Israel has changed its strategy against Hezbollah and will continue to hit it until it retreats. Therefore, Israel will hit harder until Hezbollah buckles.
And the Shiite organization and/or Iran may respond on a war-inducing scale – indeed at the time of this writing Hezbollah has bombed Tel Aviv. And if Hezbollah collapses, it will open the curtains for Israel to turn against Iran.
The West does not have a clear opinion on this issue:
- Europe is divided.
- The UK Prime Minister simply stated that Hamas should “release the hostages”…
- The US, of course, is on alert.
In this case, a rather natural progression of the war currently going on in the Middle East would be for Israel to try to destroy Iran’s nuclear program.
Meanwhile, because of the Houthis, key units of the US fleet cannot refuel at sea: If one does the military math taking into account the rising geopolitical tensions, given that the US has lost control of the Red Sea and its Suez, oil will become scarce, as will US Navy ships.
What will happen to the economy?
The central bank of the dragon country (China) made one of the boldest monetary policy moves in decades with bold interest rate cuts and stock buybacks.
With the US banning Chinese electric vehicles and imposing tariffs, analysts would naturally argue that their priority now is a rally in stocks.
However, if the Fed continues to think hypothetically, rather than how to resupply the US navy, a Chinese strategy could be to boost commodity prices and thus US inflation again.
As all this unfolds, the Fed sees 50bp rate cuts on its part, and maybe even extraordinary cuts within the meeting – some people are not learning lessons about politics, economic governance, logistics, or about petroleum, not about geopolitics, not about the 1970s.
At the same time, in the US, during the pre-election campaign, Trump spoke of “very low tax” zones, while he promised to appoint a “production ambassador” whose mission will be to convince large companies to relocate to America. Thus, “American workers will no longer worry about losing their jobs.” Instead, foreigners will worry about losing their jobs.
In the past, after all, protectionism had been adopted by many states in order to climb the development ladder. But protectionism is the best recipe for a resurgence of inflation – which will undoubtedly hurt markets.
Tariffs are usually nothing more than an additional tax on consumers – they change nothing but price. However, if they create higher or better-paid employment and increase output to achieve economies of scale, they can be moderately inflationary and an important driver of industrial growth.
