 telecom/dot-com bust. Now we are going to drill into by far the most vulnerable player in the AI universe, OpenAI. We have found numerous red flags in looking at this. Not just direct shareholders should pay attention. Anyone invested in the tech/AI universe should learn more to see the risks to the other players in the industry.

We are not tech or AI experts by any means, we acknowledge. But we have been around the markets for over two decades and seen this kind of situation many times. No matter the industry or country, if you are heavily reliant on external funding you can only scale so big and so long before you have to show results – or the music stops.

We think the OpenAI boombox is about to stop playing. There are a host of problems, both qualitative and quantitative here. They are leading to the external funding environment closing in on them. We think that the problems will all be exposed around the time they make their prospectus to IPO (officially an S-1 filing) available to investors. The flameout will be comparable to WeWork, where no amount of made-up metrics and massaged financials could disguise the fact that it was not a sustainable business. That company went from being a few weeks from IPO in 2019 to a laughingstock months later. We are not saying OpenAI goes bust. But we think the hyper-spending, growth, and valuation will all have to be reset to much more rational levels. The constant high level departures and CEO Sam Altman’s very questionable past only add uncertainty to the mix.

We think that OpenAI’s impending financial restructuring and publicly bad headlines will hurt confidence across the space. The closer the partnership, the bigger the hit to the stock. Do some work and get prepared.

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In the past two months, Decoding Politics has written in depth about the Iran war, US politics, the gold market and the BRICS’ influence on it, Canada, Brazil, the UK, and the US tech sector. Where else do you get such breadth and depth?

1. OpenAI Overview

2. Problem- Valuation Is Demanding

3. Problem- No Operating Leverage

4. Problem- Token Costs Under Pressure, Market Share Down

5. Problem- Debt Costs Rising

6. Problem- Mysterious Circular Financing

7. Problem- Heavily Reliant on External Funding

8. Problem- Management Departures

9. Problem- Altman’s Troubling Past

10. Likely Timeline of Events

1. OpenAI Overview

ChatGPT Logo

Open AI is an American AI company led by founder Sam Altman. It was founded in 2015 as a non-profit foundation to ensure safe and ethical development of AI models. It raised $221m in funding from the likes of Amazon, Infosys, Elon Musk, and Peter Thiel.

In 2025, it went fully for profit, with the foundation owning part of the company. It has aggressively grown in the past three years to become one of the largest AI companies in the world. Its premier product, ChatGPT, has over 1 billion users worldwide.

The company is now targeting an IPO of $1tn or more in the next twelve months.

We don’t think that happens. We think that the math and the story don’t make sense for the enormous amount of capital this company will have to raise. As investors get more information, they will ask more questions and tighten the screws. The spending is going to keep rising, but if investors don’t agree to fund it, then all sorts of problem will ensue.

2. Problem – Valuation Is Demanding

In March 2026, Open AI disclosed that its revenue was about $2bn per month, or a $25bn annual run rate. Let’s assume it’s now going to reach $40bn annual run rate at the end of the year. The last funding round was at $852bn and the company wants an IPO of one trillion or more.

That would make its valuation on 2027 revenue estimates at least 25x forward sales. Perhaps more if they juice the IPO price or seek to raise a bunch of money in the offering. That compares unfavorably with the many publicly traded companies that are profitable, not burning dilutive capital, and also riding the AI boom:

If you want meteoric revenue growth at a ~$1tn market cap, just buy Anthropic instead:

Source: Google Gemini

The valuation by itself is not a problem- not if the growth can make up for it (as seems to be happening at Anthropic), or if the profitability eventually emerges to benefit shareholders’ high expectations. But for reasons we will go into, we think neither will happen.

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Email: decodingpolitics@protonmail.com

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Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

It’s getting near election time in the US. Every two years, Americans head to the polls the first week of November. Every four years, last in 2024, Americans elect a President, along with governors, Senators, and House representatives. The November 2026 interim or midterm election will see the entire House up for vote along with 35 (out of 100) Senate seats.

As of now Republicans control both the House and the Senate. The Senate looks to be the more complicated one and its destiny hinges on a few key, close races. We analyze those races and conclude a tied Senate or a one seat Republican advantage is the likely outcome. It also seems likely that the House pivots back from a slim Republican majority to a Democratic lead.

We look at the likelihood of how the House and Senate races turn out, the likely policy outcomes of this, and investment implications.

For readers who are new here: Decoding Politics has a formidable, fully public, and proven track record on calling elections. We did a whole recap of our US 2024 calls and we got the Senate almost exactly right a month ahead of time. An excerpt:

“We think Republicans end up with 52 or 53 Senate seats on Election Night. Flipping Maryland, Ohio, and another Rust Belt State are all they need. A strong Rust Belt showing by Republicans would guarantee a Presidential win and 55 Senate seats.” [Republicans got 53 seats]

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1. The Current Picture

2. Our Take- Vote Out The Incumbent!

3. Polling for the Senate

4. Polling for the House

5. Investment Implications

1. The Current Picture

Before getting into potential changes arising from the election, let’s look at the current picture in Congress.

Right now, the Republicans control the House by 219 seats to Democrats’ 212 [218 to control], with four open seats. The Senate now is a 53-47 Republican to Democratic split. One Democratic Senator, John Fetterman, has often sided with Republicans and there are rumors he may switch parties. Several Republicans often vote against Trump, and many votes have gone to a 50-50 tie to be broken by Vice President JD Vance.

A good leading indicator for the midterm elections is the incumbent President’s approval rating – the lower the rating, the less well his party will do in the elections. President Trump’s approval has gotten crushed from affordability concerns and the unpopularity of the Iran war.

It was similarly low in 2018 when the Republicans suffered major losses in the House and Senate races.

2. Our Take- Incumbents at Risk, Redistricting Helping Republicans

All the data would imply a rout of the Republicans, no? 30-40 seats in the House, 6-8 Senators etc? Given the past patterns, yes, that would be the bet. But the polling in individual races and at the national levels is suggesting a more subtle outcome. It is suggesting a much softer Democratic victory than history would expect. It is still likely the Senate remains a tie, or even sees Republicans hold on to a lead by one seat- down from 53 total seats to 51 seats.

The dominant trend actually seems to vote out the incumbents. This trend is pervasive. We have long noticed that in trying economic times, voters just keep cycling through candidates, regardless of ‘ideology’. When real incomes are taking a hit, they just want something different until the problems get fixed.

In 2026, that is manifesting in states considered previous strongholds for the Republican party. Several of them are seeing surging Democratic challengers: Alaska, Iowa, and Texas. Popular Democrats are facing a difficult battle in Ohio, New Hampshire, and North Carolina. The bizarre election in Maine, which will we discuss later, could tip the Senate as a whole depending on how it resolves.

Further complicating matters is that the Supreme Court ruled on how state legislatures draw Congressional districts earlier this year. In the US system, a state is designated x number of Congressional seats depending on their population in the Census. From there, it’s up to the state government to decide how and where those different districts are constructed. In the recent past, this has led to some truly creatively made districts to preserve certain demographic profiles or party affiliations.

The Court decision effectively ended the practice some states use of drawing districts based on racial demographics to create safe seats for one party or another. This has seen a host of states redraw their maps for the House. It’s estimated that this reweighting of districts will secure Republicans up to ten seats extra in the process compared to before.

The anti-incumbent trend in both parties along with the redistricting will not make this a Democrat blowout, but will make this actually a semi-competitive race in the House and still very competitive in the Senate. We think there is a very good chance the Republicans maintain a tie or even stretch to a one seat lead in the Senate. Let’s go further into the data on both, where we will look at the eight Senate toss-ups in depth.

3. A Look at the Senate

The Senate is going to be closer and more important this round, so we will cover it first. Real Clear Politics’ polling shows a projected 47-47 tie from the safe seats, with 8 toss up states:

Based on PolyMarket data picking a winner in those tossups, the market expects a 51-49 Democratic Senate

Let’s drill down into four of the close races where we think the PolyMarket data is off. First is Alaska, which is a state Trump won by 13% in 2024. The current polls show a close race with Democrat candidate Peltola ahead overall.

Yet Sullivan appears to have swung this race four points since the last poll in January, which is now stale. And this is despite Trump’s falling approval ratings in that time period. While polling data in such a big and diffusely populated state as Alaska is tricky, we are going to have to give the Republican candidate the edge here for three reasons 1) historically strong R state thus turnout should help 2) high oil environment means vote for the incumbent party (Alaska is a huge energy producer and sends a cut of oil revenue to each resident each year) 3) He has shown momentum while Trump has faltered. His Polymarket odds have risen from 30% to 50% in the past six weeks and he continues to gain.

This race gets us back to a 50-50 Senate.

Now let’s look at Texas, the base of the Republican party for the past thirty years. The Democrats have not had a Senator in Texas since 1993! Trump won this state by 13.5% in 2024. But the election polling now is showing the Democratic candidate Talarico ahead:

This is a very important race for Democrats. They will pour resources into it. Talarico is running a solid, populist campaign. Paxton’s claim to fame is he is an anti-war Republican. That has put him at odds with some boomer voters and major donors, who have been slow to give him money. As a result, Talarico has outraised Paxton by an amazing $26m, which surely explains the former’s strong polling.

Over the past three months, Paxton has gone from a small lead to being behind four points, a decent swing. The Democratic blitz is working. We think that means he will eventually lose to Talarico. Polymarket has this is as a Republican hold by a very slim margin, so our map goes to 51-49 D’s over R’s.

Now on to the Rust Belt and Michigan. This is another super close election. Michigan is the definition of a swing state, having swung to the winner in every Presidential election since 2008. The Senate race there shows almost a tie:

The overall poll results and Polymarket data suggest Abdul El-Sayed is ahead. But we are going to list five reasons why we don’t think he wins. First off, he has a divisive, Mamdani-esque platform: Medicare for all, end support for Israel, and several other issues. That led him to only win the Democratic primary by 1% while polling had him ahead by double digits. In 83% Democratic New York, that platform works. In 50/50 Republican and Democrat split Michigan, alienating half the Democratic base is not a good start.

Secondly, he has never held political office before and is about to face a whole bunch of media scrutiny against a far more experienced opponent who has been in politics for thirty years. Thirdly, major money is aligned against him: The RNC is saving at least $45m for this race and wants to put in more. And the Israeli lobby group AIPAC which has torpedoed so many campaigns, put in heavy money against El-Sayed in the primary and will continue to do so in the general election. Fourthly: much is made of the Arab population and support for El-Sayed in Michigan. Yes Michigan has the highest Arab population of anywhere in the US. But it’s only 2.2% of the population, and less of the electorate. Arab support is not big enough to win this. He needs moderate Dems and Republicans, and his platform is scary to many of them. The Michigan electorate is intensely pragmatic, not dogmatically liberal like Portland, Oregon or Manhattan. Finally, back to our anti-incumbent trend: Michigan has had two Democratic Senators since 2001, voters probably feel a change is overdue, similar to Texas. We think El-Sayed loses by 2 or 3%.

That gets us to a likely 50-50 tie in the Senate as a result.

Finally, there is the curious case of Maine. It’s funny that such a small state could decide the entire US Senate control this time around. Let’s explain what has happened thus far. Incumbent Susan Collins is a Republican, but has often had frosty relations with Republican leadership. She is a moderate on most every issue, a position which has made her popular in pragmatic Maine. She has been a Senator for 30 years.

She faced a Democratic challenger earlier this year who had won the primary, Graham Platner. A Marine, a farmer, and a moderate Democrat, he seemed the perfect candidate. But repeated investigations into the guy found some disturbing stuff. His gym photos showed he had what looked like Nazi tattoos. He was accused of shady campaign donations. He had multiple sexual harassment scandals while being married. Democrats initially backed him but eventually rotated him out for prominent local politician Troy Jackson.

The polling has not been run since the substitution of Platner by Jackson. Platner was ahead of Collins the entire time and it’s assumed people are just transferring that support over – but will it hold? And Jackson only started running campaign ads this week. Polymarket odds show a 65% chance of a Democratic victory.

They should get a history lesson first. From Wikipedia, here is the polling the week before the 2020 Senate election, the last time Collins ran:

Collins ended up winning by 8.5%. Maine’s peculiar rank choice voting method surely helps her, as she is the brand name on the ballot.

At this point, we are likely to take a close race in the polls as an eventual win for Collins, especially given how non-democratic and embarrassing the process has been for selecting the opposition this time. How did a Nazi become the first choice?! A similar selection process definitely did not boost Kamala Harris’ support. We have highlighted that anti-incumbent candidates are doing well in nearly every race nationally, but we see this as a bungled attempt by the Democrats.

As this is rated a Dem pickup on Polymarket, Maine staying Republican puts us to a 51R-49D Senate.

As for the other four toss-ups? We think the data shows the PolyMarket conclusions are correct. Georgia polling seems to show a solid 7-9% advantage for Democrat Ossoff. New Hampshire is notoriously tough to poll but looks to lean Dem, as the state has for past elections- Kamala won this state by 3%. The Democrat has led every poll, by at least 4 or 5%, for months in North Carolina and will win. Iowa is a state that Trump won by 13% in 2024 and the Republican seems to be polling ahead by 3-4% except for one poll, so we will give her the lead. Ohio is a Republican state (Trump/Vance won by 11% in 2024) but the Democrat Sherrod Brown is popular enough and the Republican ticket across the state inspires little enthusiasm. We think he squeaks it out. Although Brown was a multiple term Senator, oddly enough, this time he would be running an anti-Republican establishment campaign, which as we noted in other races, should favor him.

4. Looking at the House

Moving on the House now, 270towin’s charts show it’s basically 208 versus 208 seats now with 19 toss up races. The first side to get to ten of these claims a majority in the House. This is going to be close.

At this point, predicting House races is quite difficult. The polling is far less reliable, relying equally on national and local factors. And also on uncertain samples of voters. So going one by one in the House would be a fruitless exercise.

But what we can do is continue to look at those general national trends we highlighted earlier. The generic ballot continues to go against the Republicans, with voters preferring a generic Democrat over Republican by 7%. The lead has widened.

You will notice also that a lot of the toss-up House seats are in North Carolina, Pennsylvania, Wisconsin, Michigan, Iowa and other swing states. As those states go so the overall races will go.

The generic ballot and historical pattern favor the Dems gaining roughly 20-25 seats in the House. Balancing that out is the impact of redistricting, as we mentioned earlier. Another factor is that the RNC has significantly more resources to spend than Democrats, who have less money and are focused on the high profile Senate races we mentioned earlier.

“In their most recent filings, the Republican National Committee and its related House and Senate fundraising committees, along with super PACs aligned with President Donald Trump and the GOP leadership, reported a combined $1 billion to spend over the next few months. The DNC, its congressional counterparts and the major Democratic super PACs reported $404 million.” Source article

We are going to say that the Democrats get 220-222 House seats, taking a slight majority of the toss ups. Many of these are in states (North Carolina, Pennsylvania) which are tilting Democratic at the top of the ticket. But we will keep you updated as our views progress.

5. Policy and Investment Implications

A consistent finding of ours over the years is that American investors love divided government- it means the status quo will roll on! If our call for a Republican President, tied or slightly Republican Senate, and slightly Democratic House comes to fruition, investors will breathe a huge sigh of relief the week of November 3^rd. The razor thin margins in both houses of Congress means compromise and nothing radical. That is investors’ favorite scenario.

Defense stocks and critical minerals will surely keep ripping as no bloc is powerful enough to stop it. We imagine we would see a relief rally in Chinese stocks. Other stocks would have a more uncertain outlook, depending on what common ground the parties can find.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

Markets have had a volatile ride in the past month. There was a large correction in the Nasdaq, followed by a quick snapback rally. We continue to be cautious on the tech sector- there was not enough pain or big names liquidated for us to be comfortable at this time. The broad market, as we said earlier, is fine. There have been strong moves higher in energy, health care, consumer staples, and other boring sectors. Continue to focus on those and not on trying to bottom tick the things in Situational Awareness’ portfolio.

Precious metals were the standout this week. We think that the several proofs this week of massive Chinese buying was a big part of it. We wrote about it last week and hope you caught this past week’s 7% gold rally. We think there is much more to come.

We will look at our old favorite whipping horse, Canada. The housing market remains in a slow motion demolition. Arrears are rising as are interest rates. Canada remains a zero.

Finally, we take a look at Brazil, where polls are tightening again but we don’t think incumbent President Lula will be unseated. The market could be weak into the election on fears Lula goes on a populist rampage.

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1. Confirmation of Chinese Gold Buying

2. Canada Remains A Zero

3. Brazil Election Tightening, Lula Still Ahead

4. Oil and Hormuz Update

1. Confirmation of Chinese Gold Buying

Last week we wrote a piece about how there was still a massive amount of BRICS buying to come into gold. They are diversifying their reserves out of USD, especially US Treasuries, into gold. They have to boost their reserves to 40% gold by 2030-2032 under BRICS guidelines. The biggest buyer under this framework would be China.

Gold returned 7% just this week, so we hope you profited dear reader! Sometimes our timing is very good.

We got three pieces of data this week confirming heavy Chinese buying actually is ongoing. First, there was a piece about how China is stockpiling gold in Hong Kong to make it a leading gold trading center:

It is unclear at this point if this would be counted as Chinese gold reserves, Hong Kong reserves, or counted under a third party corporate balance sheet. But this is part of the broader Chinese buying program.

Secondly, ETF purchases have swung back to positive in the past month. Two straight weeks of inflows have helped drive the gold price higher.

Finally, the official PBOC purchase data has come out. The data for January through June showed that it was the strongest since 2024 and at almost record levels. Purchases accelerated further in July, perhaps the highest ever single month of purchases in tonnes. This shows accelerating Chinese demand for gold after the price came down by 25%.

The BRICS buying trend is here and accelerating perhaps faster than we thought. We are about to enter the seasonally strong period for gold, the October to March window. We hope that you guys get positioned soon for the next leg higher.

2. Canada Remains A Zero

We have written several pieces through the years around our main thesis that “Canada is a Zero”. We are obviously being a little hyperbolic here, but, we need to draw attention to the fact that Canada is a giant unsustainable bubble. The housing and debt market in Canada is objectively speaking the biggest bubble since Japan in the late 1980’s. That led to a 20 year bear market in real estate and equity markets.

We recommended exiting any real estate and illiquid or highly levered position in Canada years ago. A big blowup of lender GoEasy earlier this year shows just how bad this can get. Their charge-off rate has now reached a mind-boggling 16% and shows no signs of stabilizing. The stock has completely tanked and remains down 75% from its high.

Our view of the equity market remains complex. Many companies in Canda have large operations in the US, and are benefitting from the weaker Canadian dollar. Many others are resource companies that benefit from high resource prices in oil, gold, silver, copper etc. We are as a result not bearish on the equity index, but we do urge you to reduce risk in things that are very domestic focused and rotate into things that are not. We will do more work on the big banks soon and see how close to an inflection point there we are. But the macro data seems to show we are close.

First off, real housing prices have now declined about 30% in real terms since the highs with no signs of stopping.

Looking at another data set, the average house price peaked at 825k CAD and has gone to 655k now:

Prices in the two biggest bubble markets, Toronto and Vancouver, are declining by 7% y/y and again, show no signs of bottoming out. (c/o Housepriceindex.ca)

In the past we have written about the huge mortgage rollovers coming in 2026-28 in the Canadian market (mortgages reset every five years roughly). The bulk of mortgages were taken out in late 2020 to 2023 period when rates were low – a 5 year rate below 2%. It’s now 3.25% and rising. This means many will be rolling over their mortgage with lower or even negative equity, and a much higher monthly payment. Not a good mix!

Canada- Five Year Govt Bond Rate (Trading Economics)

Wages in Canada are growing at 3.4% yoy now, but the inflation rate hovers around 3%. So the average Canadian is not making the money necessary to offset these rising mortgage costs. Especially when one factors in the higher cost of food, energy and electricity.

Canada- Average Weekly Earnings YoY (Trading Economics)

All of this is showing up in the mortgages in arrears data, which is rapidly rising. Arrears in this mortgage environment will almost certainly start leading to defaults in the coming quarters, given falling housing prices and rising rates.

So now we are in the early innings of the pain, and we are about to see the serious pain in the coming eighteen months. Banks NPLs should rapidly start rising by year end. Large credit losses, coupled likely with Fed and BOC rate hikes, will pinch banks’ profits hard. When banks and the large insurers start calling the government for a bailout and have to shrink their balance sheets, then the gig will be up.

Eventually, given the scale of the debt bubble and the severity of the coming crisis, the Bank of Canada is going to have go nuts. Every single nation that had a housing bubble deflate from levels like this either did QE (Japan, US, UK, Spain, Ireland) or had a major crunch and banking crisis (Greece, Iceland). With an AAA rating and a decently well respected currency, we think they choose to trash the Canadian dollar rather than finally sell the whole country to China in a bailout. But we will see in coming quarters.

3. Brazilian Election Update- Lula Remains Ahead

Brazil goes to the polls the first week of October. Lula has been ahead in the polls for most of the year, with a lead that reached double digits earlier this summer. It now stands at 53-47% in a runoff scenario against Eduardo Bolsonaro in three polls:

One outlier showed a 51-49% result.

Regardless, Lula remains ahead. The markets would much prefer to have a Bolsonaro presidency, but that looks unlikely. Our sources in Brasilia also tell us that Lula’s campaign has been holding back some very damaging info on Bolsonaro to dump in late August/early September and deep six his campaign. The timing is such that it’s too late in the process for anyone credible to quickly replace Bolsonaro. This would imply Lula moving back to a big lead, and probably some accompanying market weakness.

