We looked at this chart below back in July, when the 10-year Italian government bond yield was trading under 4%.  Today it traded 4.25%. 

As you can see it’s tracking (white) step-for-step with the rise in European natural gas prices (orange). That’s because sustained high energy prices feed inflation and higher interest-rate expectations across Europe. And for Europe’s heavily indebted governments (like Italy), higher rates ultimately become a fiscal problem.

This dynamic drives the doom loop for Europe that we’ve discussed over the past six months. Expensive energy drives European inflation. Inflation forces the ECB to hike. Hikes drive up the borrowing costs of Europe’s most indebted governments.

The natural gas price in Europe is a bond market problem.

With that, the ECB meets on the 10th. A rate hike is priced at a virtual certainty, with another by December. And ECB officials are publicly affirming it.

But a rate hike isn’t going to unlock energy supply for Europe that has been stalled, destroyed or regulated away. 

It’s only going to destroy demand in an economy that’s barely growing as it is.

Now compare the G20 in Asheville this week. Treasury Secretary Scott Bessent flew with Fed Chairman Kevin Warsh to North Carolina. And then he opened the Summit with prepared remarks alongside Warsh.

In an interview that morning, on bonds, Bessent said “of course we’re on the same page.” On rates, he said, “traditionally, you don’t raise into a supply shock.”

In my note yesterday, we revisited the path of the Trump 2.0 global economic and security campaign to its ultimate target: China.

As we discussed, the Trump administration’s moves of the past 19 months are about ending China’s multi-decade economic war on the West, which has resulted in economic power and political capture. 

How did they do it? 

They undercut the world on price. China used currency manipulation (a cheap yuan) to build an export monopoly. The world allowed it. They liked cheap stuff.

And they liked what China did with the dollars it collected from the cheap stuff. They plowed it into Treasuries, which supplied cheap credit for U.S. consumers to buy more cheap stuff.

And so the cycle has perpetuated through the years — transferring wealth from the U.S. (and the West) to China. 

That’s the trade imbalance that has broken the global economy, and has funded China’s influence building over the past decade.

With that, let’s talk about the G20 finance ministers meeting in Asheville that concluded today. 

It was like no other G20 meeting. 

The G20 is presided over by the U.S. this year. And from opening statements made with Scott Bessent and Kevin Warsh sitting side-by-side yesterday, it was clear that the decade-long global agenda designed around the low growth, high regulation, massive spending, demoralizing climate and social policy was over. 

This G20 was all about optimism, investment and economic growth.

With business and finance leaders from the world’s 20 largest economies at the table, the U.S. brought in the people leading the AI boom to explain the significance of this new industrial revolution.

They piped in Elon Musk for a discussion. He told the room full of people who have been conditioned to ‘secular stagnation’ that AI will increase the size of the global economy by 20%-30%! 

He said there will be a billion humanoid robots in the next ten years, and they will be 5 times more productive than humans.

By the end of the summit today, nineteen of the twenty members were on board with the Asheville communique.

One was not. China.

So, Bessent issued a “chair’s statement” instead of a communiqué. At the end of it, in small type, it said this: the statement was agreed by all G20 members present except China, which objected to paragraphs 4, 10, 11, and 13.

Four paragraphs. Let’s look at what’s in them.

Paragraph 4 is about energy.

It says the smooth functioning of key value chains, including energy, food, fertilizer and critical minerals, is essential to global growth. And it says free, safe and predictable navigation through the Strait of Hormuz is essential to sustaining that growth.

Remember, the clock is running on the economic isolation of Iran. And every country still buying, shipping, insuring or banking the Iranian trade on notice. That’s China. And China just dissented on the free and safe navigation through the Strait.

Paragraph 10 is about trade imbalances.

It says countries running excessive and persistent surpluses should remove the distortions that hold down their own domestic consumption and leave them overly reliant on exports for growth.

That’s China’s economic model. They dissented. 

