The big story this week is the model race. Grok 4.5 just landed, and it’s good enough to change the math on cost. On the tape, last week’s calls held up: memory rolled over, Apple pushed back toward its highs, and money kept moving into the AI hyperscalers. Two side stories worth flagging. Meta is buying its way into the agent race with a cheap model and a huge user base. And China pulled off its first rocket recovery. Rotation isn’t over. The AI bullrun is still here.

1. What Changed This Week

1. The model race just got hotter, and that keeps capex going

Grok 4.5 shipped on July 8. SpaceXAI trained it alongside Cursor, and Elon’s own read is that it’s roughly on par with Opus 4.7, just much faster and a lot cheaper. Pricing: $2 in and $6 out per million tokens, well under OpenAI and Anthropic (Opus 4.8 runs $5 / $25).

The interesting part is why it got good so fast. SpaceX bought Cursor for $60 billion back in June, so now one side brings the compute and the other brings the data and the real coding workflows. Put those together and you get a top-tier model. GPT-5.5 and China’s GLM are right there too.

So the race is far from settled. If anything it’s getting more crowded, which means capex keeps climbing, not falling. We stay long AI compute and infrastructure. And the core call doesn’t change: memory has peaked for now, and the money is rotating into the hyperscalers and Apple. Micron is down about 22% in two weeks, from its $1,213 record close to around $949. Apple is sitting just under its 52-week high of $317.40, closing at $314.70 on the 9th.

2. Meta: a cheap model plus a huge user base is a real ticket into agents

Meta put out a very cheap model and pointed it at the 3.5 billion-plus people who use its apps every day. The model doesn’t have to be the smartest. If it’s good enough for simpler agent tasks, Meta’s sheer reach can still push it into the main AI conversation. It wins on distribution, not on being the smartest in the room. It also tells you Meta’s AI spending isn’t slowing down. Tencent is the same story in China, a huge ecosystem plus agents, so we’re adding it to the watchlist too.

3. China landed a rocket recovery, and that opens a new space story

On the morning of July 10, the Long March 10A flew for the first time from the Hainan commercial spaceport and reached orbit, and the first stage was caught at sea with a net system. This is China’s first controlled recovery of a launch vehicle, and the first net-capture recovery anywhere. China is now the second country with large reusable-rocket capability.

Our read: on the surface this looks like a threat to SpaceX, but we think it’s a net positive for the whole space and satellite theme. Once both the US and China are committed here, neither one backs off, so spending only goes up. Cheaper launches also change the economics of satellite constellations, turning a money pit into something that can actually scale. That pulls in the whole chain: launch, satellites, ground gear, and comms. We’re going to dig into satellite comms more. For now it stays on the watchlist, not the scorecard.

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1. What Changed This Week

Change 1 · Memory has topped for now

• Micron stalled at $1,250 and rolled over. The print blew past estimates, but the stock still faded on heavy volume. Good news out, no follow through. That’s the cleanest sign of a stage top.

• Money is leaving memory fast. The DRAM ETFs sold off on volume, and SK Hynix and Samsung look the same over in Korea. Foreign investors pulled more than 100 trillion won (about $65B) out of Korea in under two months.

Change 2 · The money is going into the good hyperscalers

• Skip the small-cap noise. The real place for the money leaving memory is the AI hyperscalers. Last Friday chips got hit but GOOG, MSFT and AMZN put in a bottom on volume, and today’s move in META, up on heavy volume, says the same thing.

• The logic behind it is token optimization. As more of the work runs on cheap models for the easy 80% of tasks, the value settles in the layer that charges per token, the cloud and orchestration layer, not the model layer. That’s the hyperscalers’ moat.

• What it means for us: we’re betting on a catch-up move in the hyperscalers.

2. Signal Scorecard

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1. What Changed This Week

Change 1 · Strong dollar, only tech is strong enough

• Warsh’s Fed is hawkish (no cut in 2026, an October hike still live), so the dollar stays bid. A strong dollar drains the two assets that need a weak one: gold broke $4,000 into a bear market (a three-year bull is over) and BTC got pushed back toward $62K.

• Everything that isn’t tech is on the back foot: gold, crypto, EM. Tech is the only real strength left, and even there it’s selective (Change 2).

• This is what a strong dollar does. Real rates are positive, so gold is not a haven and crypto has no liquidity tailwind. Stay short/defensive on both. Don’t fight the drain.

Change 2 · Micron proves the split: spenders fade, earners win

• Micron printed a record $41.46B in revenue, $25.11 adjusted EPS, and guided Q4 to $50B, +15% after hours. But the cleaner signal is who moved with it.