The Brazil ETF, EWZ, had a strong first half of the year, up almost 25%. As Lula’s lead widened and the election got nearer, it has traded weaker. We think it could trade down to the 30 level on pre-election jitters, bad news re: Bolsonaro, or into the second round in late October.

A low of 30ish in October/November would represent a fantastic entry point here. The commodity cycle now is simply too strong and will bail out the country from any dumb policies Lula might do. Lula has also proven time and again to be a semi-pragmatic politician who won’t run the country off the tracks. In addition, he will be surrounded by a right wing Congress that will drag him into the center. Brazilian centrism should carry the day and start the next leg higher in the equity market to the 50-60 range on EWZ.

The central bank has gotten inflation under control and is now resuming rate cuts. The central bank from 2022 to 2025 took rates from 2% to 15%, a giant move. They have now cut rates to 14%. They should continue to cut, as inflation is running in the 4% range and projected to fall in the coming year. 10% real rates are usually not sustainable and should come down, especially after the election.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

New BRICS of gold

Summary

The BRICS nations, led by China, continue to accumulate gold at a rapid pace. They still have a long way to go to reach their target holding levels. After a pullback over the last six months, we think the gold bull market is about to resume. We first wrote about it at length three years ago, and the thesis has largely played out as we anticipated. We updated the thesis along the way in shorter pieces, now it’s time to do a more comprehensive overview.

In this piece we will go into why this diversification push is happening so emphatically. We will break down just how much more buying remains and how long this should take. We are going to look at the timing, which we believe is closely linked to the adoption of ‘The Unit’ by the BRICS

The Trade: Stay long precious metals until the BRICS diversification buying dries up, which is several years in the future.

The last 5% reserve shift by China doubled the gold price. As the BRICS move to the eventual target range of 40% of their FX reserves in gold, versus 15% currently, that should translate into a roughly $10,000-12,000 /oz gold price.

BRICS Buying and Diversification

Three years ago, we noted that all the BRICS nations were moving their reserves gradually from dollars and US Treasuries to gold. The weaponization of the US dollar and banking system had scared these countries to move into a neutral asset. The rash of sanctions and seizure of Russian’s foreign exchange reserves in 2022 further scared these nations and forced them to move to gold at a faster pace. The increasing political bad blood between the BRICS nations, especially China, and the Western financial system is not helping matters.

Russia was the trailblazer in this shift. They began moving into gold in the 2010’s. Over that decade, they had moved roughly 30% of their foreign exchange reserves into gold. If other BRICS nations followed suit, which was our hypothesis, the amount of buying would be enormous. Today gold is 45% of Russia’s overall reserves.

2023’s reserves and gold holdings:

NB: We used a $2,000 / oz gold price here to keep things simple

Updating this data to the most recent available, we can see that the increased buying and higher gold price have significantly increased BRICS’ gold holdings as a share of reserves:

2026’s reserves and gold holdings:

NB: We are using a $4,000 / oz gold price here to keep things simple

A few observations from this table as compared to three years ago:

1. The BRICS nations continue to run trade surpluses and increase their FX reserves, adding $500b in total

2. The BRICS nations are all adding to their gold holdings. China is the leader, adding 15% to their holdings, but India also boosted them by 10%.

3. Russia’s gold holdings are now 45% of their total reserves, up from 30% three years ago and single digits fifteen years ago. We guess that they are going to stop around here, near the 40% level set under the UNIT framework we discussed in our comprehensive BRICS piece

4. Obviously the big mover here is China, which doubled its gold holdings from 4.6% of reserves to 9.6%. That’s around 8.5m ounces of gold. That was enough buying to double the global gold price.

Gold’s Last Five Years

Read more

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

[We are reprinting this piece we originally published on June 6th. It was prophetic, with the NASDAQ down double digits percentage and many names down 30-50%. It’s still just as important, perhaps more so than when we first published it. Please bear in mind how much longer and uglier these kinds of moves can be in the current environment]

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” – Jesse Livermore

The US markets, notwithstanding the speed bump of March, had a good year through Wednesday June 3^rd: The S&P 500 was up 11%, the Nasdaq 100 was up 20%. A good year in six months.

That appears to have inflected on Friday June 5^th with a big selloff across the board. We have been working on this piece for a while and unfortunately did not get it out before the first drop. But we are still warning you in the strongest terms: The markets of June 2026 strongly resemble the markets of March 2000. That month ended the mania of PC/dot-com/large cap tech stocks of the 1990’s. What followed was a three year bear market and an 80% drawdown in the NASDAQ.

We don’t think that the scenario will play out exactly the same. Yet having been around the markets at that point and now, the parallels are uncanny. We are going to go through the similarities of the two environments. We will tell you what happened to major tech stocks in 2000 (hint: it was ugly) and thus likely to the tech darlings of 2026. Copying out all the charts and relevant news articles would take this to way longer than we desire- but we give you all the names and key turning points to do the research yourself.

We were bearish in January, bullish in early April, and turned neutral in late April. This was all on the Iran war. But the market no longer focuses on that- on June 5^th the Iranians withdrew from all negotiations, fired missiles and oil ended up down $5 on the day. The market has now moved on to AI dynamics.

We are now cautious on US and global markets. We are now extremely cautious on US tech and other tech heavy, levered markets. Korea is probably the prime example. Please note, we are not calling for a general market crash or a down 50% bear market in the S&P.

But we are fairly certain that a lot of air is going to come out of the bubble that has been inflated in tech, memory, semis, AI infrastructure and other pockets of the market that have seen a speculative frenzy. The memory of the brutality of the dot-com bust and the ease of just going into various hiding places implores us to tell you to be cautious and re-allocate.

We will break down this piece into a few pieces:

1) The 1990’s into 2000….And Afterwards

2) The Market in 2026

3) Just Like 2000, Supply Will Bury The Market

4) Parallels Are Uncanny- Valuations, Retail Trading, Saylor, Buffett

5) Likely Roadmap

6) The Game Plan

1) The 1990’s into 2000….And Afterwards

The 1990’s were fundamentally the most bullish decade since the 1920’s. The Cold War ended in 1991, generating the ‘peace dividend’. New markets in Russia, China, and India opened up. NAFTA promised to boost trade with Mexico and Canada. Interest rates and inflation were low. Politics were moderate domestically.

It was also a time of technological progress. PC’s went from a niche product to every desk and home. Mobile phones went from a funny accessory in the movie ‘Wall Street’ to widely adopted. The Internet went from an obscure government computer network to connecting hundreds of millions of people globally.

Initially, the companies behind this rode the strong adoption and growth to continue growing. A broader retail investor base, with online trading and broad access to mutual funds, was happy to buy them. There was nothing super speculative about it until 1995.

That was when the first real Internet only company, Netscape, IPO’d. It was a small loss making company, but it also had created the first browser to use the World Wide Web. It was the first product that made the hard-to-access Internet of yore easy and scrollable to any grandmother. Interest in the product and company exploded. The stock went crazy. After that, the floodgates opened and hundreds of new companies came to market each year.

By 1999, the Dow Jones Industrials had gone from 1,000 in the early 1980’s to 10,000. Analysts called for Dow 36,000 soon [the author of that book serves in the White House now] Tech stocks and indices performed vastly better. Companies found that rebranding as .com or Internet businesses saw their stocks re-rate like crazy. The demand for telecom equipment to build out networks to support mobile and the Internet was huge. 1998 and 1999 saw a flood of ‘dot-com’ businesses hit the market, hundreds of new businesses, mostly loss-making. The mania built and built in 1999 and early 2000.The NASDAQ doubled from October 1999 to March 2000 (very similar to the rally since Liberation Day 2025).

The market hit its peak in March 10,2000. It sold off a few days, no big deal. It reached a new high (Nasdaq 100) and matched the high (Nasdaq Composite) two weeks later. After that, it went into a tail spin and declined roughly 40% in eight weeks. The Nasdaq 100 ETF, ticker QQQ, went from a high of 120 on March 24^th to a low of 72 on May 24^th. That’s 40% in 8 weeks.

After that initial bust, QQQ rallied back to 100. It finished the year at 60. From there, the market stair stepped lower over the next two years, with QQQ bottoming at 20 in October 2002.

QQQ: October 1999 to October 2003

Hundreds of stocks went down 90% or more. Many marquee businesses went bust. Retail investors were hammered. Reports of people who had made a fortune day trading and then lost everything were common. It turned out that debt levels and valuation levels had reached the highest levels in 80 years during the 1999-2000 period, leaving no room for error. When the errors happened, speculative stocks blew up.

2) The Market in 2026

We all know the story: AI is going to change everything. The data center buildout is beyond huge. GPU’s for everything. Now it’s going to space, into every industry, and its going to begin programming itself and achieving hyper-growth. And the race is on for the first company to achieve AGI, as they will be the winner.

The dynamic is similar to the Internet bubble. A new revolutionary technology [the early Internet]. It will displace everything else [online shopping, newspapers, post offices] and enable many new industries [radio and video streaming, shared working] A massive infrastructure build is necessary to get to scale, and winner takes all.

There was a giant buildout of everything telecom- new mobile networks, new Internet connectivity like T-1s and ISDN lines and cable modems. There was huge spend in new fiber optics and mobile networks, equipment to power them, data centers, switching hubs, routers and all the nuts and bolt of Internet architecture. Many of the big spenders on fiber promised huge things and went bankrupt- Level 3, Qwest, Global Crossing, and Worldcom.

There were revolutionary technologies in the past two decades- smart phones, social media, EV’s. Why weren’t those bubbles too? Those stocks just kept growing despite what the haters say. Those businesses were our early 1990s PC and mobile companies: steady growth, cash flow, and predictable adoption curves. No debt, no negative FCF, no speculative hoopla.

The reason we think it’s a bubble now similar to 2000 but was not in past years is based around three simple facts. One, at the end of the bubble businesses that were consuming capital were the focus, not the good growing and cash flowing businesses. When the external capital hit the pause button it was over. Then it was dot-coms and telecom companies – now it’s AI scalers. Secondly, in 2000 there was massive supply of new equities, from both new and existing companies. Tons of smaller dot coms and network companies hit the markets in that period, and many major companies IPO’d or were spun off: Palm and AT&T Wireless most prominently. Finally, the tech sector had reached such a large part of US and global portfolios that it had pushed valuations to ridiculous levels and pushed investors into a position where they had to sell and rebalance.

The huge concentration in the 1990’s was in stocks obvious to all: Nokia, Dell, Microsoft, Intel, America Online, Cisco Systems, Sun MicroSystems, Nortel and Lucent. Ciena, JDS Uniphase and Qualcomm were the growth plays. Ebay and Amazon for e-ecommerce. If you wanted a holding company of these, businesses you bought CMGI or Internet Capital Group. Tech was almost 33% of the S&P in Q1 2000. One fund manager, Janus, took in half the inflows at one point by building huge positions in those stocks. It became a forced seller for years when the market turned.

Longer term what happened to these names (say a decade later). America Online merged with Time Warner and the stock went down massively. Nokia, Nortel, Lucent were basically out of business along with so many other telecom companies. Sun Micro, Intel, and Cisco had 80% drawdowns but survived and remain below their 2000 highs. Dell had a similar fall and went private again later on. Amazon, Qualcomm and Microsoft all eventually exceeded their prior highs, but took massive drawdowns and a decade+ to do it.

Now it’s obvious to own the Mag 7 – Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta, Tesla. The forthcoming Spacex, Anthropic, and Open AI offerings created feeding frenzies the past few quarters in private markets. The memory and semiconductor industries are considered no brainers to capitalize on the multi-trillion dollar secular growth of AI and data centers. Investors appear to have forgotten that these two of the most cyclical industries on earth, and this time around, they are carrying far more political risk than before. Tech is nearly 40% of the S&P depending on how you count it.

We will discuss more in the aftermath section but we want you to keep in mind one thing. There is no doubt all of these were transformative businesses and technologies. They generated great returns for a long period of time. But eventually, stock prices reflected wildly overly optimistic assumptions relative to what would play out, and they turned into terrible investments over the next ten years (or are likely to).

3) Supply Will Bury The Market

The 1999 market as we mentioned featured a tsunami of IPOs. Those came largely in the second half of 1999 and early 2000. Many insiders were locked up from selling for 90 or 180 days. But when the window opened for executives to sell shares, they took advantage. With so many companies and so much stock for sale, it eventually turned out to be too much to handle. When retail sat on their hands or joined in the selling, there was no one left on the other side. Tons of stocks crashed post IPO lockup windows.

Several fortunes were made from shorting these weak links. Legendary value investor John Templeton was famous as a stock picker, not a short seller. But he saw the opportunity as so irresistible that in January 2000 he put on a big basket short in these companies. A Forbes article from 2001 did a great job breaking down the trade and the reasoning and timing behind it:

“Templeton, however, arranged his short-position schedule with his broker in January 2000, when techs were hot. Gains thus far: $86 million.

Templeton slated his short positions to take effect 11 days before lockup expirations—that point, usually six months after an initial public offering, when insiders are allowed to sell their stock. He focused on tech shares selling at three times the price set in the initial offering, rightly figuring company insiders would cash out some of their absurdly valued holdings, putting downward pressure on stock he suspected was due to fall anyway. “Insider selling was the trigger but not the main driving force,” he says.

He shorted 84 Nasdaq stocks, taking positions averaging $2.2 million each. In nearly half of the shorts he waited until prices dropped to 5% of what he paid, thereby cleaning up on such names as Foundry Networks, Breakaway Solutions and Vitria Technology (see table, above). At other times he closed out his positions once the stock price dipped below 30 times trailing earnings. He took losses early, quickly covering positions where the stock price increased post-lockup.

The 2026 market is looking to be one also chock full of supply. Numerous pundits have said only the 1999-2000 market can compare for issuance relative to the size of the market. Already out the door are two big tech firms, with a third likely to follow.

Oracle already announced a $20bn offering in February. Rumors are more is needed.

Google announced a $60bn last month.

On June 5^th, speculation hit the market Meta was next for tens of billions

Then there are the upcoming IPOs. The big daddy is the SpaceX deal. If it prices at the likely IPO price, it would be worth over $2tn. That would make it third largest market cap in the entire market at IPO. At least $60bn of that is primary.

Soon after, the market will see deals from two $700-900bn range companies, Anthropic and OpenAI. Our suspicion is the latter deal actually may not happen. There are many, many things that do not add up at Open AI. Similar to WeWork, putting the numbers down in an S-1 may be the end of the story. But that’s for another article.

To say nothing of the myriad smaller players and secondary offerings. This is, by our back of the envelope going to be probably $300-400bn of primary shares offered and much more potentially in secondary selling. Those are big numbers!

It would be one thing if all of this stock was hitting when fund managers had lots of cash to buy it like in 2012 or 2022. But it’s the opposite! Levels are near the lowest in history. This data is from March, and we are sure it’s lower now in the first week of June after the big run-up:

Lots of new stock, not a lot of capital to purchase it, is the Econ 101 way you get lower prices.

Finally, there’s the index dynamic. They changed the rules so that after the first 15 trading days, SpaceX can cruise into the Nasdaq and FTSE indices. Great, more buyers, right? Well that’s half the battle. Index funds will have to sell other names in order to raise the capital to buy SpaceX, as by definition index funds run with almost no cash balance. SpaceX is likely to coming in at a 5-7% weighting in the Nasdaq 100 index. That’s going to be a whole lot of selling in the Mag 7 and the other names that track the index. Three of those big Nasdaq 100 names, as we pointed out, are also issuing or have issued new shares.

Who will be on the other side of all of this rebalance selling? Or are we just setting up an environment for a new Templeton trade of shorting all these?

4) Parallels are Uncanny

Not only are the structural drives and the price performance similar, there are a very uncanny echoes of 2000 that only seem to emerge at turning points like this. As Livermore said, there is nothing new in the stock market. Not only is the structural setup very similar, even certain little market happenings are showing you how similar these two dates are.

Valuation

The continued price performance of the Mag 7 among others has created a tremendous valuation extreme. We showed the share of IT in the S&P earlier had hit all time highs. On a ten year PE basis, such an extreme has only been hit once: in March 2000

Again, people rationalized paying absurd, above 1929, levels. One line from the Templeton article we previously cited made us chuckle- if only he could see 2026 valuations!

Like other value investors, he was agog at the market’s frothiness. “This is the only time in my 88 years when I saw technology stocks go to 100 times earnings; or, when there were no earnings, 20 times sales,” says Templeton. “It was insane, and I took advantage of the temporary insanity.”

How bad is it to pay high prices 10-20x sales, or 40x earnings for the S&P? We previously cited Sun Mircosystems as one of the highfliers that crashed. There is a great story from 2002 where the CEO questioned what on earth investors were doing to bid the stock up to a (then) irrational 10x sales:

“During a March 31st, 2002 interview Sun Microsystems ( SUNW ) CEO Scott McNealy said this about his companies valuation.

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64?

Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?”

This just shows you how exactly right you have to be on the growth trajectory, and its profitability, for current valuations in big cap tech and speculative names to work.

“Buffett’s An Idiot!”

At the end of 1999, tech stocks continued to soar while Warren Buffett’s holding company Berkshire Hathaway was down on the year. Criticism was heaped on that he was out of touch and only invested in the old economy. His methodology didn’t work any more. Here was a prominent article in Barron’s from December 1999:

Would you believe it, the greatest investor of all time bounced back and lapped the market over coming years.

With tech stocks ripping and Berkshire moribound, the same criticism has come back around in 2026. As Buffett has held onto a $350bn cash position, people are criticizing him again:

A desire for speculation and an eschewing of the quintessential safe investment is once again happening likely at a key inflection point.

Michael Saylor Blows Up

Over the past few years Michael Saylor has emerged as perhaps the leading voice of the Bitcoin movement. He went from having an obscure software company to possessing the largest Bitcoin Treasury company on the planet, Strategy. That company has $64bn of BTC at cost. The stock is down about 70% from its high and is falling. There are starting to be rumors in the market that Saylor will have trouble meeting interest payments, sell his Bitcoin, or that the creditors may be able to move in on him. He has now lost $13bn on his bitcoin and counting, having accumulated it sloppily over the past six years:

We don’t know the mechanics- but we do we know that he was in a similar position in March 2000.

“What’s that?” you ask. Well in 1998 – 2000 Saylor had been a high flying tech CEO at the first iteration of Microstrategy. The stock had mooned and he was worth billions. On March 20, 2000, it emerged that the company had improperly recognized revenues. The SEC had begun an investigation and it looked like they would have to restate earnings and declare a loss. The stock crashed. It ended up the Internet bust 99% off of its highs.

Later on, in a separate case he had to face claims of tax evasion for claiming he lived outside Washington while maintaining a home and partying it up in Georgetown. He paid a fine.

He now lives in Miami Beach, in a compound visible to all with multiple houses, yachts parked outside and a new jet on the way as his stock crashes. Leopards never change their spots!

Two things here. One, it’s an uncanny parallel of how speculative the market has become yet again. And secondly, we understand being bullish on Bitcoin, but this is not the horse you want to ride.

Companies Riding the Wave

In the 1999 bubble, countless companies rolled out a website, rebranded as an Internet company or they added dot.com to their name. It produced a pop almost immediately. Now companies are doing it with AI. We think the funniest example of this is Allbirds. This was a wool shoe company which was a favorite of Silicon Valley entrepreneurs. The stock had been underperforming over the past year- so why not become an AI company?

Day Trading/Retail Participation

There was a sea of retail day trading in the late 1990s as investors chased performance and capitalized on the lax brokerage laws around it. Internet trading made it easier than ever. Countless publications featured rags to riches stories. After the dot-com bust, the day traders took the blame. The SEC overhauled the rules. They limited the number of day trades one could do, the amount of equity you had to have, and the disclosures. Day trading was seemingly under control again.

Except now it’s back! The government is the ultimate engine of consensus, and we suppose now that the government thinks the coast is clear from those day traders who blew themselves up and the market in 2000.

Schwab

Expanded retail participation is another. E-trade and others allowed cheap online trading. Index funds allowed cheap, passive participation. Tons of new people entered the market and bragged about how much they were making. There was no reddit then, but 1999 era WSB threads would have been great time capsules! We won’t put anything here, books have been written with all the great stories of retail froth. It got so bad that in “Mission Impossible 2”, released in May 2000, the villain eschewed cash or gold or diamonds for…..options in biotech shares.

Another interesting trend that tracks from 2000 is the rush to participate in IPOs. These were the hottest stocks at the time, sometimes rising 500-600% on their first days. Retail was largely shut out and pounded on the doors for the process to be democratized. Several brokerages opened up the process in the end.

Now the process is repeating with the mighty SpaceX IPO. Retail investors down to account values of $2000, from $500k formerly:

On the one hand, this may look like democratizing the process. Sadly, we will be more cynical and we think it’s opening up more and more investors to be on the other side of exiting SpaceX holders.

Retail participation is a hallmark of bubbles. When you see people who shouldn’t be trading stocks doing it and bragging, run. Joe Kennedy famously sold everything in the summer of 1929 when the shoe shine boy gave him a stock tip. And our favorite remains the CNBC special on retail investing in China in their bubble of 2015- it had a video of a remote village where the villagers lined up 30 deep to use the one computer in the whole village to check their portfolios and day trade, 5 minutes at a time. You can guess what happened soon after.

Margin debt is a reliable indicator of retail enthusiasm. A big run up usually precedes a big correction, and we imagine it’s even worse as of June 2026:

Naturally, all these untrained and overlevered newbie investors will be left holding the bag.

5) Likely Roadmap

The market’s hottest sectors are likely a bubble. Is it likely to end soon? But how soon? And for how long?

We think that the market will be, similar to March 2000, in a topping process for the next few weeks. We see the weakest links headed lower first. Some stocks may make new highs. But stocks should be in a range trade with a downside bias for the next three weeks or so.