Paragraph 11 asks the IMF to build better tools for measuring those imbalances, and to improve its data coverage of non-market policies and practices.

That’s the nineteen members calling on the IMF to do its job, and hold China accountable for unfairly manipulating its trade advantage (and therefore creating global trade imbalances). China dissented. 

Paragraph 13 is about sovereign debt.

It calls for broader coordination among G20 official creditors in restructuring the debts of countries that owe a meaningful share of their external debt to G20 members.

That’s Belt and Road. China is the largest bilateral lender to the developing world, and it has been the obstacle in nearly every sovereign restructuring of the past five years. China dissented. 

Now, let’s go back to February of last year, two weeks into this administration. I said China was priority number one, and that the trade war would likely require global participation — maybe putting China in the trade penalty box.

That was nineteen months ago. Today, at a G20 hosted by the United States, nineteen members put their names to a document about surplus countries and export dependence, and China sat alone on the other side of it.

The trade penalty box could be coming. 

Overnight, the kinetic action returned to the Strait of Hormuz.

Let’s revisit the path that got us here.

We’ll start with this excerpt from my February 2025 note, just a couple of weeks after Trump was sworn in: 

Dealing with China is priority number one … the Trump 2.0 trade war with China will likely require global participation (maybe putting China in the trade penalty box).  

It’s a multi-front fight. It’s fighting to rebalance global trade, and weaken the global reliance on China (weaken China’s economic and political leverage). 

As we discussed at the time, China was at the core of nearly every geopolitical move being made. Mexico and Canada were pressured over fentanyl, which comes from China.

Panama and Greenland were about shipping lanes, and keeping them out of China’s hands. On the day Rubio visited Panama, Panama announced it would exit China’s Belt and Road project.

Then tariffs. 

The tariffs were never about revenue. They were about realignment. Use access to the American consumer as the leverage, and draw the rest of the world back toward the United States (away from China). 

It worked. Country after country came back to the table.

Not China. China retaliated, built workarounds, and has stalled.

Then Venezuela, China’s “all-weather strategic partner.” 

This began the dismantling of energy as a geopolitical weapon — a funding source for global chaos, influence, and a tool for economic disruption.

In a cabinet meeting in May, Trump turned to Marco Rubio and asked what was going on in Venezuela. Rubio laid out the mechanism in public. 

He said, the industry is being “professionalized for the first time ever.”

The crude is sold “in the market at market rates.” And “the money is going to an account in the United States controlled and monitored by Treasury, audited by KPMG. And it’s for the first time ever, the money’s not being stolen. It’s going to the benefit of the Venezuelan people.”

That was the Venezuela model stated by the Secretary of State. A Treasury-controlled account. KPMG audit. Market sales. Revenue restructured away from the regime, toward the people.

Eradicate the regime. Take control of the oil. Remove the regime’s funding and leverage.

That was a clear signal for what was already underway in Iran.

And remember, on Iran, forty-years ago Trump told Barbara Walters that the next time Iran threatened this country, America should go in, grab one of their big oil installations, and keep it.

In 1988, he told The Guardian he’d do a number on Kharg Island, and take it.

This past March, he told the Financial Times that his favorite option is to take the oil in Iran.

And with that, there has never been a peace deal scenario that would change the control architecture of oil in Iran. The Venezuela model has been the model for Iran. Take the oil, professionalize the industry, sell it at market rates, and run the revenue through a Treasury-controlled account, so the old regime can’t reconstitute itself on that money.

Which brings us to the isolation strategy.

Last week, Scott Bessent (U.S. Treasury Secretary) started the clock on the economic isolation of Iran, and put every country still buying, shipping, insuring or banking the Iranian trade on notice.

He said, any entity that facilitates money laundering on behalf of Iran will be removed from the US dollar system.

Who does it put in the crosshairs? China.

China takes as much as 90% of Iran’s oil exports.

