Just like that!
The Iranians did a 22-missile fire drill announced in advance so as not to cause injuries, the Donald quickly declared the “all clear” and in a virtual heartbeat the robo-traders were off to the races.
Needless to say, it is not often that on the purported eve of WW III, you get another all-time high in the stock averages and a 600 Dow-point turnaround in less than four hours.
Then again, it’s also not often that you get thumping, crystal-clear proof that honest price discovery in the so-called financial markets is dead and gone.
How could it be otherwise?
During the last two days we’ve had unequivocal proof that there is a bellicose madman in the Oval Office willing to go where no sane statesman—or even run-of-the-mill politician—would ever go. At the same time, the Fed has proved once again that it has no clue about what it is doing as is evident in yesterday’s huge $99 billion take-down of repo facilities nearly a full week after the supposed year-end funding spike had passed.
That is to say, the two most powerful institutions on the planet—the Pentagon’s oval-shaped annex and the Federal Reserve—have become a clear and present danger to peace, stability and even a modicum of rationality. Yet the boys & girls down on Wall Street are insouciantly buying the dip because, well, what could go wrong?
Try just about Everything!
For one thing, nobody has put the genie of Washington’s war on Iran back in the bottle. In fact, in announcing new sanctions on top of the brutal economic warfare already being waged against Iran Trump simply guaranteed that the Persian Gulf will remain a tinderbox waiting to flare-up on a moments notice.
That’s because without removal of the sanctions and a resumption of oil exports soon, Iran’s petroleum dependent economy will collapse into outright depression and chaos—something the regime will never permit to happen before striking out desperately and violently against Washington.
Already oil exports have dwindled by 90% to a mere 262,000 barrels per day from pre-embargo levels. Even at today’s somewhat elevated oil prices, this volume collapse means that oil earnings are now hardly $5 billion per year—-a drop in the bucket relative to Iran’s $450 billion GDP and 82 million population.
The impact of Washington’s body blow to its oil export sector is made dramatically clear by the chart below. Back in 2011 before even the first round of Obama’s sanctions, the country exported $120 billion of goods, of which $90 billion was oil and gas exports. But after Trump dumped the Nuke Deal in May 2018 and re-imposed even harsher sanctions, total exports skidded to less than $50 billion.
Needless to say, the collapse of Iran’s oil export revenue has been devastating to its economy. That’s especially because it was structured to export large volumes of hydrocarbons, while recycling these energy earnings back into heavy imports of grains, foodstuffs, meats, iron and steel products, mechanical and electrical machinery, rubber and plastics, woods and textiles, pharmaceuticals, medical instruments and vehicles and parts.
Now, however, with earnings from energy exports drying up, its foreign exchange reserves virtually depleted and a collapsing currency, which is down 50% since May 2018, Iran’s imports are being perforce ground to a halt. Naturally, this is generating growing shortages, soaring prices and cascading hardships across most of its economy.