But the market won’t crack yet. The big institutions need the Google sale, the Meta sale, and the SpaceX IPO to ‘work’. They and their clients will rush in after to big down days to try and put in a floor. The same thing happened in 1929, where after the initial breaks, pools formed in large names to keep them propped up. It will probably work in preventing a real bust for a couple weeks.

Zooming into the Nasdaq in March 2000. The composite peaked in March 10^th and on March 14^th had its first big down day. It was lower the 15^th and the 16^th. It found a range and traded higher, making a lower high on March 24^th. The Nasdaq 100 hit a new high that day. After that, the wheels came off. This implies that we hold up until say June 22^nd before commencing a big liquidation.

QQQ: Feb 1, 2000 to May 31,2000

Yet, as we laid out in the supply section, the amount of stock being unlocked will become enormous by the first week of July. Index funds will have massive amounts of Nasdaq winners to dump for SpaceX. The amount of SpaceX for sale the moment it’s in the Nasdaq 100 and FTSE will be big, and grow every two weeks. Those who worked there for fifteen years and can now cash out some will gladly do it.

Once this breaks, leveraged mega hedge funds will have to take down risk. That will send shorted stocks higher and the hedge fund favorite Mag7 lower, creating volatile trading in everything. Retail will panic and many will be forced to liquidate by their broker.

Medium term 3-24 months, the market will reprice these stocks to reality. But it might take the wind out of the sails of the broader market for only a few months.

We expect a summer break in all these tech names- the reason will be found after the bust. Further weakness could carry into say October or January. From there, let’s see where we are in valuations and sentiment. The latter is far more important. In our many years of doing this, there is only one sure sign of the end of a bear market. It has nothing to do with valuations, policy changes, interest rates, earnings or anything else. Nope, the sure fire sign a bear market is over is when investors are all miserable and most have left the table. Then all the sellers are out or nearly out, and a small amount of new capital can turn things around.

6) The Game Plan

“Impressive, Decoding, I didn’t know how similar the two tapes were” you may be thinking. “But what should I do?”

This is not financial advice obviously. In markets where prices have large runs like the Nasdaq recently, it never hurts to take money off the table. You may miss some future upside, but it never hurts to put money away and wait for a clearer picture. But if you knew there was a risk for a quick sustained break to the downside, as seems likely for later this summer, here are a few things we would consider.

First, if you have portfolio leverage, reduce it now. A fast break with margin will crush your account balance. 50% down in your stocks in a 2x levered account is a total loss of your money.

Secondly, reduce exposure to names that a) way overvalued b) have leverage c) have leveraged shareholder bases. When things get uncertain, these tend to get hit the hardest. Try to find the windows where insider selling could crush something you hold and exit ahead of it.

Thirdly, take a close look at defensive and boring companies. 10x earnings, steady growth and a dividend is pretty dull in a world of 100% growth at 100x earnings. But when the cycle inverts, it’s a nice place to hide. You don’t have to worry about IPO lockups in Johnson&Johnson.

This trade worked extremely well in 2000. Pharma companies bottomed the same week that tech stocks topped. Then they had an enormous rally of 50% in nine months while the S&P and NASDAQ tanked. Any fund manager long these had huge alpha over the indices. We are not saying now necessarily to buy pharma. But what we are saying now is that there are plenty of beaten down, forgotten, ignored segments of the market that can see a nice rally as the tech bubble inflects. Look out for those and spare yourself guessing where the bottom in Palantir is.

DRG (Pharma) Index October 1999-December 2000

Fourthly, be very careful with shorting. An old friend used to say shorting is 10x harder than going long, even in a bear market. We recommend the vast majority of you don’t think about it. For those are undeterred, trade very small and know that you can get tire tracks on you in short squeezes. But shorting done right, as in our John Templeton example, can make exceptional profits in an environment like this.

Finally, check the market less often. The markets in a fast correction can introduce stomach churning news. Prices can move on news up down 1% in the index in the blink of an eye. If you’ve moved to safety, you don’t have to worry so much about these fluctuations and shouldn’t.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

World War 3 started February 2022, and has been ricocheting around the world since then. We have long believed that and written about its various facets over the past few years. This is the big BRICS+ vs NATO chess game being played out globally. We will have a quick check on the economic war and the ultimate game plan there.

Then we are going to look at the individual conflicts in Ukraine and in Iran. Both are quagmires for the West and not ending any time soon. We think at least six months for Iran, given the much higher global pain it’s inflicting, and maybe another year before Russia can force Ukraine to tap out. Neither are large focus points for the markets now- it’s all about the AI trade.

There’s no specific trades, except continuing to avoid government debt, something we have been adamant on for years. Long the select commodities that are going to be in demand or under-supplied from this. The continuing shortages and higher prices in commodities will drive a new round of inflation.

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World War 3’s Many Theaters

We have been saying for years: World War 3 has already started dear reader. Broadly speaking, the war is the power competition between the BRICS nations, led by China and NATO and its allies, led by the US. WW3 kicked off with the February 2022 invasion of Russia, one of the two leaders of the BRICS.

We wrote a whole piece on all of the dimensions of this hybrid war: The BRICS+ War to End American Dominance. Please go there to understand the economic war being waged and the objectives of the BRICS. This war has been adding a new theater each year and continues to grow not only geographically, but in intensity:

2022: Russia vs. Ukraine (backed by NATO/US)

2023: Israel (backed by US) vs. Hamas (backed by Iran)

2024: Israel vs. Hizballah and the Houthis (backed by Iran)

2025: US and Israel vs. Iran, US and Israel against Syria (backed by Iran, Russia)

2026: US and GCC vs. Iran and Houthis

The continuing escalation is playing out very similar to the big wars of the past. One by one the major powers’ little proxy conflicts get bigger and bigger.

Another important point is that except for Syria, none of these have ended yet. Others are growing. The Ukraine special military operation has been upgraded to a full war recently. The Iran war saw a two-month ceasefire that has collapsed. It looks like it cannot be put back together and we now face a nasty quagmire that will drag on for months more, in both Hormuz and the Red Sea.

We will discuss in a future piece the likely next dimensions of this conflict. There are many fronts we see erupting. Needless to say, the BRICS+ economic war against the US and its allies is working seamlessly. Higher oil, shortages, deficit spending, debt problems and inflation are all hitting countries from Japan to Canada. The Straits of Hormuz and Red Sea closures are amazingly powerful weapons that the BRICS+ alliance has weaponized.

Where will the hot war go next? All of these have been put on the table at some point:

North Korea vs South Korea?

Turkey against Israel?

Turkey versus Iran?

Russia versus NATO?

Japan versus China?

US vs. China over Taiwan and South China Sea ? (the economic war is already raging!)

With that 30,000 foot perspective, it’s easy to keep all of the news in check. Until the BRICS+ alliance has removed NATO from Ukraine, removed the US from the Middle East and greatly reduced Israel’s power, and reduced US influence in the Pacific, this war will continue.

The ending we have always predicted is a sobering one. The BRICS+ alliance will see a near total victory. This prediction was declared crazy in 2024. The nasty economic war it has unleashed on its opponents and the complete fecklessness of the US in keeping the seas open, and the failure of its allies in holding territory have made this look more like a good call. But the worst is yet to come.

The Economic War

As we wrote in the longer BRICS piece, the BRICS main plan is to fight an economic war. The BRICS nations know they would be unsuccessful, or the cost too high, in a direct confrontation with the US. But they see the US and its allies as economically vulnerable and going to be attacked. The main channel is to drive inflation higher and thus drive interest rates higher. The main BRICS nations don’t have a debt problem as they hold it domestically. They can pass through higher inflation. China has huge debt but 1% interest rates so it can keep rolling forever.

The NATO nations though already have deficits and high debt. Higher interest rates will kick the spiral into gear. We first put this chart out in 2024, and it is playing out uncannily. This implies a wipeout in long term bonds in the next 18 months:

The Iran driven shock in oil and to a lesser extent fertilizers, and the Chinese driven squeeze in metals from rare earths to silver to titanium, are now driving inflation higher. US CPI is entering the 2026 spike now:

The economic war continues, and the BRICS are winning by using their various supply chain pressures to push inflation through the system.

Diesel stocks are critically low in most developed countries. We have posted the oil inventory data before: June 2026 Monthly. And now there will be shortages in fertilizers, sulfuric acid, and many other things.

We will admit we are unsure of the degree to which this is a happy coincidence which benefits the BRICS nations or a plan hatched in a conference room in Beijing. We will say that there is strategic guidance from China on hitting the NATO chokepoints, but the specifics are left to individual BRICS/SCO members. The consequences remain the same for NATO members.

Iran War Update

The war started, as we predicted, in February of this year. By April a shaky ceasefire had been signed. It later turned into an MOU (Memorandum of Understanding) for future peace talks. That has all broken down in the past three weeks and appears to be in the trash can. Shooting has resumed and both sides have said they will not honor the MOU further. Pepe Escobar, who has the best sources on Iran, says Trump rejected any further talks along those lines:

And Trump rejected a cease fire carried by the Iraqi prime minister. Over this past weekend, Trump had been considering “hitting Iran harder than ever” but then reportedly backed down and seeks a deal. Yet again. Surely his credibility is shot by now for everyone on all sides.

Iran for its part is rejecting cease fires and counting the days on the US supplies of its Strategic Petroleum Reserve. They are waiting for lower oil stocks, higher oil prices and political pressure.

At this point, the tit for tat attacks continue and will not stop. But what exactly is US strategy at this point? The US has accomplished none of its original goals (regime change, protect protestors, stop nuclear program, support Israel) and lost control of the Straits of Hormuz. It is desperate to reestablish the status quo and gain the upper hand. One potential route to do that is a sudden attack on the nuclear facilities, which we appear to have gotten a test run of in April:

Iran’s successful defense of its space means that a full ground war to secure Hormuz would require the US to send in far more soldiers than it has now, as we wrote about. They suspect a good deal of the uranium is held at the Pickaxe Mountain facility in Iran and talking aggressive, even tactical nuclear strikes, on the target.

-WSJ

We think is one of the many threats Trump has highlighted for strategic ambiguity. The US as of now has not decided on its military path to regain the edge in negotiations. Either way, expect the US flailing around to continue for weeks while they decide on a course of action to get the upper hand and commit to it. We have said from day one that Iran wins by not losing. They are definitively not losing and making the US look like a fumbling giant.

For its part, Iran’s ballistic missile strategy continues to target key energy infrastructure and to hit US bases strategically. It has knocked out a good deal of regional refining capacity. The closing of the Red Sea is now boxing in Saudi Arabia. A good part of Iran’s strategy is also to gradually degrade the abilities of US bases in the Gulf and in Jordan- as a way of forcing them to operate in a more limited capacity from only Israel. This limits their effectiveness.

Iran has also talked about potentially moving into to sieze the US bases in Kuwait. We don’t think they would do that, their forces would be extremely exposed to air attack. But they are highlighting the range of targets they have in the region and how difficult it is for the US to defend them all.

This conflict and the accompanying shortages and bottlenecks will endure for at least another six months. Plan accordingly.

Ukraine Update

It’s been a while since we have written about the Ukraine war, last October. We continue to see basically a stalemate tilted to the Russians. The Russians continue advance slowly in the Donbass, the area south of Luhansk. This shows the Russia gains through February 2026, with a slight bit more in the past few months.

- Al Jazeera

Russia has recently decided that its slow, defensive, Donbass-focused “Special Military Operation” is not enough. They upgraded to it a full war and are deciding to hit a world of infrastructure targets across Ukraine.

Ukraine for its part is getting more aggressive. They have hit refineries and oil assets across Russia, causing shortages. They have hit data and distribution centers across Russia. There are gas shortages across Russia now. Ukraine’s drone program has been successful in increasing its capabilities and keep Ukraine in the fight. But Ukraine has huge internal divisions- Zelensky recently fired several top officials. In June they let go both the Commander in Chief and the Defense Minister. Top Zelensky loyalists replaced both. It’s unclear what this means for the battle field performance though.

But longer term, we continue to say it. Ukraine has no hope of winning. It doesn’t have the men, the resources, the Western support, or the advanced arms to finish this. The more Russia focuses on this, the more likely it is Ukraine falls. Just looking at the larger map shows Russia has gained territory continuously through the conflict. There is really nothing Ukraine can do to stop the trend longer term. They need to take a deal, but they won’t.

We expect this to go on for another year by which time we think either European NATO has to enter the fight or Ukraine recognizes the reality.

We also want to show how obvious it was to any reasonable analyst what a mess this would turn into. Iran’s recent killing of soldiers in Jordan shows they could replicate that strategy on dozens of facilities in the region.

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Military- The Iranian Octopus

As the war broke out last in Gaza [ in late 2023], it was the first time that many had encountered the so-called Iranian Octopus. This plan, architected and implemented over the past 25 years by General Solemaini, was to deliberately encircle Israel and to actively prevent any further US interference in the region. The US armed and funded Iraq in the Iran/Iraq War, and then it invaded Iraq again and Afghanistan with the idea of NATO boxing in Iran. Some in the US government were pushing for regime change in Iran, but that would have had a formidable cost. Iran is huge, mountainous, and has a half million man army with substantial experience.

Map of the neighborhood- now you know why NATO moved so aggressively into Iraq and Afghanistan

General Soleimani

The regime armed and trained multiple groups across the region. Soleimani showed amazing skill as a negotiator. He got dozens of groups that had previously fought each other or had competing goals to become aligned against the US and Israel. He built the team, he armed them, trained them, and focused on the common goal. Of these groups, Hizballah in Lebanon is the most prominent, followed by Hamas in Gaza. But they have aided a wide range of groups.

For their part, the US has 50,000 troops in the Middle East still that are vulnerable to Iranian long -range missiles. As of now they are only in a support role, not a combat one, but they may get sucked into the conflict in the future.

But the big risk here is to Israel. Ever since the October 7^th attack by Hamas, Israel has been facing military attacks from four directions: Gaza, Lebanon, The Houthis in Yemen, and missiles from Iran itself. But in the October and May missiles attack, Iran was able to penetrate the famous Iron Dome system. A larger more advanced attack is certainly possible if they can continue to find the weaknesses.

The IDF has 170,000 troops and has only lost 2,000 in Gaza. International outrage over the tactics and the 41,000 dead Palestinians is running very high. But despite that it has to acknowledge that it has not won the war. How many troops is Israel willing to risk in Lebanon? Or Syria? Or civilians put in harm’s way. Iran’s reach and missiles also enable to effectively close off the trade routes to Israel- the Red Sea, and the Mediterranean to its largest port, Haifa.

If Israel continues to escalate, we really don’t think they understand the trap that they are walking into. Iran has multiple skilled proxy armies, 3,000 advanced ballistic missiles, and can last for a long time. Both Hizballah and the Houthis are highly fortified and well trained. Israel’s only superiority is in its 200 nuclear weapons compared to Iran’s maybe dozen bombs, but the international condemnation for that would be horrific.

This graph shows the range of Iranian missiles- and it’s from 2017, the technology has only advanced since then. Remember that many of these are in possession of Hizballah and the Houthis as well.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

The UK is now facing a triple crisis. The seeds of these were planted years ago. But this year is finally seeing all three tip into a real crisis with a new leader at the helm.

UK assets, especially equities, have been cheap for years with low multiples and high dividend yields. They rode through the problems easily. We think the new few years will be more difficult for companies that are domestically focused rather than internationally focused. The UK is still competitive globally in many industries. The UK is world class in entertainment, tech, and many services. “Brit-shoring” remains a thing because of how cheap UK labor is versus other parts of the English-speaking world. We are not predicting a depression here.

But it’s obvious that the UK will soon need a serious restructuring of its government, public finances, energy policy, and immigration system. Doing so will likely mean punishment doled out on the currency and on bondholders. Pensioners and others reliant on government largesse will see less cash coming their way. We hope the restructuring is orderly and in a sustainable format, rather than having a full crash and burn only to pick up the pieces later.

1. Political Dysfunction

2. The Hot Button Issues and The Scenarios

3. Self-Inflicted Energy Crisis

4. Fiscal Problems Now, Crisis Soon

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1. Political Dysfunction

Almost two years ago, the UK held its last general election. The Labour party, which had been in opposition for fourteen years, finally won a big victory. It had a majority in Parliament and a young new Prime Minister in Keir Starmer.

The honeymoon was short. His popularity, as we predicted, immediately nosedived. His approval dropped 25% in his first six months. His net approval is now -50%, making him the least popular major leader in the system.

Current Prime Minister Keir Starmer

Net Approval Ratings:

We had predicted that Starmer would not finish his term. But this is a Parliamentary system- his term should last until 2029. He can only be removed early by a) Resignation b) Calling a ‘new election’ and losing c) Getting voted out in a vote of confidence. It looks like we are finally going to see either a or c- which ever comes first, Nixon style.

A brief digression for American readers not familiar with the UK’s Parliamentary system. It works in some ways like the US Congress, some ways like its Presidency. Similar to the US, voters go and vote for their local representative, the representatives in Parliament. Most votes wins, majority not required. Once all the representatives are elected, they are the ones who select the guy or girl who runs the government – The Prime Minister (PM). The PM’s powers are very similar to the US President, but if he had been picked in a process like selecting the Speaker of the House.

If a party has a majority of seats in Parliament, its leader is almost always voted in as the Parliament. When there’s no majority, usually a bunch of horse-trading is involved and two or more parties with a majority compromise on a candidate.

In our UK case, that party in 2024 was Labour and its leader Keir Starmer was elected Prime Minister. That’s one difference to the US model. There are two others: the first is that the Cabinet is only made up of the members of Parliament. No outside personnel allowed. The second is the duration of the PM’s term. England holds an election every five years, and those members of Parliament keep their seats for that entire time. In that time though, they can choose to vote in and vote out the PM. A five year term can see Parliament vote for three or four different PM’s- called a vote of confidence, or no confidence. The previous Conservative party Parliament rotated through multiple PM’s this way. The second is that if Parliament reaches an impasse on forming a government or picking a PM, the Parliament can vote to dissolve the current Parliament and hold ‘snap elections’ six weeks later. Then the clock starts again for five years.

Despite the crashing popularity, Mr. Starmer has resolutely decided he will not resign or call a general election. The Labour party has now decided his brand is too toxic and they need to select a new Prime Minister.

The problem is that the guy the leadership had identified, Andy Burnham, was not in Parliament! He was serving as the mayor of Manchester. But they worked out a plan. They identified a Labour friendly district in Makerfield and had its MP resign. That forced a new election to replace him – a so-called ‘by election’. This was to be a crucial test for Burnham’s popularity.

This, by the way, was the scenario we predicted nine months ago:

The leading candidate for the next PM is Andy Burnham, former MP and now mayor of Manchester. At Labour’s recent party conference, he made a push calling for big changes in Labour. He thinks that Labour’s careful move back to the middle is a mistake. He calls for rejoining the EU and big spending plans. Markets would not like his initiatives.

Andy Burnham

The election of June 18^th was expected to see Burnham win by 7 or 8% points. But he delivered a resounding win, beating the second place Reform candidate by 20%

It now looks like the path to replace Starmer is in motion. Several ministers have told Starmer it’s time to go already.

2. The Hot Button Issues and Scenarios From Here

Why did Burnham win? And why is he now on track to have Labour select him as the next PM?

Read more

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

Another nutty month in financial markets. SpaceX IPO’d, and as we wrote about a couple weeks ago, propped up the markets for a few days. But there are risks to the AI and tech trade over the summer.

The Iranian MOU with the US is out and looks likely to be a major conclusion to the Iran conflict. Not final though. We look through the deal and see how it lined up with our predictions.

We look at the elections in California- which we got wrong- and Colombia- which we got right. The latter has a bright future ahead of it. The former, is facing a tough path ahead as the fiscal ratchet hurts growth and forces businesses to move.

Finally we look at new Fed chairman Warsh and his more hawkish turn.

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1. The Iranian US MOU

2. There Really Is No Oil

3. California Recap

4. Colombia

5. The Fed- Market Pricing In Hikes

1) The Iranian US MOU

Over the past week, details have slowly emerged of the Iran US Memorandum of Understanding designed to resolve all outstanding issues. It’s supposed to be signed by June 19^th. After there will be a 60-day ceasefire. During that time, the real negotiations on the real issues will commence and progress.

Bloomberg published the whole thing. We have summarized the 14 points:

1. Immediate end to war on all fronts

2. Not interfering in each other’s internal affairs

3. Goal is to have a final deal in 60 days

4&5. US ends blockade, with draws troops. Iran reopens Hormuz

6. Creation of $300bn fund for Iranian reconstruction and development

7. US agrees on a schedule to end all sanctions

8. The Islamic Republic of Iran reiterates that it will never produce nuclear weapons.

9. Iran will maintain status quo on nuclear program, US will impose no new sanctions

10. The United States will issue sanctions waivers immediately for Iranian oil

11. US releases frozen funds to Iran

12. US and Iran will agree on an implementation mechanism

13&14. After the first part is done, we will negotiate the rest. The final agreement will be approved through a binding resolution of the UN Security Council.

Our thoughts:

This is everything that Iran wanted. Trump surely knew that continued military operations would not be successful in forcing the Iranians to cave. So he made a borderline surrender here. We always said that they win by not losing. They most certainly hamstrung the American military and did not lose.

Now this deal is not final and could fall apart. But that would just increase Iran’s leverage in a couple months as it earns a windfall from Hormuz traffic. And it could gum up all Red Sea traffic too. Will they? We don’t know. We suspect not.