As we discussed last week, Venezuela was the model for Iran. And the economic isolation of Iran is now the model for China.

This, as Xi is due for a formal state visit, in America, on September 24th.  

Nvidia reported after the close. As we discussed yesterday, if they follow the history of beating guidance, we’d likely be looking at a company running at a $400 billion annual rate, and growing at a triple-digit rate (again!). 

We got it.

Nvidia reported $96.2 billion in revenue this afternoon, up 106%.

Just four years ago it was a $7 billion quarter. Then $13 billion. Then $30 billion. Then $47 billion. Now $96 billion. Back to triple-digit growth.

Keep in mind, that’s doubling off an already enormous base. It’s unprecedented at this scale.

That said, the CFO led the call by saying they expect 70% revenue growth in fiscal 2028. That’s not demand slowing to a 70% growth rate, it’s a supply issue (again).

The supply constraint is back.

It’s memory. It’s advanced packaging. It’s power. Jensen says the entire supply chain is constrained. 

We’ve watched this pattern for three years now. The buildout looks like it’s found its limit, then it shifts into a higher gear, and then it runs into a new physical wall (chips, storage, power, memory).

And it’s severe enough that Nvidia has committed $279 billion to secure future supply and manufacturing capacity, up from $119 billion just three months ago.

Let’s talk about two other key takeaways from the call that tell us about, not just Nvidia, but about the state of the AI boom and outlook.

1) The demand is broadening.

Everyone sees the AI spending from the big hyperscalers (Google, Meta, Amazon, Microsoft, Oracle) . That business at Nvidia grew 102%.

The other business is the AI clouds, enterprises and sovereign governments. That business grew 138%, and it’s about to become the larger of the two. Jensen’s framing was that the hyperscalers were the beginning, not the destination.

2) The next key takeaway: They changed the way they report on the businesses within Nvidia. 

Five product lines are now two “platforms.”

There’s Data Center. And there’s Edge Computing.

Edge is only 7.5% of revenue today. Yet Nvidia now considers it one of only two “platforms.” Why? Jensen’s answer throughout the call was agentic AI. This is continuous inferencing from, ultimately, billions of AI agents running around the clock.

By making Edge Computing a one of only two platforms in Nvidia, is this Jensen telling us where he thinks the rest of this decade goes?

It seems that way. 

He says “when the world goes to fully agentic, you’re going to have agents running all the time, working with other agents running all the time.” That’s constant compute usage. And the meter is always running — billable compute.

And this works because, as he said, AI is doing productive work, which generates profitable tokens, which becomes more productive work and more profitable tokens with the addition of more computing capacity. That’s the self-reinforcing loop Jensen has been talking about all year — what we’ve called the “boom loop.”

Tomorrow we get PCE, the Fed’s favored inflation gauge. And it comes two days before Kevin Warsh gives his first speech, as Fed Chair, at the Kansas City Fed’s annual economic symposium in Jackson Hole. 

As we discussed in the past, this event has historically served as a platform for central bankers to communicate important signals regarding policy adjustments.

In 2010, Bernanke telegraphed QE2 in his Jackson Hole Speech.  Two years later, he telegraphed QE3 at the event.  In 2014, Mario Draghi (head of the European Central Bank) telegraphed aggressive action from the ECB to battle deflationary pressures — a bond buying program was formally announced just days later. 

More recently, in August 2024, Jerome Powell used it to say the time had come for policy to adjust. The Fed cut in September.

That said, Warsh has spent his first three months removing the Fed’s signaling apparatus. He ended forward guidance. Asked what he’d say in Jackson Hole, he called it “a blank piece of paper.”

So the market will pay attention on Friday to the one venue built for signaling, to hear from a Chairman who has spent the summer dismantling signaling.

The bigger event of the week, comes tomorrow after the close.

Nvidia reports Q2 earnings. 

They guided $91 billion in revenue for the quarter.

