A week ago I asked whether global energy markets have “Trump Derangement Syndrome.” I was being a bit arch because I didn’t mean in the sense that MAGA world means, which is being somehow obsessively, compulsively anti-Trump. I meant the opposite. Are the markets wedded to a kind of Trump magical thinking? That somehow he’ll always find a way to thread the needle or slip out of his self-made crises? I’ve tried to be very aware of the fact that I’m totally green on the question of global energy markets. And since oil futures are at least flirting with twice the price that they were at when this war started, it’s hardly like markets aren’t reacting to it. A friend who follows energy markets very closely walked me through some of the reasons why the markets response has been more tempered than one might expect: existing slack in the oil markets on the eve of the war, continued impact of the recent release of 400 million barrels of oil, and uncertainty about whether the U.S. can or will reopen the Strait of Hormuz. But I get more and more indications, some in just reading the news closely, some in small bits of information I pick up from sources, that there really is something going on here.
Perhaps it’s not simply or even entirely the finance world’s attachment to Trump. Some of it is likely that the situation is so off-the-charts weird, and because of Trump’s erraticness and impulsiveness, it’s very hard to apply any traditional frameworks to how to assess the risk. Along those lines look at this article in the Wall Street Journal: “‘It’s a Nightmare’: Rapid Battlefield Shifts Leave Markets Trading Blind”. If you don’t have a subscription, the title kind of covers it. (The link should be a gift link.) The article contains this passage:
Hunting for reliable data, commodity traders are hiring security consultants with on-the-ground Gulf sources and leveraging their own tanker fleets to probe for port disruptions. Wartime delays have throttled the vital flow of satellite imagery, while widespread signal interference in the Middle East has left the cottage industry of tanker tracking partially in the dark.
They play this as the fog of war. It’s certainly that. But what also seems clear to me is that the traders, perhaps especially at the big U.S. banks and financial services firms are used to the U.S. government giving at least broadly directional data and guidance about what’s happening. Of course, truth is always the first casualty of war. And we can go back to all the lies and, later, wishful thinking that drove the Iraq War and later occupation. But this is operating at a totally different level.
Trump will say something like, Oh, well, we’ve got this covered. We just did X or Y, and things will become awesome really soon! And that moves markets. Yesterday I heard indirectly about some market advice/guidance from the commodities and trading arm of one of America’s biggest banks. The gist was that all was going to get better pretty soon because Trump had a new plan that was going to fix everything. Just what the plan involved was kind of vague but it seemed pretty stupid if you understand the mix of geography, military capabilities and plain common sense. This big bank, at the highest levels and in the advisories that go to the biggest players, seemed to have heard from the White House about its latest plan and they were basically going with it. Hey, Trump’s got this, guys. Things will be better real soon.
I’m reminded how in the early days of the war Trump was able to settle the markets and get oil futures to drop pretty dramatically by saying he had a plan to start escorting ships through the Strait of Hormuz. But at the same time, I was watching some maritime and shipping sources that pointed out that the U.S. Navy had no ships in the Gulf at all and the kinds of ships you’d use for this kind of mission weren’t anywhere near the Gulf. Wasn’t someone connecting these dots?
Even the insider sheets seem to be picking up on this. This morning’s Axios starts with this item: 1 big thing: Wall Street again hopes for the best.
It’s very direct given the source.
It is by now a familiar Wall Street two-step: Stocks stumble in the morning and mostly recover by the end of the day after President Donald Trump says something that’s viewed as reassuring about the Iran war.
Why it matters: Investors are jumping at any sign of an end to the Iran war — now in its third week and far longer than they initially predicted.
- They’re clinging to the Trump put, the idea that the president will reverse himself if the markets react badly to White House policy.
- It’s a concept with legs even in a war — a situation that is not unilateral. Even if Trump wants this to end, Iran has to stand down, too.
That really does capture it.
To be clear, the best or most generous interpretation of this is TACO, a phrase that started on Wall Street: Trump Always Chickens Out. The idea being that whatever he says, Trump knows when one of his ideas is going seriously sideways and he moves quickly to pull the plug. And the tariff story does to a real degree follow that logic. But wars aren’t like tariffs. Trump’s tariffs were to an almost unique degree something out of the blue, 100% planned and promulgated out of the White House. And pretty much everyone in the world wanted them ended. So Trump, at least in a short-term sense, could pull the plug or at least wiggle the plug at any time he wanted to.
Wars don’t work that way. Your enemy has a say in how things go, when things end. That’s especially the case when you’ve defined the war in terms of regime change. That means no risk is too great for your adversary.
It’s probably the case that the market is being generally driven by energy traders with access to a lot of good information and hungry for more, while the gyrations are by driven by more casual, less plugged-in traders, those jumping the gun in response to Trump’s latest post. But whatever the reason, there really does seem to be some level of breakdown in how markets are grappling with this crisis. Some of it may simply be that traders and the financial markets generally are struggling to adapt to a world in which the White House and the president of the United States are a primary source of misinformation, notwithstanding being the people who are actually running the war.