The key variable in this is Israel. Netanyahu and many Israeli lawmakers hate this deal. It forces Israel to withdraw from fighting everywhere. It brings its enemy, Iran, back in from the cold and back into the global economy. Israel has killed negotiators and crashed deals before- will they try it again? If so, it’d be back to square one. We think Trump slapped around Israel enough for now that they wouldn’t try it. But it’s not out of the question.

This lined up basically with that we predicted five months ago. We expected several weeks to months of shooting. We put greatest odds on a negotiated compromise, with Iran only negotiating a peace in exchange for sanctions relief and international recognition. Here we are:

Negotiated Compromise

We all know that Trump starts negotiations with a big ask, and will walk it back to a more realistic outcome. We think that the big ask here is regime change. But if several months of strikes had proved insufficient for regime change, he would settle.

What would such a settlement look like? More promises on the nuclear program. A withdrawal of Iranian forces and support from the region.

It will probably involve the Ayatollah remaining but Constitutional changes to allow more room for dissenting voices.

In return, Iran would get a roadmap to international recognition and sanctions relief.

Chances: 50%

2) There Really Is No Oil

This deal couldn’t have come at a more crucial time for the oil markets. Oil inventories everywhere have been crashing the past few weeks. The last ships from Hormuz left in March and arrived the end of April. Supplies from the US and redirected to the Red Sea still left a huge hole in the market. Now it’s a matter of getting the Hormuz trade restarted- clean boats, crews, insurance, and traveling to and from their destinations in the Gulf.

Here is China’s oil inventory picture, which has been falling rapidly

Japan had built large stocks but was using them rapidly:

All over the OECD inventories are way below monthly averages:

At current pace, the US Strategic Petroleum Reserve will hit technical limits in a few weeks:

Let’s see if the Hormuz deal holds and Iran can get traffic fully flowing the Straits in the next 30 days. If they do, then the current oil price is right. If they can’t or don’t, then the inventory squeeze will get severe.

3) Los Angeles Mayoral Election Recap

We made a big call that Spencer Pratt could win in Los Angeles’ mayoral election. Initially, he had cruised comfortably into second place. He was 5 points behind Mayor Bass and 5 points ahead of Councilwoman Raman. But as the mail in ballots were counted over the next two weeks, over 40% of them went to Raman. She rose and rose in the polls and cruised into second. Bass’ numbers hardly changed. Pratt’s collapsed to a distant third. A similar dynamic happened in the governor’s race- although we never predicted a Republican would make it to the runoff there.

Pratt is now saying he has recordings which will force the others to resign in disgrace. Maybe. We’ll see. But we thought Pratt’s popularity and campaign could overpower California’s Democratic machine. We clearly underestimated its power and mendacity.

4) Colombia Recap

Colombia went to the polls on May 31^st. We expected the right wing candidates to get well over 50% combined in this first round and then cruise to victory in the second round. That’s what happened. The right consolidated on Bukele fan de la Espriella, who finished first. He was widely expected to place second to leftist candidate Cepeda.

The top two now go to a June 21 run off. Colombian polls tend to be accurate. They are all showing de la Espriella to win by 53 or 54%. This should unlock a very positive few years for Colombia after years of stupid populism.

The market has liked the outcome thus far. The largest bank in the country is up 27% in the past month and is hitting 52 week highs. But we think there is much more to go.

5) Federal Reserve Outlook – Fed Tuns Hawkish

In his first press conference as the new head of the Federal Reserve, new head Kevin Warsh was direct. Almost terse. Inflation was too high and had been for five years. It is time for it to come down.

The new Fed chairman Kevin Warsh

The statement was extremely short and to the point: “Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.” Doesn’t leave much doubt what they want.

This was probably a hawkish surprise for a market that had been expecting one Fed hike this year:

CME Fed Watch

The Fed’s dot plots, its projects by members of rates, showed nine members wanted to raise rates, some multiple times, this year.

Warsh also announced a number of task forces to look at the longer term inflation picture, economic data, and other aspects of implementing Fed policy. While he is certainly no Volcker, there’s no doubt that Warsh is much more hawkish than Chairman Powell.

Since Warsh has come in last month, long rates have declined a little bit, and short rates are slightly higher. That may be the first sign of getting inflation expectations under control:

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” – Jesse Livermore

The US markets, notwithstanding the speed bump of March, had a good year through Wednesday June 3^rd: The S&P 500 was up 11%, the Nasdaq 100 was up 20%. A good year in six months.

That appears to have inflected on Friday June 5^th with a big selloff across the board. We have been working on this piece for a while and unfortunately did not get it out before the first drop. But we are still warning you in the strongest terms: The markets of June 2026 strongly resemble the markets of March 2000. That month ended the mania of PC/dot-com/large cap tech stocks of the 1990’s. What followed was a three year bear market and an 80% drawdown in the NASDAQ.

We don’t think that the scenario will play out exactly the same. Yet having been around the markets at that point and now, the parallels are uncanny. We are going to go through the similarities of the two environments. We will tell you what happened to major tech stocks in 2000 (hint: it was ugly) and thus likely to the tech darlings of 2026. Copying out all the charts and relevant news articles would take this to way longer than we desire- but we give you all the names and key turning points to do the research yourself.

We were bearish in January, bullish in early April, and turned neutral in late April. This was all on the Iran war. But the market no longer focuses on that- on June 5^th the Iranians withdrew from all negotiations, fired missiles and oil ended up down $5 on the day. The market has now moved on to AI dynamics.

We are now cautious on US and global markets. We are now extremely cautious on US tech and other tech heavy, levered markets. Korea is probably the prime example. Please note, we are not calling for a general market crash or a down 50% bear market in the S&P.

But we are fairly certain that a lot of air is going to come out of the bubble that has been inflated in tech, memory, semis, AI infrastructure and other pockets of the market that have seen a speculative frenzy. The memory of the brutality of the dot-com bust and the ease of just going into various hiding places implores us to tell you to be cautious and re-allocate.

We will break down this piece into a few pieces:

1) The 1990’s into 2000….And Afterwards

2) The Market in 2026

3) Just Like 2000, Supply Will Bury The Market

4) Parallels Are Uncanny- Valuations, Retail Trading, Saylor, Buffett

5) Likely Roadmap

6) The Game Plan

1) The 1990’s into 2000….And Afterwards

The 1990’s were fundamentally the most bullish decade since the 1920’s. The Cold War ended in 1991, generating the ‘peace dividend’. New markets in Russia, China, and India opened up. NAFTA promised to boost trade with Mexico and Canada. Interest rates and inflation were low. Politics were moderate domestically.

It was also a time of technological progress. PC’s went from a niche product to every desk and home. Mobile phones went from a funny accessory in the movie ‘Wall Street’ to widely adopted. The Internet went from an obscure government computer network to connecting hundreds of millions of people globally.

Initially, the companies behind this rode the strong adoption and growth to continue growing. A broader retail investor base, with online trading and broad access to mutual funds, was happy to buy them. There was nothing super speculative about it until 1995.

That was when the first real Internet only company, Netscape, IPO’d. It was a small loss making company, but it also had created the first browser to use the World Wide Web. It was the first product that made the hard-to-access Internet of yore easy and scrollable to any grandmother. Interest in the product and company exploded. The stock went crazy. After that, the floodgates opened and hundreds of new companies came to market each year.

By 1999, the Dow Jones Industrials had gone from 1,000 in the early 1980’s to 10,000. Analysts called for Dow 36,000 soon [the author of that book serves in the White House now] Tech stocks and indices performed vastly better. Companies found that rebranding as .com or Internet businesses saw their stocks re-rate like crazy. The demand for telecom equipment to build out networks to support mobile and the Internet was huge. 1998 and 1999 saw a flood of ‘dot-com’ businesses hit the market, hundreds of new businesses, mostly loss-making. The mania built and built in 1999 and early 2000.The NASDAQ doubled from October 1999 to March 2000 (very similar to the rally since Liberation Day 2025).

The market hit its peak in March 10,2000. It sold off a few days, no big deal. It reached a new high (Nasdaq 100) and matched the high (Nasdaq Composite) two weeks later. After that, it went into a tail spin and declined roughly 40% in eight weeks. The Nasdaq 100 ETF, ticker QQQ, went from a high of 120 on March 24^th to a low of 72 on May 24^th. That’s 40% in 8 weeks.

After that initial bust, QQQ rallied back to 100. It finished the year at 60. From there, the market stair stepped lower over the next two years, with QQQ bottoming at 20 in October 2002.

QQQ: October 1999 to October 2003

Hundreds of stocks went down 90% or more. Many marquee businesses went bust. Retail investors were hammered. Reports of people who had made a fortune day trading and then lost everything were common. It turned out that debt levels and valuation levels had reached the highest levels in 80 years during the 1999-2000 period, leaving no room for error. When the errors happened, speculative stocks blew up.

2) The Market in 2026

We all know the story: AI is going to change everything. The data center buildout is beyond huge. GPU’s for everything. Now it’s going to space, into every industry, and its going to begin programming itself and achieving hyper-growth. And the race is on for the first company to achieve AGI, as they will be the winner.

The dynamic is similar to the Internet bubble. A new revolutionary technology [the early Internet]. It will displace everything else [online shopping, newspapers, post offices] and enable many new industries [radio and video streaming, shared working] A massive infrastructure build is necessary to get to scale, and winner takes all.

There was a giant buildout of everything telecom- new mobile networks, new Internet connectivity like T-1s and ISDN lines and cable modems. There was huge spend in new fiber optics and mobile networks, equipment to power them, data centers, switching hubs, routers and all the nuts and bolt of Internet architecture. Many of the big spenders on fiber promised huge things and went bankrupt- Level 3, Qwest, Global Crossing, and Worldcom.

There were revolutionary technologies in the past two decades- smart phones, social media, EV’s. Why weren’t those bubbles too? Those stocks just kept growing despite what the haters say. Those businesses were our early 1990s PC and mobile companies: steady growth, cash flow, and predictable adoption curves. No debt, no negative FCF, no speculative hoopla.

The reason we think it’s a bubble now similar to 2000 but was not in past years is based around three simple facts. One, at the end of the bubble businesses that were consuming capital were the focus, not the good growing and cash flowing businesses. When the external capital hit the pause button it was over. Then it was dot-coms and telecom companies – now it’s AI scalers. Secondly, in 2000 there was massive supply of new equities, from both new and existing companies. Tons of smaller dot coms and network companies hit the markets in that period, and many major companies IPO’d or were spun off: Palm and AT&T Wireless most prominently. Finally, the tech sector had reached such a large part of US and global portfolios that it had pushed valuations to ridiculous levels and pushed investors into a position where they had to sell and rebalance.

The huge concentration in the 1990’s was in stocks obvious to all: Nokia, Dell, Microsoft, Intel, America Online, Cisco Systems, Sun MicroSystems, Nortel and Lucent. Ciena, JDS Uniphase and Qualcomm were the growth plays. Ebay and Amazon for e-ecommerce. If you wanted a holding company of these, businesses you bought CMGI or Internet Capital Group. Tech was almost 33% of the S&P in Q1 2000. One fund manager, Janus, took in half the inflows at one point by building huge positions in those stocks. It became a forced seller for years when the market turned.

Longer term what happened to these names (say a decade later). America Online merged with Time Warner and the stock went down massively. Nokia, Nortel, Lucent were basically out of business along with so many other telecom companies. Sun Micro, Intel, and Cisco had 80% drawdowns but survived and remain below their 2000 highs. Dell had a similar fall and went private again later on. Amazon, Qualcomm and Microsoft all eventually exceeded their prior highs, but took massive drawdowns and a decade+ to do it.

Now it’s obvious to own the Mag 7 – Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta, Tesla. The forthcoming Spacex, Anthropic, and Open AI offerings created feeding frenzies the past few quarters in private markets. The memory and semiconductor industries are considered no brainers to capitalize on the multi-trillion dollar secular growth of AI and data centers. Investors appear to have forgotten that these two of the most cyclical industries on earth, and this time around, they are carrying far more political risk than before. Tech is nearly 40% of the S&P depending on how you count it.

We will discuss more in the aftermath section but we want you to keep in mind one thing. There is no doubt all of these were transformative businesses and technologies. They generated great returns for a long period of time. But eventually, stock prices reflected wildly overly optimistic assumptions relative to what would play out, and they turned into terrible investments over the next ten years (or are likely to).

3) Supply Will Bury The Market

The 1999 market as we mentioned featured a tsunami of IPOs. Those came largely in the second half of 1999 and early 2000. Many insiders were locked up from selling for 90 or 180 days. But when the window opened for executives to sell shares, they took advantage. With so many companies and so much stock for sale, it eventually turned out to be too much to handle. When retail sat on their hands or joined in the selling, there was no one left on the other side. Tons of stocks crashed post IPO lockup windows.

Several fortunes were made from shorting these weak links. Legendary value investor John Templeton was famous as a stock picker, not a short seller. But he saw the opportunity as so irresistible that in January 2000 he put on a big basket short in these companies. A Forbes article from 2001 did a great job breaking down the trade and the reasoning and timing behind it:

“Templeton, however, arranged his short-position schedule with his broker in January 2000, when techs were hot. Gains thus far: $86 million.

Templeton slated his short positions to take effect 11 days before lockup expirations—that point, usually six months after an initial public offering, when insiders are allowed to sell their stock. He focused on tech shares selling at three times the price set in the initial offering, rightly figuring company insiders would cash out some of their absurdly valued holdings, putting downward pressure on stock he suspected was due to fall anyway. “Insider selling was the trigger but not the main driving force,” he says.

He shorted 84 Nasdaq stocks, taking positions averaging $2.2 million each. In nearly half of the shorts he waited until prices dropped to 5% of what he paid, thereby cleaning up on such names as Foundry Networks, Breakaway Solutions and Vitria Technology (see table, above). At other times he closed out his positions once the stock price dipped below 30 times trailing earnings. He took losses early, quickly covering positions where the stock price increased post-lockup.

The 2026 market is looking to be one also chock full of supply. Numerous pundits have said only the 1999-2000 market can compare for issuance relative to the size of the market. Already out the door are two big tech firms, with a third likely to follow.

Oracle already announced a $20bn offering in February. Rumors are more is needed.

Google announced a $60bn last month.

On June 5^th, speculation hit the market Meta was next for tens of billions

Then there are the upcoming IPOs. The big daddy is the SpaceX deal. If it prices at the likely IPO price, it would be worth over $2tn. That would make it third largest market cap in the entire market at IPO. At least $60bn of that is primary.

Soon after, the market will see deals from two $700-900bn range companies, Anthropic and OpenAI. Our suspicion is the latter deal actually may not happen. There are many, many things that do not add up at Open AI. Similar to WeWork, putting the numbers down in an S-1 may be the end of the story. But that’s for another article.

To say nothing of the myriad smaller players and secondary offerings. This is, by our back of the envelope going to be probably $300-400bn of primary shares offered and much more potentially in secondary selling. Those are big numbers!

It would be one thing if all of this stock was hitting when fund managers had lots of cash to buy it like in 2012 or 2022. But it’s the opposite! Levels are near the lowest in history. This data is from March, and we are sure it’s lower now in the first week of June after the big run-up:

Lots of new stock, not a lot of capital to purchase it, is the Econ 101 way you get lower prices.

Finally, there’s the index dynamic. They changed the rules so that after the first 15 trading days, SpaceX can cruise into the Nasdaq and FTSE indices. Great, more buyers, right? Well that’s half the battle. Index funds will have to sell other names in order to raise the capital to buy SpaceX, as by definition index funds run with almost no cash balance. SpaceX is likely to coming in at a 5-7% weighting in the Nasdaq 100 index. That’s going to be a whole lot of selling in the Mag 7 and the other names that track the index. Three of those big Nasdaq 100 names, as we pointed out, are also issuing or have issued new shares.

Who will be on the other side of all of this rebalance selling? Or are we just setting up an environment for a new Templeton trade of shorting all these?

4) Parallels are Uncanny

Not only are the structural drives and the price performance similar, there are a very uncanny echoes of 2000 that only seem to emerge at turning points like this. As Livermore said, there is nothing new in the stock market. Not only is the structural setup very similar, even certain little market happenings are showing you how similar these two dates are.

Valuation

The continued price performance of the Mag 7 among others has created a tremendous valuation extreme. We showed the share of IT in the S&P earlier had hit all time highs. On a ten year PE basis, such an extreme has only been hit once: in March 2000

Again, people rationalized paying absurd, above 1929, levels. One line from the Templeton article we previously cited made us chuckle- if only he could see 2026 valuations!

Like other value investors, he was agog at the market’s frothiness. “This is the only time in my 88 years when I saw technology stocks go to 100 times earnings; or, when there were no earnings, 20 times sales,” says Templeton. “It was insane, and I took advantage of the temporary insanity.”

How bad is it to pay high prices 10-20x sales, or 40x earnings for the S&P? We previously cited Sun Mircosystems as one of the highfliers that crashed. There is a great story from 2002 where the CEO questioned what on earth investors were doing to bid the stock up to a (then) irrational 10x sales:

“During a March 31st, 2002 interview Sun Microsystems ( SUNW ) CEO Scott McNealy said this about his companies valuation.

“At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64?

Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?”

This just shows you how exactly right you have to be on the growth trajectory, and its profitability, for current valuations in big cap tech and speculative names to work.

“Buffett’s An Idiot!”

At the end of 1999, tech stocks continued to soar while Warren Buffett’s holding company Berkshire Hathaway was down on the year. Criticism was heaped on that he was out of touch and only invested in the old economy. His methodology didn’t work any more. Here was a prominent article in Barron’s from December 1999:

Would you believe it, the greatest investor of all time bounced back and lapped the market over coming years.

With tech stocks ripping and Berkshire moribound, the same criticism has come back around in 2026. As Buffett has held onto a $350bn cash position, people are criticizing him again:

A desire for speculation and an eschewing of the quintessential safe investment is once again happening likely at a key inflection point.

Michael Saylor Blows Up

Over the past few years Michael Saylor has emerged as perhaps the leading voice of the Bitcoin movement. He went from having an obscure software company to possessing the largest Bitcoin Treasury company on the planet, Strategy. That company has $64bn of BTC at cost. The stock is down about 70% from its high and is falling. There are starting to be rumors in the market that Saylor will have trouble meeting interest payments, sell his Bitcoin, or that the creditors may be able to move in on him. He has now lost $13bn on his bitcoin and counting, having accumulated it sloppily over the past six years:

We don’t know the mechanics- but we do we know that he was in a similar position in March 2000.

“What’s that?” you ask. Well in 1998 – 2000 Saylor had been a high flying tech CEO at the first iteration of Microstrategy. The stock had mooned and he was worth billions. On March 20, 2000, it emerged that the company had improperly recognized revenues. The SEC had begun an investigation and it looked like they would have to restate earnings and declare a loss. The stock crashed. It ended up the Internet bust 99% off of its highs.

Later on, in a separate case he had to face claims of tax evasion for claiming he lived outside Washington while maintaining a home and partying it up in Georgetown. He paid a fine.

He now lives in Miami Beach, in a compound visible to all with multiple houses, yachts parked outside and a new jet on the way as his stock crashes. Leopards never change their spots!

Two things here. One, it’s an uncanny parallel of how speculative the market has become yet again. And secondly, we understand being bullish on Bitcoin, but this is not the horse you want to ride.

Companies Riding the Wave

In the 1999 bubble, countless companies rolled out a website, rebranded as an Internet company or they added dot.com to their name. It produced a pop almost immediately. Now companies are doing it with AI. We think the funniest example of this is Allbirds. This was a wool shoe company which was a favorite of Silicon Valley entrepreneurs. The stock had been underperforming over the past year- so why not become an AI company?

Day Trading/Retail Participation

There was a sea of retail day trading in the late 1990s as investors chased performance and capitalized on the lax brokerage laws around it. Internet trading made it easier than ever. Countless publications featured rags to riches stories. After the dot-com bust, the day traders took the blame. The SEC overhauled the rules. They limited the number of day trades one could do, the amount of equity you had to have, and the disclosures. Day trading was seemingly under control again.

Except now it’s back! The government is the ultimate engine of consensus, and we suppose now that the government thinks the coast is clear from those day traders who blew themselves up and the market in 2000.

Schwab

Expanded retail participation is another. E-trade and others allowed cheap online trading. Index funds allowed cheap, passive participation. Tons of new people entered the market and bragged about how much they were making. There was no reddit then, but 1999 era WSB threads would have been great time capsules! We won’t put anything here, books have been written with all the great stories of retail froth. It got so bad that in “Mission Impossible 2”, released in May 2000, the villain eschewed cash or gold or diamonds for…..options in biotech shares.

Another interesting trend that tracks from 2000 is the rush to participate in IPOs. These were the hottest stocks at the time, sometimes rising 500-600% on their first days. Retail was largely shut out and pounded on the doors for the process to be democratized. Several brokerages opened up the process in the end.

Now the process is repeating with the mighty SpaceX IPO. Retail investors down to account values of $2000, from $500k formerly:

On the one hand, this may look like democratizing the process. Sadly, we will be more cynical and we think it’s opening up more and more investors to be on the other side of exiting SpaceX holders.

Retail participation is a hallmark of bubbles. When you see people who shouldn’t be trading stocks doing it and bragging, run. Joe Kennedy famously sold everything in the summer of 1929 when the shoe shine boy gave him a stock tip. And our favorite remains the CNBC special on retail investing in China in their bubble of 2015- it had a video of a remote village where the villagers lined up 30 deep to use the one computer in the whole village to check their portfolios and day trade, 5 minutes at a time. You can guess what happened soon after.

Margin debt is a reliable indicator of retail enthusiasm. A big run up usually precedes a big correction, and we imagine it’s even worse as of June 2026:

Naturally, all these untrained and overlevered newbie investors will be left holding the bag.