The Q1 number was $81.6 billion, which was up 85% year-over-year.

The data center revenue that had become a $4 billion quarterly growth rhythm for a couple of years — surged by $13 billion in Q1. That was 21% quarterly growth, 92% year-over-year.

So, clearly the explosive growth for Nvidia has returned.

And given the history of beating guidance, it’s a good bet that we’ll find tomorrow that Nvidia has returned to triple-digit revenue growth, for the first time in two years.

So, by this time tomorrow, we will likely have a company doing near $400 billion run rate, growing at a triple-digit rate.

Meanwhile the stock closed today at $213, about 10% below its May high, at roughly 23 times forward earnings (on tomorrow’s guidance).

Hold that share price flat and let earnings compound. At 25% growth it’s under 12 times by 2030. At 30%, roughly 10 times. Even at 15%, less than a fifth of what the company just delivered, it’s 15 times.

Now, we talked about the Treasury’s move last week to support the long-end of the bond market. And we talked about what looked like a new (or restored) Treasury-Fed Accord.

For the better part of eighteen years, when long-dated Treasuries needed a buyer, the Fed has been the buyer.

Warsh has been explicit that the use of the Fed balance sheet borders on fiscal policy, and he wants the Fed out of that business.

With that, the move last week by Scott Bessent’s Treasury to infuse demand in the long-end of the Treasury market looked like the Treasury taking over the role of crisis manager.

Stan Druckenmiller published an op-ed in the Wall Street Journal on Monday attacking the Treasury’s decision.

This was his case: it wasn’t liquidity management, it was price management. And it wasn’t prompted by market stress or crisis.

With that, he argued to “let the bond market speak.” Let the bond market do its job of disciplining fiscal profligacy (perpetual deficits).

He failed to mention that the market he wants to speak, hasn’t been able to speak freely since 2008.

The Fed manipulated it for the better part of eighteen years, and remember Powell even restarted monthly asset purchases last December on his way out the door, in size!

And Janet Yellen, Biden’s Treasury Secretary, skewed bond issuance toward bills deliberately, to hold the long end down. It was price management, and it ran through a presidential campaign.

Bessent is dealing with a market where the Fed is withdrawing, foreign dollar access is being made conditional, and the hyperscalers are competing with Treasury for capital. And last week he said, to justify the bond move, “what do I know that the market doesn’t know?”

Last week, President Trump threatened an economic “D-Day” to “crush Iran’s shadow economy.”

Today, the U.S. Treasury Secretary held a press conference to announce the start of the clock on that operation, and to threaten all countries financing the Iranian economy to either “stand with the U.S.” or “share in the isolation of a withering regime.”

Sanctions on Iran aren’t new. What’s new is the audience that falls within the net of isolation by association.

Bessent said, “No nation should expect to enjoy the rewards of our system while helping those who seek to destroy it.” And he said, it’s now “a time for world leaders to make a decision between prosperity and isolation, peace and terror, America and Iran.”

This is addressing whoever is still buying, shipping, insuring and banking the Iranian trade.

Who fits that description?  China. 

China takes as much as 90% of Iran’s oil exports.

With that, Bessent was asked directly whether Chinese banks would be targeted. He wouldn’t say. He did say that “no one is above the reach of US sanctions … we know who they are. They know who they are.”

Now, this “stand with the U.S.” or pay a price may sound familiar, because it was the underpinning of the tariff strategy.

As we discussed in our notes, back in April of last year, the point of the tariffs wasn’t revenue, it was about realignment.

Use access to the American consumer as leverage, and draw the rest of the world back toward the United States.

It worked. But not on China.

That’s because the tariff strategy is ultimately about China — ending its multi-decade economic war on the world. 

Remember what Trump’s Secretary of State, Marco Rubio, said in his confirmation hearing: “if we stay on the road we are on right now, in less than 10 years, virtually everything that matters to us in life will depend on whether China allows us to have it or not.”