5) Likely Roadmap

The market’s hottest sectors are likely a bubble. Is it likely to end soon? But how soon? And for how long?

We think that the market will be, similar to March 2000, in a topping process for the next few weeks. We see the weakest links headed lower first. Some stocks may make new highs. But stocks should be in a range trade with a downside bias for the next three weeks or so.

But the market won’t crack yet. The big institutions need the Google sale, the Meta sale, and the SpaceX IPO to ‘work’. They and their clients will rush in after to big down days to try and put in a floor. The same thing happened in 1929, where after the initial breaks, pools formed in large names to keep them propped up. It will probably work in preventing a real bust for a couple weeks.

Zooming into the Nasdaq in March 2000. The composite peaked in March 10^th and on March 14^th had its first big down day. It was lower the 15^th and the 16^th. It found a range and traded higher, making a lower high on March 24^th. The Nasdaq 100 hit a new high that day. After that, the wheels came off. This implies that we hold up until say June 22^nd before commencing a big liquidation.

QQQ: Feb 1, 2000 to May 31,2000

Yet, as we laid out in the supply section, the amount of stock being unlocked will become enormous by the first week of July. Index funds will have massive amounts of Nasdaq winners to dump for SpaceX. The amount of SpaceX for sale the moment it’s in the Nasdaq 100 and FTSE will be big, and grow every two weeks. Those who worked there for fifteen years and can now cash out some will gladly do it.

Once this breaks, leveraged mega hedge funds will have to take down risk. That will send shorted stocks higher and the hedge fund favorite Mag7 lower, creating volatile trading in everything. Retail will panic and many will be forced to liquidate by their broker.

Medium term 3-24 months, the market will reprice these stocks to reality. But it might take the wind out of the sails of the broader market for only a few months.

We expect a summer break in all these tech names- the reason will be found after the bust. Further weakness could carry into say October or January. From there, let’s see where we are in valuations and sentiment. The latter is far more important. In our many years of doing this, there is only one sure sign of the end of a bear market. It has nothing to do with valuations, policy changes, interest rates, earnings or anything else. Nope, the sure fire sign a bear market is over is when investors are all miserable and most have left the table. Then all the sellers are out or nearly out, and a small amount of new capital can turn things around.

6) The Game Plan

“Impressive, Decoding, I didn’t know how similar the two tapes were” you may be thinking. “But what should I do?”

This is not financial advice obviously. In markets where prices have large runs like the Nasdaq recently, it never hurts to take money off the table. You may miss some future upside, but it never hurts to put money away and wait for a clearer picture. But if you knew there was a risk for a quick sustained break to the downside, as seems likely for later this summer, here are a few things we would consider.

First, if you have portfolio leverage, reduce it now. A fast break with margin will crush your account balance. 50% down in your stocks in a 2x levered account is a total loss of your money.

Secondly, reduce exposure to names that a) way overvalued b) have leverage c) have leveraged shareholder bases. When things get uncertain, these tend to get hit the hardest. Try to find the windows where insider selling could crush something you hold and exit ahead of it.

Thirdly, take a close look at defensive and boring companies. 10x earnings, steady growth and a dividend is pretty dull in a world of 100% growth at 100x earnings. But when the cycle inverts, it’s a nice place to hide. You don’t have to worry about IPO lockups in Johnson&Johnson.

This trade worked extremely well in 2000. Pharma companies bottomed the same week that tech stocks topped. Then they had an enormous rally of 50% in nine months while the S&P and NASDAQ tanked. Any fund manager long these had huge alpha over the indices. We are not saying now necessarily to buy pharma. But what we are saying now is that there are plenty of beaten down, forgotten, ignored segments of the market that can see a nice rally as the tech bubble inflects. Look out for those and spare yourself guessing where the bottom in Palantir is.

DRG (Pharma) Index October 1999-December 2000

Fourthly, be very careful with shorting. An old friend used to say shorting is 10x harder than going long, even in a bear market. We recommend the vast majority of you don’t think about it. For those are undeterred, trade very small and know that you can get tire tracks on you in short squeezes. But shorting done right, as in our John Templeton example, can make exceptional profits in an environment like this.

Finally, check the market less often. The markets in a fast correction can introduce stomach churning news. Prices can move on news up down 1% in the index in the blink of an eye. If you’ve moved to safety, you don’t have to worry so much about these fluctuations and shouldn’t.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

[This material was originally in our LatAm Politics Update]

Since taking out Venezuela, Cuba’s primary oil supplier, that country has been experiencing energy shortages. The US followed up with a full oil embargo and threatened to sanction any country selling them oi, such as Mexico. As a result, Cuba has run out of all energy and is now experiencing the worst blackouts in decades. There seems to be no reprieve in sight.

While the rest of the US government was in China, CIA director John Ratcliffe went down to Cuba carrying a message. It was essentially an offer of humanitarian support, but only if they started to open up Venezuela or 1991 Eastern Bloc/USSR style. The US is offering $100 of humanitarian aid immediately to Cuba. But they will do it third party NGO’s and not just cut a check to the Cuban government.

Reading between the lines, the US government is essentially offering to ease up if the Cuban government begins to go China-under-Deng Xiaoping style, and open up its economy rapidly and radically. Political opening would come soon after. Kicking out what remains of Russian and Chinese spying operations will occur quickly. The implicit threat for Cuban leaders is a repeat of Maduro in Venezuela: If you won’t do it, we’ll extract you and find someone else who will. That’s a powerful carrot and stick approach to bring on starving, blacked out Cuba at this point. The leadership simply has no choice but to accept right now or the people will hang them in six months anyway.

The Cubans apparently responded to this offer of humanitarian aid with the line: “It will encounter no obstacles or ingratitude.” Translation: We know it’s over, thanks for the food.

Historians will look back on this as the day communism began to end. The regime has zero options at this point. Their long-time regional ally, Venezuela, is now under full US control. They have zero oil and zero prospect of getting any in the near term. Their historical ally partners, Russia and China, are nowhere to be found. The US has the assets to invade them soon if they choose that route to force the matter. And popular support for the Cuban government seems to be approaching zero.

Recently investigative Youtubers, like Nic Shirley, have visited the country. He spoke to one person whose ration book had only permitted one egg per year, and one chicken per three years. They see how well their relatives in Florida live. Add in blackouts, internet cutoffs, and you can imagine how angry the population is. They would have done something about it a long time ago if not for the highly repressive state police.

The USSR was established in 1922 and dissolved in 1991. It lasted 69 years despite being the most repressive government perhaps in human history. Fidel took over in 1959, and Cuba has now reached 67 years of communism. It seems that communism wherever and however it is practiced has a maximum lifespan of 70 years. We can start writing out the death certificate now, thankfully, although we don’t know exactly how things will play out in the next few months.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

Our prior pieces on the US sending ground troops generated a range of comments and stimulating discussions. After many of these, it’s clear that there is a fundamental misunderstanding in the market on two key issues related to the Iran War.

The first is the ‘closure of the Straits of Hormuz’- it’s not what most people think it is. And that difference explains why the re-opening will be so much harder than most people assume. And the second is a serious misunderstanding of Fortress Iran’s geography and defensive capabilities. Once the shaky ceasefire finally breaks down, these dynamics will matter again.

It’s assumed that once the US Navy controls the area directly around Hormuz that traffic will flow through freely. Numerous traders have said to us “The US will just take Hormuz” with a wave of a hand. The Iranian Navy and Air Force have been destroyed, right? Who can stop the US Navy then? Send in a few ground troops to stop guys with RPGs from hitting passing ships and you’re golden.

This is not at all the case.

Iran has closed the Straits not by mining it or naval assets, but by threat of droning or missiling from a comprehensive web of bases stretching hundreds of miles. It has already delivered on this threat several times. Furthermore, these bases are not sitting out in the open to be picked off. They are dug deep inside of a formidable mountain range.

At the current moment, the US Navy can do absolutely zero about these attacks. Most of the Navy is sitting hundreds of miles from the Persian Gulf for fear of attack. They can’t react fast enough to intercept these close-range attacks on ships or escort traffic through Hormuz.

The only way to end this is to insert a strike force capable of finding and destroying those launching locations at close range. In addition, the US has threatened repeatedly that they are willing to send in ground troops in order to find and seize Iran’s highly enriched uranium.

We must caveat this that we have no military or intelligence background. We are just amateurs who read a lot of the literature- it’s amazing how much material the US military and its think tanks produce. Professionals will nitpick away, but please focus on the broader message.

Conflict About To Resume

We bring all this up because there are numerous signs that the conflict is about to resume. On May 10^th, Netanyahu gave an interview to “60 Minutes” effectively saying he and Trump are in favoring of attacking Iran again and seizing the uranium in military raids on the ground. There is evidence we discuss later that they already tried and failed. Trump obviously wants the Straits reopened but there is nothing he can do as of now to force it.

Subsequent to that, numerous statements by Trump and in the press confirm that a ground raid and potential capture of Kharj Island are the next steps. We have already written about what that will look like.

Those troops will need close in air support, making those ships vulnerable to cruise missile attack. The US will have to comb through hundreds of miles of mountains to find the places where Iran exercises control over the Straits. It will take months and a substantial commitment of forces. Iran’s geography makes this ten times more difficult than a place like Southern Iraq.

It seems that the US has already tried this kind of ground attack we describe, and failed already. We did a substack note with all the details on it. But essentially, the US’s whole cover story of a brave search and rescue team rescuing two downed pilots was a ruse. It turns out that those pilots were supporting a larger operation in nearby Isfahan in order to send in some special forces teams. Those teams were there to enter the Isfahan facility and extract some of the highly enriched uranium and perhaps destroy some of the missile launch sites. But the raid failed. Much of the US military equipment was destroyed and several planes were shot down. Two large cargo transports, several helicopters and other equipment were lost. The US had to create a diversion story for this huge failure against the allegedly feeble Iranian military.

So were right in our prediction that ground troops would be used. It’s just that instead of forcing a resolution on the uranium issue, the raid failed, and forced Trump to publicly lie and move to a ceasefire.

How the Straits of Hormuz Was ‘Closed’

Every news story about the Iran war mentions that the “Straits Of Hormuz are closed”. One would assume that they had acted like the ancient city of Constantinople and put a giant iron chain across the thing. Or that they had mined it so heavily that even fishing boats were getting blown up.

No. Neither is true. Instead, Iran has put in very limited mines and they are likely easily detected. The US Navy claims to have taken out the mine laying fleet so the chances of more mines is very low.

And if you look at the data, traffic barely flowing through the Straits. Only about 10-20% of what it was but it’s moving. Citrini Research sent an analyst who saw firsthand that traffic is moving. Many of these ships turn off their transponders as part of sanctioned oil trading and ghost fleets so the actual number could be even higher. But the official data shows no more than 20 ships have passed since the first week of March, down from over 80 a day before. Many days have registered zero.

What Iran has actually done is create a de facto closure. Pay the toll ($2m, $1m each to Iran and Oman), and be a friendly nation, and we’ll let you go. Plenty of Chinese ships have made the passage. The ships they don’t like, they have attacked. In this case below, from “projectiles of unknown origin”- that is, a missile hit. From the Guardian:

And that’s how Iran intends to keep the situation tense. Iran has a range of drones, anti-ship missiles and cruise missiles that they don’t need a Navy or an Air Force to use. These can reach even the Indian Ocean. A fantastic article from breakingdefense.com (hardly an Iranian media outlet) had an extensive inventory of all of Iran’s missiles and their capabilities. It laid it out like this last year. (ASBM stands for anti ship ballistic missile):

“Based on this experience, if Iran were to choose to block the Hormuz Strait, military options to defend ships from ASBMs are limited. A defensive fight will require large numbers of expensive surface-to-air missiles. Since there is limited production capability to replenish stocks, this reduces the numbers available for a potential future peer-conflict.

Even with military protection, merchant ships will be vulnerable, especially in the Strait itself, and unlike the Red Sea, there is no alternative route. Furthermore, ships will be safe nowhere in the Gulf, due to the naturally constrained geography. Longer-range ASBMs, like the Zulfiqar Basir, could even threaten shipping in the Indian Ocean….

The reality is, like the Houthis, Iran does not have to do a lot of damage to cause disruption. If Tehran moves forward and truly plans to hold ships at risk in the region, the US and its partners will have few good options — with major economic impacts on a global scale.”

This is not merely theoretical. The Iranians have supplied all of these missiles to the Houthis for years. They were used extensively in the Red Sea in 2024. The article included data from US Centcom that they had been fired over 100 times and hit 12 ships and sank one. Demonstrated range at times was over 200km.

There we have it. Functional Iranian ASBM’s, already used to cause damage, and limited options to stop them. Now imagine instead of the Houthis in the Red Sea, it’s the Iranian military in closer range with more missiles and zero issues of rules of engagement.

The US Navy is going to have to move a huge amount of assets to the area and the Marines will have to find the launching sites. But taking out those launching sites will be very difficult. To understand why, let’s travel to Denver!

Denver Analogy

American readers will no doubt be familiar with the city of Denver. It’s in the state of Colorado at the end of the Great Plains. It lies at the base of the Rocky Mountains, which start a mere ten miles away. Those are the brown mountains in the photo, the so-called Front Range. The real Rockies, the snow-capped peaks in the back, are 30-50 miles away.

Imagine you were a military force in Colorado trying to attack a power on the other side of the Rockies, very “Man in the High Castle” stuff. You put your military in Denver. You amass your forces. You plot the best way to do this.

You would quickly realize- attacking mountain-based enemies is no joke. Your city is very vulnerable to attacks from those mountains, and it’s very hard to counter-attack.

Mortars have a range of up to 5 miles, so you would be vulnerable to hit and run mortar attacks from the Front Range. 155mm howitzer artillery can fire up to 20miles, probably further with altitude. They can be easily hidden and moved in the mountains, something much harder in flat land. Artillery would rain down on you all day.

Short range ballistic missiles like Iran’s Shahab 1 and 2 have a range of 300-500km (~200-325miles). So one could position them in the Rockies anywhere between Colorado Springs and Fort Collins and be well within range.

Lastly, drones like Iran’s Shaheb 131 and 136 can range over 1000km/600 miles. One could put them almost anywhere in Colorado, Wyoming or New Mexico and have a shot.

The lowland military’s ability to take these out is limited. You need artillery that can also reach high into the mountains. Your other weapons are out of range. If your opponent is firing from an enclosed position, you need bombs and missiles than can penetrate it. Those usually come from deep air strikes. But you have to have identified a vulnerable target for the air strike to work. Usually the time interval between seeing a target and hitting it is too long for a long distance strike- the target simply gets back under protection. You need helicopters or some other close range response once you spot them. But those same helicopters need protection when idle from the constant artillery bombardment.

The best way to take them out is to have in close in ground forces. Find the big weapons, put a plastic explosive charge on them, and blow it up. But the problem is you have to find them first, and then get there. Finding them when a good defender has dozens of bunkers, tunnels, hiding sights, and camouflage is very difficult. Witness the immense difficulty the US had stopping the Houthis- they were simply too dug in. And the Iranians taught them how to do it.

A good defender would have a core base that’s essentially a mountain fortress. Dug in so underground and so far back that nothing can take it out. The US military has many of these, but a good example lies in Colorado Springs, about 100 miles south of Denver, the Cheyenne Mountain complex. It sits under 2000 feet of gravel, occupies five acres, and is shielded from nuclear blasts. It has its own food and power supplies. It has dampeners so that its buildings doesn’t move in bomb blasts and earthquakes. Good luck taking this out with a bunker buster bomb or by cutting the local power grid. Cheyenne Mountain sits 100 miles from Denver. All the above mentioned ordinance could be stored there, safely, and rolled out at the appropriate time. It’s impossible to take it out by anything short of a tactical nuke, so you have to hit it in a James Bond style raid. Although specifics are hard to find, it’s obvious that Iran has at least a dozen such impenetrable mountain bases across the country under a mile of granite.

Getting a ground force to take out such facilities is another matter. There are limited passes and gaps and roads accessible to get from Denver up to the Rockies. The map shows only a handful into and through the Rockies over a 200 mile area. To get to the bases further into the Rockies, you would need to attack and hold the Front Range and then proceed through more difficult territory.

A good defender would have engineered countless obstacles. Furthermore, as you get closer, you come into range of RPGs and Stinger Missiles (2 miles roughly). You eventually come into range of large caliber machine guns. You have limited number of troops who can go through at one time, putting the column at risk. Conventional military doctrine says you need 3x the attackers to defenders to take a target- getting to that number is very hard with limited access.

And that’s just to get into the mountain range. The complexity continues as you go through the mountain range to the individual missile bases. Now multiply by the dozens of raids to get them all. The horrific battles of the US Pacific War against Japan, like Iwo Jima, also show this dynamic. To take that one tiny island, the US sent a force of 110,000 troops and lost 7,000 men with 19,000 more wounded. All of this against a force of 20,000 Japanese.

In more modern times, we could look at the siege of cities like Dubrovnik or Sarajevo where similar dynamics played out, albeit on smaller and less sophisticated scale.

Now obviously the US military has a range of weapons and weapons systems. It has very talented individual units. If they were in Denver fighting a force in the Rockies they would have many technological tools to deploy. But our point is that this is no quick straightforward process like surrounding a city in the open. The natural situation greatly favors the defender. In Afghanistan, the Taliban used a similar geography dynamic to tie down and ultimately cause the US to leave. And they only had mortars and small units with AK-47s. Imagine a more sophisticated opponent.

More on the drone topic later. But first, let’s look at why the Denver analogy works so well for Iran.

Iran’s Rocky Mountains

The city at the top of the Straits of Hormuz is known as Bandar Abbas. It’s a city of 1m people, nestled at the base of the mountains. It has a couple of nearby military bases and a port and international airport. It will undoubtedly be a target or near to a target. The province around Bandar Abbas, Hormozgan, is 27k square miles, putting it between the size of South Carolina and West Virginia for a US state equivalent.

Here is an elevation map of Bandar Abbas, pinned at the airport. Large mountain ranges start almost immediately next to it.

And it’s not just Bandar Abbas ringed by giant mountains. It’s almost the whole thousand mile coast line of Iran along the Persian Gulf and Gulf of Oman. Here is a topographical map of Iran. You have to really zoom in to see the tiny strips of coast ahead of the huge mountain ranges. And you can see how there are huge mountain ranges on both sides of the tiny Straits of Hormuz.

How many bases of what size exist we don’t know obviously. The IRGC claims dozens if not hundreds across the country. The Wikipedia page lists one confirmed and one suspected in the very province of Bandar Abbas. For every one major base, assume 10 smaller concealed launch sites. To nullify the Iranian missiles and drones threat, the US would have to clear out every base within a couple hundred miles of the Straits, perhaps further.

Here is a more detailed map of the Iranian defensive locations, c/o Asia Times. That’s sixteen locations that can target Hormuz traffic which have to be disabled.

“But Decoding! We bombed those already! We took them out!”

That’s been walked back it seems by multiple sources. Here are two:

CNN reported that 70% of the military and drone capacity is still in place.

We saw this on X, and while it may be an Iranian propaganda account, it does directionally show what we are saying playing out:

Pakistan said in the initial mediation that Iran has 15k ballistics and 45k drones. Let’s assume that’s wrong and it’s a third or a quarter. That’s still a substantial force to sustain several months of ugly fighting if they so desire. If they possess the full amounts, then the US will be facing a wall of projectiles whenever Iran chooses.

Adding It All Up

To tie this all together. Iran has ‘closed’ Gulf shipping and the Straits of Hormuz via missiles and drones. Those are hidden in dozens (hundreds?) of bases along the mountains of the Southern Coast or within drone range of the Gulf, which they have spent decades constructing. They know who the enemy is and how they would attack. We are history buffs. We know Iran has been invaded many times and conquered several times. We are not aware of anyone even attempting a major invasion of the whole country from the South, let alone one that succeeded.

It will be impossible or take forever to identify these missile bases from the air and remove them. The first month has this proved this. You will need a close in force like a Marine Expeditionary Unit and special forces to more efficiently clear the area. That’s what’s coming. The US army will occupy the towns, ports, and airports of the narrow strip of coast to establish their initial positions.

But they will be, like our army in Denver, highly vulnerable to those same mortars, artillery, rockets and drones raining down on the troops and their equipment. Complicating matters is that our army in Denver, if it feels too much heat, can just pull back 50 miles and be somewhat out of range. The US military has nowhere to retreat but into a boat, which makes it a target all over again. And the entire Southern coast is effectively Denver. Taking out all of the batteries that threaten the Gulf shipping and Hormuz is a long effort that will require substantial troops and US Navy presence. It will require even more effort and territory to take Kharj Island.

Lastly and perhaps most importantly, the defender holds a distinct advantage in the instrument of modern warfare, drones.

Drone Warfare: The Shape of Things To Come

We have done a substantial amount of reading on the drone warfare and will attempt to summarize it quickly. Modern warfare is in essence drone warfare. The Ukraine conflict is the test lab for much of this. The war began with drones almost exclusively in a reconnaissance capacity. Now the majority of fighting is conducted via drone.

Drones have so proliferated and so expanded their capabilities that they are the leading weapon for both Russia and Ukraine. They were used first for recon. But now there also drones equipped with guns to kill soldiers, small bombs to take out small vehicles and entrenched positions, and anti-tank drones. Thousands of drones are deployed each month. They attack targets both near and far. Sometimes they operate in swarm attacks, sometimes individually driven by an operator.

The reason the battle lines have hardly moved in three years in Ukraine is that drone warfare has created kind of an airborne trench warfare dynamic. An army needs to advance with its anti-drone capabilities in order to be safe. That equipment can only be moved 1 or 2km per day. Anything more would leave the military open and exposed to drone swarm. Thus the battle lines can barely move unless the other sides’ drone warfare can be taken out somehow.

Both sides have developed ways to counter the other sides’ drones. Ukraine has developed an interceptor drone that essentially acts like a giant mechanical hawk. It locks in on the other drone, flies near to it, and sticks out its claws to crush the other drone. Ukraine also uses a drone equipped with a remote operated shotgun, that gets near to enemy drones and blast them out of the sky. Russia uses cheap explosive drones that hone in on the others and blow them up in the air.

A huge advantage of drones is that they are cheap. A Shahed drone costs around $20,000 and can be assembled from ordinary parts. By contrast, a US Predator or Reaper drone costs millions. A traditional US interceptor missile costs $1m to shoot down an incoming drone. Russia reportedly loses 75% of its drones in Ukraine to being shot down. That’s okay, they just make more and send them at the target!

The risk for the United States in doing close in actions in the Straits of Hormuz is that Iran is advanced in drones and the US is not. Iran as we noted above has perfected the cheap long range Shahed drone. It has more advanced drones for ship traffic. From Asia Times:

Dual-Role Discriminatory Drones: Tehran has integrated new drones into its Smart Control doctrine. These are dual-role drones that are capable of identifying and striking both aerial and maritime targets. Unlike traditional sea mines, these drones allow for discriminatory targeting, meaning Iran can monitor shipping and apply calibrated pressure on specific vessels while allowing neutral traffic to pass (and how they intended to enforce only allowing Chinese-flagged vessels to pass the Strait).

It is well known that the US does not have the ability to counter all of these in a cost effective manner. The National Security Journal had a great article on what it calls The US Army’s Drone Nightmare. The article notes that American drones, costing $170,000 and up, are far less cost effective than other countries. They note that current production rates are 10k per month, versus 100k-200k per month Ukraine and Russia. Some have said both countries can produce up to 5m drones anually. Iran’s rate is unknown, but Pakistan estimated that even after the recent conflict they have 45,000 drone capacity. Iran can also import many of these drones if it needs from Russia and China. And finally, the US Army’s procurement processes are too slow to rapidly adapt drone tech for the battlefield.

The US recently introduced a new, cheap, drone interceptor called the Merops. It just began limited production in January and is being slowly rolled out. The army just sent the first 10,000 to the Gulf. They cost only $15,000 versus over $1m per missile for traditional interceptors. The US is also rolling out single use attack drones called Lucas that are cheaper than existing solutions. How did they make them so cheaply? They freely admit- they copied the Iranians!

The Conversation

This matters because as US troops and naval forces get closer to Iranian territory, they get further into drone range. Iran’s superior technology and greater number of drones will pose a huge threat to American forces in the area. It is very possible that the US suffers heavy losses and has limited ability to retaliate against swarms of cheap but effective Shahed drones. We will see how good Iran’s more advanced drones are and how effective US countermeasures are in response. Iran’s advanced drones will make holding territory around Hormuz very difficult without substantial anti-drone technology in place.

In Conclusion

The US cannot fully reopen the Straits of Hormuz without disabling Iran launch sites along the Gulf and further inland. That will require troops and a close in naval presence to fully remove them. But Iran’s anti-ship missiles, drones, and geography are all powerful defensive elements. This will not be an easy task. When this conflict resumes, be prepared that it could drag on several more months.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

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We are going to give a quick tour of the region at this politically important time with a lot happening in the region. We lead with one money making opportunity and then follow with the politically important news in four other countries.

In Colombia, we see a likelihood of a swing back to right wing politics in the country. This seems to be underappreciated in the markets at the moment. We anticipate the markets could have a surprise rally after the election.

Brazil has an election coming up in October. Lula continues to lead the polls, which has accounted for recent weak trading. The market will be cautious unless Bolsonaro takes the lead.

In Argentina the macro story continues to be 10/10. But there is still micro pain and it’s hurting Milei politically. Can he turn it around in the next year to win reelection?

Venezuela has done massive reform and is rapidly attracting US investment. We go through all the changes.

Cuba is seeing protests and the head of the CIA recently visited and offered an olive branch. This looks like the beginning of the end of communism. Within a year, it should begin to follow the Venezuela path and rapidly open up economically and politically.

Colombia

Colombia goes to the polls on May 31^st. Unpopular current President Gustavo Petro cannot run again. His party picked left wing activist Ivan Cepeda as his successor. On the right, there is avowed Bukele fan Alberto Espriella and more center right Paloma Valiencia. The country requires a majority to win, and it looks no candidate will have a majority in the first round. It’s highly likely it goes to a run-off. At this point it looks like either right wing candidate has a few point advantage over the left wing candidate Cepeda that second round. But if we add the votes for the two right wing candidates, not taking out the undecided non responders, they are comfortably at 51% total. That goes to 54% adjusting for those non responders.

Polymarket now has Espriella ahead, but the markets are not discounting that yet.

Despite the rise in oil prices, the Colombian peso has fallen five percent in the past few months on election jitters (higher here means weaker peso, stronger dollar).

We think there could be a surprise move higher here after the elections as investors on the sidelines realize a market friendly President will finally be coming into power.

Brazil

Brazil goes to the polls on October 5^th. There had been several polls showing a tie or Bolsonaro ahead in the past few weeks. But a recent one showed Lula back in the lead.

Simultaneously, Lula’s approval has ticked up from 43% to 46%

This has put pressure on the Brazilian equity market. Despite the global rally, EWZ is down 11% in the past month.

Expect the market to continue to underperform as long as investors continue to worry that another four years of Lula is on the horizon. We think that higher inflation into October could again pressure Lula’s popularity and make this very tight.

We anticipate that if polling continues to deteriorate, we may not see an entry point for a while. If the polling swings back, then there could be a great entry point in September into the election.

Argentina

The macro story in Argentina continues to be excellent. The country spread is now at the lowest level in eight years. The government was able to issue dollar debt locally. Monthly inflation has fallen to the 2.6% level, or around 30% annualized. That compares to 300% when Milei entered office. Forecasts have it going sub 2% mom and to roughly 20% yoy by year end (from BTG pactual)

The country’s oil production has grown rapidly with the expansion of Vaca Muerta and the country is now a net energy exporter.

The country continues to accumulate reserves for the first time in years and has paid back the US swap line.

Yet the cost of success in this macro adjustment has been slow growth and a problem of affordability for the average person. That average person had had subsidized gas and electricity for over a decade, and a cushy union job. All of that is now gone and the squeeze is intense. It will take time before all the money and investment flooding into the country raises real incomes and the cost of living comes down.

As a result, Milei’s approval is in the tank at the moment, the lowest of his Presidency.

At this point, we have to balance the macro and the eventual recovery with the political implications. Given that we have 14 months until the Presidential election in October 2027, that’s enough time to turn around with lower inflation and improving growth. Macro variables like inflation and country spread typically lead approval ratings- and they are improving. Ronald Reagan had a similar tough adjustment and double dip recession in late 1980/1 and then in 1982, but turned around with a major victory in 1984. We still love the structural Argentina story despite the speed bumps.

Venezuela

The US removed former President Nicolas Maduro in spectacular fashion at the start of the year. They gave VP Delcy Rodriguez a battlefield promotion and warned her that if she didn’t follow the US agenda she faced the same fate. The US and Venezuelan government have moved quickly since then. They have implemented a comprehensive reform agenda and are already beginning to attract business back to the country.

The first step was to reform the oil industry and attract foreign operators back to the country. Venezuela’s oil industry is controlled by the government and its state-owned oil company, PDVSA, which has control of every project and a majority stake.

This bill would:

· Allow private operators to operate free from PDVSA partnership, provided their plan was approved by the ministry

· Allow arbitration instead of all disputes going through a Venezuelan court

· Cap extraction royalty rates at 30%

In return, the US is lifting sanctions on Venezuelan oil and restrictions on US operators in the country. Already several major projects have been announced.

The government has done something similar in the mining industry. Venezuela has huge gold and rare earth reserves to exploit.

“Concerning mining activities, the proposed law establishes that joint ventures, private corporations, and small-scale artisanal mining groups are allowed to receive concessions. The new law will replace a 2015 decree that imposed state control over mining exploration, as well as the 1999 Mining Law.”

Already several companies that were kicked out are returning to the country to mine.

Then there are general reforms on competitiveness. These will roll back onerous Chavez/Maduro era restrictions on business.

Venezuelanalysis

The US for its part is beginning to lift sanctions in a sequential fashion.

Venezuelanalysis

This will allow US banks now to transact with the central bank and publicly owned banks in Venezuela. It will allow US operators to be able to move money in and out of the country. The full return of Venezuela to SWIFT, opening up of USD accounts in Venezuela, and lifting of all sanctions is several months away but is in progress. The heavy sanctions since 2019 look to be going away by this time next year. That will allow real banking, credit intermediation, and foreign investment over the coming years.

The most crucial task for the country after passing all these laws is to get oil revenue up. The much higher oil prices due to the Iran war is helping. But oil production continues to recover from its giant fall a decade ago, and is now back to 1.13m bpd. Production was almost 4m bpd fifteen years ago.

Private sector credit has been wiped out by hyperinflation and sanctions. There is a huge runway for this in the coming years.

The timing of elections remains uncertain but that is the end goal of US political reform here. But tackling the country’s high poverty rates and broken private sector are the more pressing needs. Venezuela is finally opening up to the rest of the world after twenty five years of closing the door.

Cuba

Since taking out Venezuela, Cuba’s primary oil supplier, that country has been experiencing energy shortages. The US followed up with a full oil embargo and threatened to sanction any country selling them oi, such as Mexico. As a result, Cuba has run out of all energy and is now experiencing the worst blackouts in decades. There seems to be no reprieve in sight.

While the rest of the US government was in China, CIA director John Ratcliffe went down to Cuba carrying a message. It was essentially an offer of humanitarian support, but only if they started to open up Venezuela or 1991 Eastern Bloc/USSR style. The US is offering $100m of humanitarian aid immediately to Cuba. But they will do it via third party NGO’s and not just cut a check to the Cuban government.

Reading between the lines, the US government is essentially offering to ease up if the Cuban government begins to go China-under-Deng Xiaoping style, and open up its economy rapidly and radically. Political opening would come soon after. Kicking out what remains of Russian and Chinese spying operations will occur quickly. The implicit threat for Cuban leaders is a repeat of Maduro in Venezuela: If you won’t do it, we’ll extract you and find someone else who will. That’s a powerful carrot and stick approach to bring on starving, blacked out Cuba at this point. The leadership simply has no choice but to accept right now or the people will hang them in six months anyway.

The Cubans apparently responded to this offer of humanitarian aid with the line: “It will encounter no obstacles or ingratitude.” Translation: We know it’s over, thanks for the food.

Historians will look back on this as the day communism began to end. The regime has zero options at this point. Their long-time regional ally, Venezuela, is now under full US control. They have zero oil and zero prospect of getting any in the near term. Their historical ally partners, Russia and China, are nowhere to be found. The US has the assets to invade them soon if they choose that route to force the matter. And popular support for the Cuban government seems to be approaching zero.

Recently investigative Youtubers, like Nic Shirley, have visited the country. He spoke to one person whose ration book had only permitted one egg per year, and one chicken per three years. They see how well their relatives in Florida live. Add in blackouts, internet cutoffs, and you can imagine how angry the population is. They would have done something about it a long time ago if not for the highly repressive state police.

The USSR was established in 1922 and dissolved in 1991. It lasted 69 years despite being the most repressive government perhaps in human history. Fidel took over in 1959, and Cuba has now reached 67 years of communism. It seems that communism wherever and however it is practiced has a maximum lifespan of 70 years. We can start writing out the death certificate now, thankfully, although we don’t know exactly how things will play out in the next few months.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

The city of Los Angeles is in the midst of its mayoral race. There will be a first round vote, essentially like an open primary, this June. If no one gets a majority it goes to a November runoff. It initially looked like it would be a race between current mayor Karen Bass and her challenger, city council member Nitya Ramen. But a former reality TV show star named Spencer Pratt has entered politics and made this a three way race with Pratt as the long shot.

We are going to stick out our neck and predict that he will win the election. Pratt is running a perfect campaign in a city where voters want change. He is running the same plays that catapulted outsiders Donald Trump and Zohran Mamdani to their wins. We will look at his political game and his chances to win in a heavily Democratic area. He has a powerful personal narrative, an optimistic message, a great label for his opponent, and the best social media content we have ever seen from a politician. Finally, the process of electing a mayor in Los Angeles gives him an advantage over the incumbent.

Let’s go through the various pieces and we hope readers learn more about political persuasion and messaging in the process. Pratt is blazing a trail that all who are interested in politics should follow.

The Origin Story

Spencer Pratt

Spencer Pratt was born in Los Angeles and has lived and worked in the city his whole life. He was famous on the show The Hills about twenty years ago, and has had a quiet life after that show. But in the January 2025 fires in Los Angeles, he lost his house and the houses of his extended family. His entire neighborhood burned to the ground. The left blamed the event on climate change, the right on city mismanagement.

Since then, he decided to run for mayor to ‘fix things’. This ‘origin story’ for his mayoral run is a powerful tool. Telling voters that you lost everything and it galvanized you to change things is a great hero’s journey tale. Showing that the entire establishment is too corrupt, incompetent and complacent that there was no one in the establishment to push forward to fix things is an indirect indication of just how badly the system has failed. Representatives have failed the little guy so thoroughly that the little guy himself had to step forward.

He is also able to use this event as a perfect example of the city government’s colossal failure. In his telling of events, the city intentionally drained all the reservoirs to put out fires. They ignored repeated warnings. They gave little attention or resources to the Fire Department. The day the fire began, Mayor Bass was in Ghana and unreachable. The deputy mayor was on house arrest for a bomb threat. Key decisions were not able to be made and the fires were not contained. Eventually, several thousand properties in Pacific Palisades and Altadena, two of the nicest areas of Los Angeles, burned down. And since then, there has been no change in city policies about fire. Zero rebuilding has occurred.

This narrative connects viscerally with voters. He has turned what could have been a boring debate about actions by the Fire Department and City Hall into a thrilling story. It underscores the need for change. Pratt has made Mayor Bass a modern day Nero, fiddling while the city burns.

The State of LA

Pratt entering the race comes at a time when Angelenos are not happy campers. A USA Today poll shows two to one disapproval of Mayor Bass’ performance. The population has declined as residents moved to more affordable cities like Austin. Everyone acknowledges that crime has risen and homelessness is out of control. Its signature industry of film and TV production is in a depression. The devastating wildfires of last January burned down thousands of houses and there has been no rebuilding. The city residents are more likely than not looking for some sort of change, either from the left or right. All of this makes Mayor Bass vulnerable to effective attacks.

The Linguistic Killshot – Mayor Bassura

When Donald Trump entered the race for President in 2015, many thought it was a joke. Or a promotional stunt. A real estate developer and former reality TV star was going to run for President? And take out the Bush family and the Clinton family, the two leading political dynasties? He polled at one percent. But during the primary process his numbers rose from 1% to the lead and he secured the nomination.

One of the key techniques he used to win the primary was derisive nicknames for all his competitors. Ted Cruz became “Lying Ted”. Jeb Bush’s campaign imploded after he was called “low energy”. What was viewed as being calm and collected before suddenly was a huge weakness. Trump famously called Hilary Clinton “Crooked Hilary”, and every whiff of scandal around her continually reinforced that image. The late great Scott Adams called these “linguistic killshots”. He noted that they were very intentional and well thought out labels used to push a narrative. [We fully acknowledge that much of this piece is based on the many insights that Adams had on political persuasion, and we are very appreciative of his work on the topic].

Enter Pratt with his own brilliant killshot of calling the mayor “Mayor Bassura”. Many may not know that basura is the Spanish word for trash or garbage. But everyone in bilingual Los Angeles knows it. Linking her name to garbage is simply genius. The name is going to make it hard for any Spanish speaker to take her seriously. That is a huge problem in a city that is 50% Hispanic. There will be an avalanche of videos and memes of taking out the trash. The fact that the streets of LA are currently filthy from open air drug use and 40,000 homeless people and linking it to Bass is another genius step. Voters will be reminded of this label constantly anytime they see trash, garbage or dirty streets and sidewalks- and they will see them a LOT over the next six months as their attention is drawn to it (the spotlight effect). Wanting to clean up this mess is natural and there is only one way to vote.

The Pratt Message

Another great tool in the Pratt campaign is his messaging and positioning. We have transcribed a recent one minute ad to give you a sense of it. It shows a shiny, new version of Los Angeles.

A firefighter: Turns out it’s a lot easier to fight fires when there is water in the reservoirs

A policeman: We’re even allowed to arrest criminals now, with handcuffs and everything

A woman walking her dog: I don’t have to wonder now if I stepped in human sh*t or dog sh*t

A doctor: I only see needles in the hospital now. Who knew it could be this way?

A child: I love going to the park now that it’s not an open drug market

A TV presenter: Who here is ready to admit that common sense actually turned out to be….good?

A woman pushing a baby stroller: I feel safe walking her now. She’s definitely having a Pratt summer.

Pratt: We’re having a Pratt summer!

Final message: LA is worth saving

The message is resoundingly good. It works for several reasons. First, the warm images of the video form a powerful vision of the future. The other candidates have not put forward one as enticing. Secondly, the ad’s message of LA is worth saving connects to residents’ civic pride. There is an indirect call to action too, something that will motivate people who feel like saving LA. The broad cross section of people in the ad implies that this is a universal message and not a divisive one. There is zero whiif of partisanship that would turn people off. There is no connection to hot button national issues that could divide voters. The same point is consistently reinforced – city government has created a mess and we don’t have to live like this. A brighter future is out there. In the debate he put it another way- “I’m the only adult in the room”.

Zohran Mamdani did the same thing to win the mayoral race in New York. We pointed this out last year before anyone else did:

“This video should push him into a tie or the lead in all polls. Then the news cycle will go into a self-reinforcing cycle of pushing his message, exploring who this guy is, and legitimizing his candidacy. Then he’ll squeak out the primary, and win the general election.”

He took the affordability crisis that everyone had identified and offered up a simple remedy: “Freeze the Rent”. It became wildly popular quickly. The other candidates had no clear message and no reason to vote for them. Mamdani steamrolled the Democratic establishment in the primary and won the mayoral race with a large margin.

Pratt con has built his message around common sense and universality. It’s all simple, local and execution based. Scott Adams called this “the high ground” maneuver. It gets you out of the weeds of specific issues and anchors to a powerful principle. He is making the opponents defend and explain the opposite of this common sense. How will Ramen or Bass respond to a new fire? How will they be able to defend why criminals can’t be arrested with handcuffs? What’s their explanation for public needles, drugs and feces? This will back them into a corner and make them defend extremely unpopular positions. Advantage Pratt by a country mile.

Pratt On The Campaign Trail

Pratt has been at this for about a year. Initially, he made few waves in Los Angeles and none outside of it. It took time for people to catch on that he was serious and that he was capable of doing this. Echoes of Trump and Mamdani. He did well in the small but closely connected conservative media of LA. But his message and his candidacy was still not connecting to a broad audience. UCLA polling in April showed Bass with 25%, Ramen at 9% and Pratt at 11%. But 40% of voters were undecided.

A recent debate between the three totally changed that. A local news channel put out a poll asking who won the debate, and Pratt got 88%. Pratt was extremely well prepared and came with excellent data points and anecdotes. He repeatedly addressed the prior actions of the two others while in power and left them fumbling to defend their records. He forced the others to say unpopular things. At one point, Ramen actually called the police overfunded and said that the department should not hire new officers. Pratt also produced a nationally viral moment where he invited Ramen to visit a homeless camp under the Harbor Freeway in downtown LA to implement her policies. He then added “But if she did, she would get stabbed in the neck.” Pratt dunked on her so many times it felt like an LA Lakers game.

Polymarket odds show this post debate dynamic. Ramen’s numbers crashed and she is now solidly third. Pratt’s odds had been in the teens but spiked and have now hit 27%. They will almost certainly continue higher.

Kalshi has him even higher

With this debate, Pratt is going to gain lots of momentum quickly. People who didn’t know him before certainly know him now. Anyone who supported Pratt was thrilled by his performance. He overcame all doubts about professionalism or having the right stuff. He dropped an atom bomb on the incumbent Bass in the sections on the wildfires and he made Ramen look like a dilettante. As we pointed out before, arguing against his hero’s journey and common sense message is extremely difficult. The other two simply have no idea how to stop him. They keep trying to say things are now improving despite voters thinking the opposite. Expect many more moments like Ramen on the police where the candidates shoot themselves in the foot.

Pratt’s social media team will do all the work from here in winning voters over. His X feed is a never ending string of masterpieces. They simply have to be seen to be believed. The other candidates are putting up platitudes on social media while Pratt throws up hilarious AI videos depicting him as Batman taking on the villains of city and state government. Bass is the Joker. He already has twice the X followers of Mayor Bass and will probably end the campaign with twenty times that number.

Process and Timeline

Now Pratt is solidly in second place. With a month to go, he probably won’t reach first pace. But he doesn’t have to. LA’s mayoral race unlike other cities is not a first past the post system. In other words, it’s not a race where who gets the most votes wins. You need to have a majority. If there’s no majority in the first round on June 2^nd, a runoff happens in November.

In the 2022 election, Bass got 43% in the first round and her competitor Rick Caruso got 36%. She won the runoff 55% to 45%. Between the polls and her approval rating, we don’t see her getting a majority in the first round this time either. She will probably underperform the 2022 result by a few percentage points.

Then it goes to a runoff between Bass and Pratt. Even if he’s a distant second in June, he’s in the race. It will give him five more months of campaigning. That’s more than enough time to absolutely bury her on social media and in future debates.