So, China hasn’t made a deal on trade. It has retaliated. It has built workarounds. It has delayed.

And now the Trump administration is deploying another instrument, one that uses Iran to put China in the crosshairs.

The penalty for those funding the Iranian regime was stated plainly this afternoon. They “will be removed from the US dollar system.”

So the tariffs quickly realigned most of the world. This threat against Iran enablers is to realign who’s left — or isolate them.

With that, just as Venezuela has been the model for Iran — eradicate the regime, take the oil, remove the leverage — the economic isolation of Iran now presents a model for the Chinese Communist Party to contemplate. 

On that note, Bessent’s language today brought this to mind: In February of last year, at the AI Summit in Paris, Vice President Vance warned a room of world leaders about siding with China on technology/AI.  He said “partnering with such regimes, it never pays off in the long term,” and that doing so “means chaining your nation to an authoritarian master.”

Neither Vance, nor Bessent, explicitly called out China, but the dots are easy to connect. 

Today was another warning shot, but one with enough bite to further weaken Iran, and expose China’s complicity.  

Yesterday we talked about the Treasury’s move to support the long-end of the government bond market — providing “greater liquidity” in the 30-year bond market, pushing yields lower.

This is the Treasury taking over a function the Fed performed for the past eighteen years (managing liquidity and the level of bond yields).

This looks like the execution of a new 1951-like Treasury-Fed Accord.

Remember, we talked about this back in early February (here), just after Kevin Warsh was named Fed Chair.

As we discussed in that note, both Bessent (Treasury Secretary) and Warsh (new Fed Chair) worked for, and are very close with, legendary macro investor Stan Druckenmiller.

Druckenmiller is a mentor to both.  And few in the world understand global liquidity, sovereign debt supply, and how they affect capital flows, risk premiums and market psychology like Druckenmiller.

Fast forward six months, and his proteges are now managing the world’s most important liquidity spigots (one from the fiscal side, one from the monetary side).

On that note, in an FT article back in January, Druckenmiller had used the word “accord” to describe the relationship Warsh and Bessent would have between the Fed and Treasury.

That word “accord” is significant, because it’s in reference to the 1951 Treasury-Fed Accord that established the Fed as an independent central bank.

During World War Two, the Federal Reserve pegged yields on the government bond market. Bills were at three-eighths of one percent. Long bonds at two and a half. The Fed committed to buying whatever quantity was necessary to hold those levels, with newly created money, without limit.

It worked. It financed the war at cheap rates. But when the war ended the peg stayed, and by 1951 inflation was running hot and the Fed was still legally obliged to buy Treasury debt at prices the Treasury wanted.

The 1951 Treasury-Fed Accord ended it.

The Fed was freed from financing the government. It became an independent central bank. And managing the government bond market went back where it belonged, to the Treasury, through the supply of debt.

That arrangement held for roughly fifty-seven years.

It ended with the Global Financial Crisis.

The Fed became the largest buyer of Treasury debt in the world in response to the financial crisis. Through three rounds of quantitative easing, then a fourth in the pandemic, the central bank bought government bonds to hold long-term rates down.

The Fed financed the deficits. The deficits kept growing.

What the 1951 Accord was designed to separate was again entangled.

As we discussed back in February, it appeared that Warsh and Bessent were assembled to take them apart again.

End the Fed’s QE business. Stop the distortion. Give the responsibility back to the fiscal side.

Then yesterday, we saw what may be the execution of that arrangement — the Treasury stepped in to manage liquidity in the long end, taking back the job of managing the bond market through supply.

Is the 1951 Accord restored?

The dollar fell on the news. But that’s the opposite reaction of this policy move.

A central bank that monetizes deficits debases its currency. If the Fed is genuinely out of the deficit-financing business, and the Treasury has to manage the debt on its own balance sheet with real constraints, then the structural change toward fiscal discipline should shore up credibility in the dollar. 