Caruso’s message was similar to Pratt and he secured 45% of the vote in the second round. Given the city’s deterioration since then and Pratt’s far better campaign, we think that the final vote will go 55% to 45% Pratt over Bass. There is a small chance he can win in the first round.

Turnout by Pratt supporters will be very high so he will outperform polling. By contrast, Bass has no message and low approval ratings so enthusiasm and turnout will not be high.

The only conceivable way that Pratt loses is if Ramen drops out tomorrow and throws all her support behind Bass. But we don’t think that will happen, we think she is trying to represent the left wing protest vote and will stay in as a show.

A Personal Note

We usually liken our role to the weatherman- we tell you what’s coming, we are not telling you if it is good or bad or right or wrong. Then you can prepare as you see fit. We have laid out our reasons above why we think Pratt can win. We are confident in our prediction.

But we also desperately want him to win. Los Angeles has always been our favorite American city to visit. From the first trip in 2008 where it exceeded our very high expectations and then dozens of return visits. The city is such a fascinating mosaic of people and has an endless number of great neighborhoods to explore. But not in its current state, where downtown is a disaster, safety is a real concern everywhere, and there are countless empty storefronts in areas like Santa Monica and Beverly Hills. It is so sad to see. Let’s hope Pratt can win and begin to restore LA to its former glory. We think many people would agree with us.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

A few days after the order was given by Trump and he threatened to erase a culture, a tentative ceasefire was signed. We knew he wouldn’t go through with a full attack and expected a limited strike with the troops moved into place. That has been put on hold for now, sort of, but the US and Iranian military are still exchanging missiles and threats. The Straits of Hormuz remain practically shut and very little is going in or out. And the Israel and Lebanon situation has not been resolved, a key Iranian demand for a more lasting peace.

Markets as we expected popped on the news, as Armageddon was priced in. We now shift back to a neutral posture on markets for the time being. The market will have to balance its optimism for a permanent deal with the reality that the Straits of Hormuz remain closed and the global economy as a result will hit the wall over the summer. Widespread energy rationing, shortages and far higher prices for raw materials will ricochet around the global economy.

Keeping up with the news now, with the ceasefires, rounds of negotiations, and proposals is too tasking and we won’t try. We expect the current patch-up will wobble on for a few weeks. We will just make a few observations of what is going on behind the curtain and what we think is the next development here.

-We said constantly there is no deal and there are no real negotiations. Thus nothing Trump could TACO to. That has proven to be correct – after talking prior to the war and now for a couple weeks of a shaky ceasefire, there is still no real deal outline. Negotiations only really started post-ceasefire and are still very uncertain. A recent series of Trump’s tweeting seems to indicate that they may begin walking back harsher positions in the next rounds. We’ll see.

As we’ve pointed out, Trump’s blizzard of tweets from all angles and constantly assuring us the war is won and that the Iranians want a deal routinely blow up in his face. His credibility is not high. His approval rating overall and of the war have reached a new low of 37%. Trump is a gifted negotiator with a playbook that has worked before. But anyone can bite off more than they can chew.

We think that this shaky ceasefire, with two sides that are miles apart and many moving parts, will likely break down by the summer. Both sides want Hormuz reopened, but both sides want to have the upper hand militarily before it happens. Neither side will easily cave on such a key prize.

-Internal politics in Iran are further complicating the negotiations. Some of the negotiators sent to Pakistan have zero power to implement anything. At this point, it really seems like the civilian government in Iran is not at all cooperating with the Ayatollah and the military. The military continues to try push around the US, apply leverage, and tighten the vice on Hormuz. In Iran, the military answers only to the Ayatollah. The President and Parliament have zero control. All major treaties and agreements have to be cleared by the Ayatollah. The civilian government of Iran that has been doing the negotiating is more interested in peace and rejoining the world economy. They could negotiate a deal they like only to have it shot down by the Ayatollah.

- The Straits of Hormuz remain closed for effectively the seventh week. Energy prices will remain elevated. Unless they fully let out all the stuck traffic and restore full flow of shipping, the shortages will become immense over the summer. Countries in Europe and East Asia are already rationing diesel and jet fuel. No new supplies for another seven weeks will cause economic chaos across supply chains.

Here is a perfect anecdote of the knock-on effects already arriving:

Two energy producing countries (US and Canada) who have not had their infrastructure impacted are suspending flights for six months, in peak season, to two of the economic hubs in North America. It’s even worse in bigger importing countries. This will have knock on effects for places that rely heavily on tourism with greatly reduced and more expensive air travel. Tourism heavy countries without energy (Italy, Spain, Turkey, Caribbean, Thailand etc.) will face a big economic squeeze as trips are cancelled. The slowdown will only exacerbate Canada’s housing bust led downturn. A major city like New York that relies heavily on tourism will get hit hard. Multiply by hundreds of cities.

- Israel has not really obeyed the ceasefire and continues to occupy parts of southern Lebanon. They continue to talk about ending Iran’s regime and nuclear program. While Trump was able to get a ceasefire and get Netanyahu largely on board, the chance that BiBi goes rogue again is high. He is in the position that his political survival and not being jailed for the rest of the life depends on the war continuing and being successful. We are not exaggerating- the deposition released of him admitting to funding Hamas with $30m a month for years if appalling to Israelis. Disarming Hizballah is a key Israeli demand, and ending the Israel actions in Gaza and Lebanon are key Iranian demands. We don’t see much wiggle room on other side.

- No progress has been made on the nuclear issue, they key element of the past decade. The Iranians have complained that they can hardly discuss the issue with the US side, because the State Department lacks the staff to discuss and understand the complexities of the issue.

-The US continues to move in military assets. A third aircraft carrier and more Marines will arrive in the Gulf by the end of the month. Marines have been used already to interdict traffic by Iranian ships, as we predicted. The military has promised to shut down Iran’s ghost fleet of oil tankers and interdict traffic around the world. Now that they will soon have two Marine expeditionary units in the area, they will be able to implement it.

If the ceasefire breaks down (when?), which we think is likely by the middle of the summer, then this is the next phase of US action. Iran will respond with aggressive drone attacks against these ships and then the US will have to insert ground troops to take out the various hidden bases and launching locations. Israel will ramp up operations against its neighbors and Iran, potentially trying direct hits on the nuclear power plants. Complicating matters will be facing the extraordinary heat of the region in the summer months, reaching over 50C at times, while Iranians remain hidden in their extensive mountain bases.

Zooming out, historians will likely look at this as a classic late stage of empire move. Empires that lose dominance have always fought the war that they thought they could win easily and it went poorly. Whether by weakened military capacity, stretched supply chains, or an enemy who knew their tactics, the unbeatable imperial hegemon gets a black eye. For the English, that was the two Boer wars. Napoleon invaded Russia, retreated, and saw the French Empire quickly dismantled. Fighting Iran was the graveyard of the Roman Empire under Valerian, as the Empire entered an economic depression and civil war -the Crisis of the Third Century. The Ottomans were routed at their siege of Vienna and never recovered.

Qing dynasty China got dragged into the Opium Wars in the 19^th century and then several rebellions and invasions. The Brits beat them with a hybrid military and economic war similar to what the Iranians (and in the background, the Chinese) are inflicting on the US.

The US conflict with Iran that was supposed to be an easy decapitation strike and regime chance has dragged on for two months. Troops continue to pour in and we expect the ceasefire to break down and the escalation ladder to resume. When conflict resumes, we will put out a detailed piece on the military theater and why this renewed conflict will be far more difficult than most market participants assume.

The US republic and now empire is now reaching historian John Glubb’s famous target zone of its 250^th year, his time frame of when an empire peaks and decline sets in. The US empire’s preeminence rests on three pillars: militarily superiority and coalitions, control of global trade and sea lanes, and the dollar reserve standard. All three are blemished by the Iran war now and could further deteriorate as this drags on. Crashing the global economy in a war that was purely offensive is not going to make the US a trusted partner for many countries. The push by many countries to find alternatives to the US dollar will continue. As the economic pressure is turned up, America’s military performance weakens and it has to withdraw its global footprint.

America can still win the war and negotiate a victory over Iran, but the point is that the empire in this conflict in no way acted like the country that could easily push around rogue states like it did before.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

It’s Sunday April 5^th and the markets are about to open Sunday night for another wild ride. With so many new subs (thanks for the follows!) we want to keep everyone updated on the situation. Trump is throwing out ultimatums we don’t think will work.

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Everyone is now focused on Trump’s deadline to Iran of Tuesday 8pm EST to do a deal….or else! He’s threatened a full scale bombing of all the civilian infrastructure. He assured us negotiations are on going. And he released a Caligula level post:

We have said it many times- there is no real deal on the table, there are no real no negotiations. The Iranians have essentially said they won’t negotiate until the Congressional elections as their negotiators keep getting killed. We think it’s just notes between intermediaries.

We think Trump basically sent over a term sheet for them to sign today and wants it signed- or else! But this mad bomber act isn’t working any more. The Iranians are calling his bluff.

The Iranians have always been known as careful, chess playing negotiators. It’s obvious by now they’ve cracked Trump’s style and are willing to call his bluff as they have done thus far. On his side, Trump’s repeated flip flops from the “we’re almost done” to “a few more weeks” to “victory is at hand” to “we will bomb you to the stone age” to “very close to a deal” to “granting an extension” circus is sapping his credibility by the minute.

So he will have to execute the initial phases of the ground assault and go. At this point, the US will not escalate to the civilian infrastructure. They need to see how successful the initial operations are, get more assets into the area, and then see if they need to proceed.

The Escalation

A couple comments made us realize we should restate how we think this goes militarily. Here’s how we see roughly the next three to six months playing out:

Next Two Weeks: Initial moves by US. A few thousand troops, a lot of missiles, a few sites seized. A little bit more traffic flows. The Iranians hold back, waiting to know what the real target is and the real strategy before deploying weapons and revealing locations.

Four Weeks After That: US has deployed 20k troops. Another 30k are available and begin to be deployed. Things look better for the US military and global trade. The US and Iraniains skirmish. No negotiations.

Six Weeks from Now to Six? Months From Now: Heavier fighting. Iranians identify the key American locations and targets and attack with every drone they can find. They continue to try to control Hormuz traffic, while the Americans continue to try and open up. The Chinese or Indians are able to get their traffic flowing through diplomatic pressure, but smaller players are squeezed.

American troops wander the Southern coast of Iran in search of every military facility. They probably try a maneuver on or around Kharj Island. Iran deploys every economic war and asymmetric war trick it has. It ramps up the defensive war and electronic war. Russian and Chinese supplies continue to come in. It begins to deploy key regular military assets from the rest of the country to the South to engage US troops.

If all of this defangs Iran, in six months, there will be an agreement for full reopening. A cease fire. American troops remain and there looks to be a drawdown schedule.

If this doesn’t work and there are still ongoing major battles, tricky trade patterns, blown up ships and oil facilities, then America has to go all in.

They send another 100-200k troops and try to occupy the entire southern coast of Iran. As we have said repeatedly, a full ground invasion of Iran is impossible for the US to succeed. They would never attempt to occupy major centers like Shiraz or Tehran. It would be Baghdad x20.

But a full southern occupation may accomplish its military objectives. But there will be will stacks of bodies and blown up infrastructure for everyone. This is the disaster situation for the global economy. You can turn a shuttered LNG plant back on in 30-45 days in Qatar. But it will take two or three years to fix a fully blown up well or refinery. The damage thus far is going to cause a lot of disruption for global industry for a year or two. Further and prolonged war will create a global stagflationary hit.

The N Word

The one we refer to is ‘nuclear’ or as GW Bush so humorously says it ‘nucular’. These weekend two nuclear issues came up- and they were not from Iran.

Israel has heavily hit the Bushehr nuclear power plant in Iran several times. It’s damaged. Israeli media is apparently reporting that they want to completely level it. The country called up Russia, which operates it, and they have withdrawn their employees.

This would hit the hornet’s nest. Iranians would be outraged the peaceful plant they opened for inspections has now been leveled. International press would not be happy. In the case it causes some kind of Chernobyl reaction and releases radiation into the Gulf or across to Saudi/Qatar/UAE, they would be outraged. This bears monitoring as it could turn into a major mistake.

And secondly, Israeli Defense (or should we say HyperOffense) Minister Ben Gvir has already been throwing out that Israel may use tactical nukes in this operation. But that all begs some questions – if we’re so close to victory, why nuke? Why threaten them and derail talks like that? And it’s ironic that the country that decided to attack another to prevent them obtaining nukes decides to use its uninspected/undeclared nukes to finish the job.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

We have been following the Iran war very closely this entire year and the region very closely for decades. We have articles on Iran’s strategy from years ago. We notified everyone in January that war was coming. On March 14^th we wrote that the ground war phase of the invasion was about to begin.

The US has moved in the troops and has now we can confidently say given the order to go. Look for ‘boots to hit the ground’ in the next week. It will come from the exact units we specified earlier- Marine Expeditionary Units, 82^nd Airborne division, and special forces.

We think the markets will take this positively in the coming weeks. The markets and politics have been on knife edge between the uncertainty and the endless parade of contradictory headlines over the past month. Iran’s strategy the entire time has been to lure America into a trap. So they’ll let the US gain ground, not escalate, and wait before they really begin their counterattack. That initial phase will be taken with relief.

Then in the second half of the year, when everyone realizes America (and maybe the world) has gotten itself into a major quagmire, it will be very negative for risk assets.

And unless the Strait of Hormuz is fully reopened basically now, we can guarantee that the global economy hits a wall in May or June. This will not be a slowdown. This is a total breakdown of supply chains in everything that will cause a tremendous reshuffling.

Short term relief, still major long-term pain. Be prepared.

1. Brief Overall Update

2. Order Has Been Given

3. Troop Movement Update

4. Likely Initial Moves

5. Iran’s Strategy

6. The Economic War

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1. Brief Overall Update

There have been endless headlines and contradictory news stories in the past month. In our March 14^th update, we said a) The US is serious in winning this b) There is no one to talk to on the Iranian side c) Trump will not TACO now d) The war will go on and the US will use ground troops to force a conclusion.

All of those points still stand. We will add some nuance here. Sorry if we are not screenshotting everything here like we usually do in the interest of space, but these are all easily verifiable:

- The US has had several leaks saying they don’t know who makes decisions in Iran. Trump complained the foreign minister was ‘like a fax machine’ and would just relay messages to unknown generals. All the evidence now is the military is running the show and the two sides are just exchanging notes, not having real negotiations. The terms of the notes are miles apart

- There were multiparty negotiations initiated in Pakistan that were making progress. Yet the Israelis apparently just killed the family of, and seriously injured, the Iranian negotiator. So these negotiations will go nowhere and not produce an offramp. Why Israeli keeps killing top negotiators and scientists from Hamas and Iran is a whole other question which we will introduce at a later time

- Iran has greatly damaged America’s signals intelligence, surveillance, jamming and radar capacity by taking out many of the facilities and the planes involved in that. This impacts America’s air dominance strategy

- Iran hits Israel every day with missiles and bombs, and the Israelis and Americans continue to take out military and increasingly civilian targets

- Netanyahu gave essentially a victory speech saying that this will lead to creating an Israeli supernation, according to the translation we read. Yet sources say Israel’s major airport, Ben Gurion, is totally shut down, the population is fed up with the constant air raids, and the Netanyahu corruption scandals grow worse every day

- Israel has said it has to end Iran’s command and control center in Southern Lebanon. They have called up almost 400,000 troops to invade and occupy Southern Lebanon, similar to 2006 or 1982.That is not the sign of a regional war ending soon, a major Iranian condition. Given Netanyahu’s personal situation, he has to continue the war 100%

- This is not a popular war. Two thirds of Americans oppose it, whereas the Iraq war had huge popular approval. Trump’s popularity has objectively cratered, perhaps by 10% in the past month. Trump either has to win it soon or admit it was a mistake in the next few weeks with a credible withdrawal. His strategy has been to pivot to running the 2026 midterms as an endorsement of a military economy. This is highly risky.

Trump’s approval rating is plumbing 40%:

- The US moved in plenty of ground troops and continues to (more below)

- Innumerable announcements have come around the globe that reflect the stagflation wall about to hit after the last shipments from the Gullf arrive abroad. There are announcements all over of work from home, restricted fuel, rationing, huge price spikes (fertilizer), major looming shortages (helium), export bans (much of Asia), early closing time etc etc etc. This is after …..ONE MONTH…..of this. What if this goes on for six months? A year? Right now it only reflects the higher prices of items. It does not yet reflect the sky high future prices of those items or the fact that they are just not available and every industrial process has to be recalibrated.

The damage will be immense. Business people need to fix all their supply chain issues now. Consumers, stock up on nearly everything not home grown because it will be double the price or not available by year end. Investors, look to own the winners and be aware how damaging this is to the losers.

2) Order Has Been Given

In our March 14^th piece, we noticed that the US military’s typical first strike units were being moved into place. We estimated that this would take two to three weeks to be accomplished. After that, the order could be given to strike. The summit with Xi has been postponed but the timeline still stands.

“We estimate the ground troops enter Iran about three weeks from now. Best guess on timing is right around the Trump-Xi summit of March 31 to April 2^nd.”

Trump gave a speech April 1^st which many anticipated would be either an announcement of escalation, or of a peace deal. It was neither. It was a 20min recap of all the arguments for this war and their objectives. He said military objectives were close to complete but may require several more weeks to finish.

Yet a key piece of the puzzle emerged the day after. Legendary journalist Sy Hersh, who has been scooping Washington on anything national security since the 1970s, wrote that this was the signal for the ground war to begin:

Later that day, it turned out that the Secretary of War Pete Hegseth has dismissed several people in the military:

In the military, it’s a court martial to receive an order and refuse to carry it out because you don’t like it. But it’s not a justice issue to resign/retire/be fired/transfer if you don’t want to carry it out. That’s what is happening now- the public signal was made, the order has been given, the dissenters have been sidelined, and then it’s just the final movements until the attack begins. That’s a week at most.

3) Troop Movement Update

In our March 14^th piece, we looked at troop movements and very possible first movements and came up with the following numbers who’d be ready by early April:

“Let’s add it up. We have:

5,000 Marines available in two weeks

~3,000 82^nd Airborne available overnight

~10,000 82^nd Airborne in a week or two?

~1,000-2,000 Special Forces/Navy SEALs/Delta Force available within a week?

= Roughly 20,000 troops available to attack Iran soon”

All of those estimates are playing out, with daily announcements of troop transfers Since then the US has sent additional Marines, so we will soon to get 10k total, and the 82nd confirmed more troops were coming:

The US is also making noises about transferring some rapid response troops out of Europe to the area. Due to the huge size and huge number of air transports now in the Middle East, that could be done in just a few days. The US has 65k troops in Europe/broader NATO with half in Germany, it can spare a few thousand without an issue.

Source: Newsweek

Sy Hersh’s number gets to about 50k. We estimate that with a) the additional announced Marines b) unknown (but likely mid 4 figures) of Special Forces c) most of the 82^nd airborne division d) additional fast response forces, yes, his number could be reached by end of April.

So the initial response will start with a 20k force and the total will quickly reach 50k total.

4. Likely Initial Moves

The map we put in on March 14^th still stands. The key areas are the Straits of Hormuz, with the city of Bandar Abbas at its top (red oval), and Kharj Island- Iran’s oil export terminal (black oval).

Zooming into Hormuz specifically, let’s explain why this issue is a little more complicated

The part on the left leading up to the Strait, up to Ras Al Khaminah, is part of the United Arab Emirates and is a staunch US ally. The part north of that is Omani territory who have played a more balanced game with Iran. Will they allow US troops on the south side to enforce this? There is no major base now.

On the Iranian side, there is the major city of Bandar Abbas. It has a population of almost 1m people and would require substantial force to occupy. Nearby there is Qesm Island which ships use to proceed through the Straits. It is almost surely a target.

There are several smaller islands in the straits with a strategic value to occupy for the US. They will likely target some of these. One of these, Kish Island, is an Iranian tourist destination and has zero strategic value. We guess that these Hormuz focused islands come first. Once military obstacles are removed, it opens the way to potentially seize Kharj Island and the oil. From there it would be an easy negotiation for peace.

We imagine the initial strike will seek to target several of these secure safe passages through Hormuz, and harm Iranian capabilities. It’s above our pay grade and security clearance to suggest which islands, how many troops, and tactics are deployed!

Everyone knows that the US military’s special forces and rapid response teams are the best in the world. And they have prepared for raids like these for years. Initial successes will be formidable. The hard part is when it turns into a more conventional war and Iran begins its defensive counterattack.

5. Iran’s Strategy

‘We lost sight of one of the cardinal maxims of guerrilla war: the guerrilla wins if he does not lose. The conventional army loses if it does not win. The North Vietnamese used their armed forces the way a bull-fighter uses his cape to keep us lunging in areas of marginal political importance.’

- Henry Kissinger [US Secretary of State and National Security Advisor in the Vietnam War]

Per Kissinger’s quote- we think that Iran’s initial strategy will be to let them walk on in. Yes you read that correctly – they will wave the cape very prominently. Iran is the defender here. After some time, they will see where the attackers are established, and then decide how to respond via guerilla warfare. A tactic they have perfected over twenty years.

This initial phase will be at first treated as a relief and total success by the markets. For a few weeks, they will be right. But long term, it’s exactly the game Iran wants to play.

Iran has spent decades preparing for a defensive war, closing the Straits of Hormuz, and preparing itself for invasion. As is obvious now, they actually had a plan. They devolved regional command to the commanders in each province of the military before this strike. Therefore, the US will be facing not a unified command, but 31 provincial leaders.

Iran has also spent decades fighting US troops in proxy wars- Iraq, Lebanon, Afghanistan, Syria, Yemen. They know their tactics, they know their weaknesses. They have drone technology that is highly advanced according to everyone. Their tech is cheap and easy to produce. The defenders’ technology is complex and expensive and running low on supplies. The Iranians have excellent missiles of all ranges. Once they know where their enemies are camped out, they can launch devastating ballistic attacks and drone surges. And they have a million man conventional military and reserves to activate.

Iran will suffer losses in this. They expect that. But their plan is to keep losses limited and able to be replenished.

The Iranian strategy is to let the Americans claim a little territory, move in, and establish their bases. Then Iran will do what they did in Iraq- just encircle it with IEDs, with random missile attacks and hit and run raids. And as we had noted, they will have the weather on their side- Iranian soldiers can make US troops suffer the 110-120F degrees they will experience in coming months but which they are prepared for. Americans will melt without central air.

The idea that Iran’s missile strategy has been knocked out is simply wrong. A recent well sourced article indicated the contrary. They said Iran has substantial ballistics ability. Iran has over 50% of its drone capacity remaining. And still had a very substantial missile defense around its southern coast (that will probably require weeks of ground raids to suppress). They still have the ability, albeit reduced, to fight a grinding defensive war.

The US won every battle in the Vietnam War, even the Tet offensive and Hue, and lost the war. There was no defining defeat in Afghanistan or Iraq- just a long slow loss of ability and morale, followed by US withdrawal. Remember that Kissinger quote when we discuss Iran- Iran will win by not losing. And Iran’s military capabilities and natural geographical defense are far above those other guerilla war nations we cited before. At this point, Iran has prepared the strategy and just like so far in the war, will continue to win by not losing.

An account we don’t know and have not followed on X has laid out a timeline. We highly doubt that we would see more than a few hour raids on Tabriz, Isfahan, and Tehran - anything more would turn into a 1993 Mogadishu slaughter. But we think he has sources because it has confirmed what we have heard. It shows more specifically how an ‘operation to claim a few islands’ turns into a total mess in a few months.

6. The Economic War

The press focuses 99% on the military aspects of this campaign- who is shooting who. But we have written since 2024 that the ultimate strategy of BRICS+ (including Iran) is an economic victory. Team Russian Iran China (RIC), the military members of BRICS, know they can never win a direct confrontation with the US. Instead, they decided years ago on a strategy of spreading the US military far and wide and then jamming them in an economic war.

We wrote in October 2024, way before any of this started:

“The economic component will just see a continuation of current trends. Inflation will be pushed higher by war, shortages, blockades and an aggressive rationing of oil.”

Here we are. The Iranians are the front lines now. But they know the Chinese and Russians have their backs and they know the general strategy. Starve out NATO economically and tie them down militarily. The strategy is working. 10-20% of global fossil fuel production is currently stuck and will soon be shut in for months. We’re not barrel counters, but the point is blindingly obvious- what looked like a small shortage at the start of the year has now become the biggest barrel shortage in history with no solution in sight.

It does not take a genius to see what will happen. Numerous countries have already restricted work weeks, going out, fuel exports. Numerous other countries are cancelling flights and reporting serious shortages of jet fuel and other products. Places like Australia and Korea already have major diesel shortages. Taiwan produces the majority of world semiconductors – but will soon have almost no helium to continue making them? What will happen after that? Questions like this will multiply.

Using such a hand grenade on the global economy gives the Iranians leverage. They are happy to blow it up to achieve strategic goals - they have been sanctioned forever. Other countries have been highly subject to the responses of Iran and other BRICS. Korea, Japan, Taiwan, Egypt, Australia, Thailand, and Vietnam have all announced measures. Most of Europe will next month.

And this is with just one month of disruption? If Iran’s defensive war continues for a year like this, it will plunge the global economy into chaos. Meanwhile Russia has benefitted from the energy price surge and China had locked up its supplies eons ago. They will be available to offer ‘humanitarian bailouts’ and cement control of other countries caught in the wave of shortages.

At this point the economic war benefits the BRICS nations. They will just let the situation in Israel, Europe, Ukraine, the US, etc burn as those countries spend money. Eventually the BRICS think the US taps out from either military or financial fatigue. It closes its Asian and Middle Eastern bases. The US Navy and Chinese Navy divide control of global waterways. It lets Ukraine be pulled back into Russia and NATO eventually fizzles out. There are many factors. But given the numbers, it’s hard to see how they are wrong.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

Ever since our first piece, “Canada Is A Zero”, this country has been one of our favorite topics. We have tracked the ongoing credit bust every step of the way:

Canada is A Zero, our initial piece in March 2024, showed that Canada’s credit and housing bubble almost exactly matched Japan’s 1980’s bubble

Canada Is A Zero Part 2 tracked the mortgage rollover tsunami

We also noted that Carney is simply Trudeau’s third term and will produce a mess.

Now we are writing with our most recent update, this time after the crash in shares of lender GoEasy. This was a prominent personal lender, with many subprime borrowers, that had shoveled out money in the bubble. Shares went up over 10x during the good years.

But trouble came in last year and they appointed a new interim CFO. He recently gave a report after his first quarter at the helm and it was a disaster:

· An over $200m new charge for bad credits

· Bad loans moving to double digit percentages

· Suspension of guidance

· Suspension of the dividend

[EDIT: A few weeks later, we published a substack note with the final numbers. They are shockingly bad

Goeasy, the lender we highlighted earlier in Canada, has reported results and has an astounding 24% net charge off rate

One quarter of loans are a dud, up from 9% a year ago

What are the REAL numbers in the lenders and banking systems, when you adjust for Fraud?

Obviously the situation is way worse than reported

goeasy Ltd. Reports Results for the Fourth Quarter and Full Year 2025

Loan Portfolio of $5.51 billion at year-end, up 20% from $4.60 billion at prior year-end

Revenue of $406 million in Q4/25, flat compared to $407 million in Q4/24

Net Charge Off Rate1 of 23.8% in Q4/25, up 1,460 bps from 9.2% in Q4/24

Diluted Loss Per Share of $20.49 in Q4/25, down from EPS of $3.12 in Q4/24

Adjusted Diluted Loss Per Share1 of $8.93 in Q4/25, down from Adj. Dil. EPS1 of $3.32 in Q4/24]

Shares crashed predictably, and the stock is now down almost 80% in the past year:

This is the first big lender to run into trouble in Canada. We highlighted a couple of funds suspending withdrawals last year, but this is the first prominent lender to crash and burn on the weakening Canadian economy and housing market.

This is going to continue as the housing market continues to tank. Real property prices in Canada are now down by almost a third since their peak:

Year over year, national prices are down 5% and transactions are down 13%.

The all-important Toronto market is even worse. Detached home prices are down 8%, townhouses 6%, and condos 9% yoy. With listings continuing to grow, expect several more rounds of down prices.

Canadian mortgages reset every few years around the current five year rate. At this point, that rate is near the highs of the year and looking to head even higher with global rates. That will put further pressure on those whose mortgages are coming up for renewal:

Canadian 5 Year Rate:

Rising Taxes?

The Labour government of Canada has floated a new tax proposal for homes. This would be assessed as a percentage of the home value, starting with homes worth over $1m. The proposed rates are as follows:

We don’t know the status of this proposal in terms of legislation or implementation. We don’t know if it will pass. But the direction is apparent. Canada wants to squeeze more money out of the housing market. We quoted numbers above that the average home price in Toronto is $938k. Thus this tax will hit a huge number of already suffering home owners in Toronto with higher taxes. Many on the borderline of revenues versus expenses will throw in the towel, further pressuring the market.

The Job Market

The job market is deteriorating at the same time as the housing market. Jobs data for February showed the unemployment rate ticked up to 6.7% amidst the worst job losses in seventeen years. The private sector is obviously entering recession.

Job losses, declining home prices, rising taxes and rising rates create the perfect storm for the Canadian economy and the hyper-leveraged Canadian financial system. Canada avoided the Global Financial Crisis housing bust of 2008 only to enter a bust twice as big 18 years later.

The Market and The Banks

“But Decoding”, you may ask, “banks and the TSX are up a lot in the past year!” You are correct. The banks followed the global equity rally, and the TSX benefitted from the rise in resource prices too.

We’ll note that we only recommended exiting real estate and Canadian illiquid positions in the past. We have not yet made any recommendations such as shorting the broader equity market or the banks – although we continue to greatly favor other markets such as Brazil. The currency has been in a trading range for the past five years against the US dollar. It will break when the real estate bust finally occurs (higher here equals weaker Canadian dollar)

As of now, the weakness remains in the imploding real estate market. But given how far down prices have to go to restore affordability at these rates, the market will keep weakening over the next several years. When that begins to hit the major banks’ results, we will let you know.

Email: decodingpolitics@protonmail.com

Substack: decodingpolitics.substack.com

Twitter: twitter.com/DecodingPoliti2

*Not financial advice, merely pointing out political and macro trends*

The Iran War has gone on for two weeks at this point. It has been aerial and ballistic missile exchanges thus far. A key announcement leads us to believe it will now shift into a new more serious, phase involving US ground troops in Iran.

The US has announced it will shift up to 5,000 Marines from Japan to the Middle East. Not just any troops: It’s a Marine Expeditionary Unit, one of the first on the battlefield in any conflict, specialized in amphibious landings. Those troops, coupled with troops already deployed in the region and America’s Rapid Deployment forces, will soon give the US a pool of 15,000-20,000 troops to draw on for an invasion. Those troops combined with US air superiority will allow the US to seize two key assets and then attempt to force an Iranian surrender or cease fire, and keep the oil markets under control.

We have called this war to a tee thus far, probably the only publication in the world that can make that claim. It’s proving to be more difficult than the US government or pundits thought, but in line with what we expected. Now it shifts to the next phase. We will keep you posted every few days so you can safely wade through the disastrously wrong analysis of Wall Street and the legacy media.

We estimate the ground troops enter Iran about three weeks from now. Best guess on timing is right around the Trump-Xi summit of March 31 to April 2^nd. Between now and then investors may adjust to the slower pace of the air war and grow complacent. But they will get shaken anew when troops show up in Iran.

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1. The Conflict Reality Versus Expectations

2. TACOs For Dinner?

3. The Next Targets

4. A Look at US Military Assets

5. The Likely Outcome

1) The Conflict Reality Versus Expectations

We wrote in our January 25^th piece Get Ready – War in Iran Coming Soon the base case of what we expected to unfold:

· A US/Isareli attack aimed at regime change and crippling Iran’s military and nuclear program

· A multi-week strike that could stretch into multi-month

· There were no real negotiations on the table as an off-ramp

· An asymmetric response by Iran, with regional drone strikes and the closing of the Straits of Hormuz

· Timing we anticipated between February 15^th and March 31^st-. It began February 27^th

Most people thought we were crazy, or we were channeling John Bolton’s fantasies. Unfortunately, all of our expectations have proven to be the case.

Two weeks into the conflict, it’s clear that the quick decapitation strike and regime change playbook of Venezuela does not apply here. The continued Iranian response and the strangling of the Straits of Hormuz have taken many in the government and media by surprise. Repeated calls from many that ‘Trump will TACO’ flew in the face of the Administration and military’s own statements and have been wrong.

This war is proving to be far more serious than Washington initially thought and the lack of preparedness is obvious to everyone. The global economy is hanging on a knife’s edge with the Straits of Hormuz shut and Iran attacking ships. The regime has merely rotated leaders and the IRGC remains fully in command. Iran has attacked targets in multiple countries and continues to hit them.

This conflict was not resolved by air alone. We said earlier emphatically that there will be no mass ground invasion and occupation- the US lacks the military and political will to do such an operation. The Iraq war involved 250,000 soldiers. Fully invading Iran fully would require at least 500,000 troops. It won’t happen.

Yet the US will have to adopt a limited ground presence now to force an Iranian surrender. We had earlier expected select raids and operations against the nuclear plants. Now it looks like the US will use 15,000-30,000 ground troops to occupy key sights in the South of Iran to weaken the regime and to reopen global trade. They initially thought they wouldn’t be necessary and were only a contingency plan. Now that contingency is being activated.

Is there really no chance of a deal? Where would ground troops target? Who would do the fighting and when? How will this all resolve itself?

2) TACOs For Dinner?

During nearly all of his first and second terms, Trump would initiate negotiations with bold targets or threats. He would continue piling on against the target nation. Then at the last minute, he would pull back and settle on a deal. The market got so used to this pattern it adopted the acronym TACO to describe it: Trump Always Chickens Out. The market has expected the same thing in Iran since the second day of combat.

We think they are sorely mistaken. Trump has used that strategy in trade negotiations because it worked. But this is a military operation with defined objectives: Regime change, an end to the nuclear program, an end to the ballistics program. Negotiations did not lead to this path, so force was chosen.

For the time being, there is no chance of a TACO. There is no clear leader to talk to, the two sides are miles apart, and the US thinks that the longer the operation goes on the more leverage it has.

The killing of Ayatollah Khamenei forced the election of a new Supreme Leader. His son, Mojtaba Khamenei, was chosen. But news reports indicate that he is laid up in the hospital, missing a leg, or in a coma, or not conscious of current events. His national address merely had a photo of himself and someone else reading the speech. The rumor is he is a figurehead. With no clear national leader, and a bunch of IRGC leaders bent on revenge running the country, there’s no one to talk to.

Iran’s Foreign Ministry released its demands for a ceasefire, which it has to know will go nowhere in DC:

“Iranian President Masoud Pezeshkian has outlined three non-negotiable conditions for a ceasefire: recognition of Iran’s “legitimate rights,” reparations for war damages, and binding international guarantees against future US or Israeli aggression.” – MSN

The US for its part is demanding regime change and unconditional surrender now. This is on top of demands to end the nuclear and ballistic programs, and to withdraw Iranian support from around the region. Again, these have been and remain non-starters for Tehran.

With no clear Iranian leadership and a bid/ask spread for negotiations that is a mile wide, there’s nothing for Trump to TACO to at the moment.

3) The Next Targets

At this point in the conflict, the US will have to continue its air campaign. It will keep looking for launch sites of Iranian missiles. It will keep looking for the uranium, now reportedly miles underground. And it will keep hitting IRGC assets wherever they find them.

Two key targets are outstanding however to defang the Iranian military threat to the Gulf and Israel and to reopen global trade. We have circled them on the map. The black circle is the military base of Bushehr and the nearby oil terminal of Kharj (aka Kharg) Island. The red circle is Bandar Abbas, the small city on the Straits of Hormu and the nearby island of Qeshm.

Why these two? Bandar Abbas is the city and base that is opposite the Straits of Hormuz. Controlling this area and the bases nearby is necessary for disabling surface attacks and reopening global trade.

Kharj Island is the home of Iran’s oil export industry. It’s the terminal with room for the biggest oil tankers (VLCC) and has pipelines running to it from around the country. Taking out this facility would cripple Iran’s oil exports and kneecap the regime financially. The US military claimed on March 13^th that it had bombed and taken out all of the military targets on the island. This is part of the way of clearing the path for a takeover. It is further up the Persian Gulf so it will take time to clear all the threats in the several hundred miles around it.

Iran has many shore to ship missiles and even underwater drones. The US military has written extensively on the capabilities of these:

- Defense Security Asia

The military will focus extensively in the next two weeks in clearing the Iranian abilities to strike ships and strike troops in the Gulf. The missiles further North in Iran are ballistic and targeted at Israel and other targets. They are not useful in taking out the US naval abilities.

Iran also has a huge food security problem. It imports massive amounts of basic cereals, many from European countries like the Netherlands, Denmark and Switzerland. But Brazil is 10% too. The US could blockade or threaten to blockade those imports and effectively starve the country out if things got serious in an occupation of Southern ports.

On another note, look at the incredible mountain ranges that ring the entire Southern coast of Iran. These massive ranges will effectively block any US invasion from attacking the major population sources of the North like Tehran, Isfahan and Tabriz.

4) A Look At US Military Assets

The US has been relying on its naval and air force assets thus far to hit regime targets. But the signs are already emerging of a shift to ground troops. It would be almost exclusively US troops, as Israel’s forces to deploy outside its borders are very limited. The US is transferring 5,000 Marines from Japan to the Middle East:

-WSJ

Significantly, this is a Marine Expeditionary Unit. These are one of the US military’s first on the battlefield units. They specialize in amphibious landings and often work with Special Forces. Summoning this unit means that the military is seriously moving in assets for a rapid, naval attack on a key location.

More from the head of the US Marines:

“Forward-deployed amphibious forces remain a uniquely critical and capable component of our national strategic demands for forward presence, crisis response, power projection and theater security cooperation. The Marine Expeditionary Unit (MEU) and associated Amphibious Ready Group (ARG) provide the Geographic Combatant Commanders with forward-deployed, sea-based, expeditionary forces that can operate across the range of military operations. Capable of enabling joint, interagency and coalition forces and seamlessly integrating with Special Operations Forces, no other type of force possesses these capabilities together with the ability to sustain itself logistically for significant periods of time.”

These units come with their own group of fighters and Osprey transport vehicles. They also have tanks, APCs and helicopters. They are in essence mobile mini-militaries that most importantly do not require an airway to operate from.

It will take 1-2 weeks for the unit to arrive to the region. We can realistically estimate any time frame involving this unit in action as two to three weeks from now.

But this is only one of the assets available to rapidly deploy. The US army maintains several units globally that can deploy almost anywhere within a day. They also maintain several units that quickly follow or lead major operations. The MEU’s are the Marine’s rapid reaction force, and often serve that purpose for the entire military.

The most important rapid response force is the paratrooper division, the famous 82^nd Airborne. The military website says that the 82^nd maintains a brigade (2,000 to 3,000 troops) that can deploy anywhere globally within 18 hours. That unit has been sent out several times in the past few years. On March 6^th, a large upcoming training mission was canceled. Speculation is running that this is to give the unit the time to deploy to the Gulf and ultimately Iran.

- MSN, March 6^th

The absence of a training exercise in March would allow the entire unit of 15,000 troops to deploy within a few days of being called up. Whether or not just a brigade or the entire unit is sent remains to be seen, but certainly the Pentagon has this as a viable option to quickly commit troops on the ground.

The US military has another airborne division, the 101^st. That unit had been partially deployed the past three years in Romania in the case of operations in Ukraine. It was recently sent home however, and so is stationed back in Kentucky. It specializes in helicopter attacks and troop movements. The Centcom Citadel website says that they can operate at a range of up to 900km. That’s too short a distance for them to be deployed from Israel to hit Iran (1500km to Bushehr). They would have to be moved to a Gulf base to be used, which would make them vulnerable to drone and missile strikes. We see it as unlikely the 101^st sees action in the first days.

Two other US divisions usually follow the 82^nd in just a few days- the 4^th Infantry and the 10^th Mountain division. Watching for movements of these troops in the coming days will be key to determining the size and timing of a US strike.

Finally, we have the US special forces- Army Rangers, Navy SEALS, Delta Force, Green Berets. There is plenty of evidence that teams have moved into place in Israel, the Gulf, and Azerbaijan over the past weeks. Of course the US has not announced numbers and locations. But past tweets show several cargo planes loaded with Special Forces came in. And we can assume that more teams are with the US carrier battle groups. So we will guess that there are a couple of thousand troops available.

Let’s add it up. We have:

5,000 Marines available in two weeks

~3,000 82^nd Airborne available overnight

~10,000 82^nd Airborne in a week or two?

~1,000-2,000 Special Forces/Navy SEALs/Delta Force available within a week?

= Roughly 20,000 troops available to attack Iran soon

If other troops are brought in from US bases in Turkey, Germany, Italy, or from the US itself, in the next two weeks we could get to 30,000 troops ready to go for this operation.

5 ) Likely Outcomes

In our initial piece we listed three scenarios and their odds. Total American Victory (20%), Total American Defeat (30%), and Compromise (50%). Our view of potential compromise was this:

“We all know that Trump starts negotiations with a big ask, and will walk it back to a more realistic outcome. We think that the big ask here is regime change. But if several months of strikes had proved insufficient for regime change, he would settle.

What would such a settlement look like? More promises on the nuclear program. A withdrawal of Iranian forces and support from the region.

It will probably involve the Ayatollah remaining but Constitutional changes to allow more room for dissenting voices.

In return, Iran would get a roadmap to international recognition and sanctions relief.

Chances: 50%”

We still think that we on that path. A total American victory looks highly unlikely at this time. A total American defeat won’t happen either unless China rolls out new technology that destroys the US Navy. Regime change writ large, like a return of a Pahlavi led government, looks remote now. Far more likely is a shake up of the existing leadership. Trump’s big ask has been unconditional surrender and regime change, and he will begin to move to the middle on those two demands. We would move to a negotiated compromise.

We think a ground attack tying down the Iranian economy and the Iranian military forces such an outcome. If the US did such a move, it would be able to hamstring Iran’s key imports and exports, freezing the country. But it would be clear that the US would not have the ability and the political will to occupy the rest of the country.

An often overlooked but important fact is also that southern Iran is one of the hottest places in the world. Temperatures average 100F (38C) over the summer, and often cross 110F-115F (42C-45C). The US military would have very limited chances of success if they tried to extend their gains over the summer, with extreme heat hitting its soldiers and equipment hard.

The US would move from its posture of unconditional surrender towards a posture of a negotiated surrender/cease fire deal. Some faction within the clerics or the IRGC itself would begin to lay out reasonable terms for the US to withdraw and Iran to reduce its offensive military capabilities. We would guess that those talks start after an April ground attack, and would be finalized by June.

Both sides would declare victory and mission accomplished. But more realistically it’s just a reshuffling of who controls what in the power politics game.