This should be dollar-positive.

As we discussed back in February, if the U.S. chooses structural reform, those who don’t will get punished.

Which brings us to Europe.

The European Central Bank is running the opposite policy.

Its bond market is being held together by the credibility of ECB intervention, and by an instrument built in 2022 that has never actually been used.

This is policy divergence.

One central bank is withdrawing from managing its bond market, and its Treasury is picking up the job openly, with published operations and stated sizes. The other is holding its bond market together with the threat of intervention.

One is separating the fiscal and monetary functions. The other is fusing them tighter.

The currency market should figure it out.

 

On Monday, we talked about the rise in government bond yields and the related vulnerabilities in sovereign debt markets (most acute in Europe).

This morning, the U.S. Treasury addressed the U.S. government bond market, by saying it will “provide greater liquidity” to support the long end beginning next month.

The 30-year fell 10 basis points to 5.19%, and yields were down globally on the news.

Let’s talk about the significance of this move by the U.S. Treasury Secretary, Scott Bessent. 

Remember, as we discussed in these daily notes, when Kevin Warsh was sworn in as the new Fed Chair back in May, the “Warsh doctrine” went into effect: a smaller balance sheet, less telegraphing, and structural reform to break the entanglement of the Fed with government financing.

And with that, under a Warsh-led Fed, the fiscal dominance funded by the Fed for eighteen years should give way to fiscal discipline, with crisis management given back to the Treasury.

We just saw it this morning.

The Treasury stepped in to support the long end of the bond market. That’s the job quantitative easing used to do. For fifteen years, when long-dated Treasuries needed a buyer, the Fed was that buyer.

Those days are over. Warsh has been explicit that the balance sheet borders on fiscal policy and that he wants the Fed out of that business.

So the backstop didn’t disappear. It moved to the Treasury.

And this is now the second time we seen evidence of the handoff.

Emergency dollar liquidity for foreign central banks used to run through Fed swap lines, extended automatically to allies. Three weeks ago the Treasury intervened to support the value of the yen and asked the Fed to expand a facility that lends dollars only against Treasuries already held.

And crisis management at the long end used to run through Fed asset purchases. Today it runs through Treasury buybacks.

So, the Fed and the Treasury are reorienting dollar policy.

On that note, one of the biggest movers on the day in global markets was gold.

Earlier this month we talked about the 4.1% jump in gold — the magnitude of which was matched or exceeded in only three episodes of the past 7 years.

And as we discussed, all three of the outsized rises in gold (going back seven years) had one thing in common: change in the architecture of global dollar liquidity (who supplies the dollars, and on what terms).

Today gold jumped 4.3% — another rise of rare magnitude.

Another big trading session, and again, it came with a change in the architecture of dollar liquidity. Not an inflation print, not a war headline, but the Treasury taking over a function the central bank used to perform.

Let’s talk about some spots in Europe that are flashing warning signals.

It’s all related to vulnerabilities in the European sovereign debt markets.

First, for comparison, the U.S. interest rate curve is steepening and the 30-year is at two-decade highs. But the 10-year sits at the high end of the same 75 basis point range it has held all year, still well below the significant 5% level. Long-end steepening with inflation expectations anchored is a term premium story. It is not a stress story.

Europe, on the other hand, is a stress story.

Italy’s 10-year is at 4.02%. France is at 4.08%, the highest since 2009. And Germany, the anchor for the entire system, is at 3.23%, a 15-year high.

Notice, France is now borrowing more expensively than Italy. The euro zone’s second largest economy, is paying more than the country everyone has spent a decade worrying about.

Is this periphery stress?  Or is this is the core repricing?

Look at Germany. It’s the safest credit in the euro zone, the benchmark every other European borrower is priced against. It’s now funding itself at a level it hasn’t paid since 2011.

Then there’s the UK, where the 10-year is back above 5%.

As you can see in the chart above, this 5% area for UK yields has been tested repeatedly over the past few months. It hasn’t sustained.

But look at the other spike in that same chart. The one that compelled the Bank of England to step in back in 2022, to resolve a liquidity crisis that was threatening to become a solvency crisis.

That spike revealed leverage in the financial system. As Warren Buffett says, when the tide goes out you see who’s swimming naked.

The tide went out, and the margin calls followed. Then forced liquidations, which drove yields higher, which brought more margin calls, and more forced liquidations.

It was a self-reinforcing debt spiral, and it happened fast. Major pension funds came within hours of insolvency. The Bank of England was forced into emergency bond buying to stop it, as the buyer of last resort.

It was never that 4% or 5% was a magic number.

It was a threshold that revealed the leverage already sitting in the system.

Now, what else happened in European bond markets in 2022?

The European Central Bank was forced back into the business of backstopping the weak spots of Europe. Italian 10-year yields crossed 4% that June, and that was enough to warrant an ECB response.

Italy is at 4.02% today. There is no response.

Why? In 2022, Italy at 4% meant a spread of roughly 240 basis points over German bunds, because Germany was yielding 1.6%.

Today Italy at 4% is only 79 basis points over Germany.

Same Italian yield. But a rising anchor. 

And this time around the ECB isn’t fighting the rise in yields, it’s contributing to it. The market is pricing in a 90% probability of an ECB rate hike on September 10, into an economy that is barely growing.

Why would they hike into that? Because of this chart.

This “gas ratio” shows the multiple Europeans pay for natural gas relative to Americans. It closed Friday at a new war high of 7.6 times, 145% above where it stood before the February strikes.

That feeds straight into European inflation. And a central bank’s response to inflation, even energy-driven inflation, is rate hikes. More upward pressure on yields.

And the energy shock is not letting up.

Scott Bessent said last week the campaign has moved from Epic Fury to Economic Fury, that the pressure has been raised again, and that Washington will apply (on Iran) measures of economic isolation unlike anything in the history, alongside a continued blockade of the Strait of Hormuz.

So Europe is refinancing debt at 15-year-high yields, with a central bank raising rates rather than supporting the market, and an energy shock that Washington intends to extend.

In 2022, the buyer of last resort arrived (to supress yields). Today the central bank is the one applying the pressure (upward pressure on yields).

All of this, while European equities sit at or near record highs.

So, the bond market is pricing the highest cost of government money in fifteen years across the three largest economies on the continent. The stock market is pricing the best conditions ever.

That’s dislocation.

Oil is back up. WTI traded back to $82 today, up 5%. That’s an $8 round-trip inside of a week. 

And it’s the sixth time the de-escalation campaign (orchestrated by the U.S. administration) has evaporated. 

Iran’s Revolutionary Guards said over the weekend that they will not reopen the Strait of Hormuz until the U.S. meets its list of demands. Iran wants to retain control of the waterway after the war, and it wants to charge tolls for passage.

That’s not going to happen.

As we’ve discussed for months, Venezuela is the model for how Trump will resolve the Iran war: eradicate the regime, take the oil, remove the leverage.

That said, Trump has made a series of starts and stops on Iran, to massage market sentiment. But the endgame is regime change and control, not a peace deal. Kharg Island, which handles 90% of Iran’s crude exports, has to come under American control.

So, clearly this does not resolve with a deal that leaves Iran charging a fee on a fifth of the world’s oil and gas. 

With that, the U.S. naval blockade remains, and the gas ratio (chart below) is pricing in risk of bigger, longer global energy supply disruption — more war. 

Remember, this gas ratio is the multiple that Europeans are paying for natural gas, relative to what Americans are paying. It just printed another new wartime high — trading above the prior highs marked in the early days of the war, and in late July.

Please note: I’ll be away the remainder of the week, so you will not receive a Pro Perspectives note from me.

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