• The memory and equipment names, the ones who get paid for the capex, ripped double digits: MU +15.8%, QCOM +13%, WDC +12.5%, SanDisk +12.3%, Seagate +9.9%, ARM +7.2%, AMAT +7%, ASML +5.6%, INTC +5.4%, AMD +3.8%.

• The hyperscalers who pay for it barely moved or went red: AVGO +2%, NVDA only +0.8%, MSFT −0.0%, AMZN −0.5%, AAPL −0.8%, GOOGL −0.9%.

• That is our whole book on one screen. Long upstream, short downstream. Long hardware, short software. Long AI, short consumer. With the storage cycle re-accelerating, the split keeps going.

Change 3 · SK Hynix’s 7/10 ADR keeps Korea and memory bid

• SK Hynix pulled its US listing forward to 7/10, a ~$29.4B Nasdaq ADR (SKHY) that, at the top of the range, would be the largest ADR ever. Even through Monday’s KOSPI circuit breaker, the memory names led the bounce.

• The listing is a magnet. Expect Korea and the memory complex to stay strong over the next week or two.

Change 4 · Oil erased the war

• Brent gave back every dollar of the war, below the pre-war $72.48 and into contango; WTI broke $70 to a 3.5-month low. Iran keeps de-escalating: more Korean-flagged tankers out of Hormuz, the 60-day sell permit flowing.

2. Last Week’s Calls

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1. What Changed This Week

Change 1 · Warsh’s first FOMC was hawkish

• The Fed held at 3.50–3.75% for the fourth meeting in a row (12-0). The real news was the tone. Warsh didn’t submit his own dot, dropped forward guidance, started five working groups, and opened a review of the $6.6T balance sheet. He also ruled out touching the 2% target.

• The dots moved up. The 2026 median went from 3.4% to 3.875% (one hike implied this year), 2027 from 3.1% to 3.6%. Nine officials now see at least one hike in 2026 (six see two or more), against nine who see a hold or a cut. The committee is split. Inflation got revised up a lot (PCE 2.7% to 3.6%, core 2.7% to 3.3%) and growth got cut (GDP 2.4% to 2.2%).

• Markets took it as hawkish and now price a roughly 70–80% chance of an October hike. S&P −1.2%, Nasdaq Comp −1.3%, 2Y +16bp to 4.21%, dollar +0.7%, gold −1.9% to $4,248, BTC −2.3% to $64,301. The bigger point: Warsh is taking back the “certainty premium” the Fed has handed markets since 2008. Fewer promises, more two-way volatility. It feels like 2021 again. One caveat: this SEP was locked in around the Versailles signing, so the 3.6% PCE dot is probably already stale once you fold in this week’s oil drop (next).

Change 2 · The Versailles deal reopens Hormuz, and oil dumps

• Trump signed the deal at Versailles, effective right away (ahead of the 6/19 date). Hormuz reopens fast, Iranian crude gets an immediate sanctions waiver, and shipping is supposed to be back to pre-war levels within 30 days. Four Iran-linked ships, including two big 2M-barrel tankers, already switched their transponders on and sailed out.

• Brent broke $78, down 15% in four days (its longest losing streak this year), WTI fell to $75.46, and Cushing dropped to a 20M-barrel operating low. Cheaper oil is disinflationary, so it partly offsets the hawkish Fed. That’s why Asia could rally through it.

• Don’t over-read the peace, though. Ballistic missiles were left out, the GOP is angry (Cruz, Cassidy, Graham, Pence), and the swap is lopsided: Iran gets a lot, the US mostly gets back what it had before the war. This is a 60-day ceasefire framework, not the end of the war.

Change 3 · BOJ hikes into the same week

• The BOJ raised rates 25bp to 1.0%, the highest since 1995 (7:1 vote), and said it will stop trimming bond purchases from April 2027, with room for more (OIS sees about 54% for October). The Nikkei briefly traded above 70,000.

• The thing to watch isn’t the hike, it’s the yen. USD/JPY hit 160.75, the weakest since July 2024, even with a hike on the board. Intervention risk is rising, and the carry unwind stays on our watch list.

2. Signal Scorecard

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1. What Changed This Week

Change 1 · AI token demand may be rolling over

• The token spend index — the receipt for what the world actually pays for AI inference — doubled from December, then turned down in recent weeks. Yes, it’s one index from one vendor — but the corporate behavior below points the same way. We addressed this in our SoftBank piece: this index is where the whole $750B capex story starts.

• The demand wasn’t all real. Meta and Amazon shut down their internal token leaderboards, Uber capped AI spend after burning its full-year AI coding budget in 4 months. Part of the usage was a KPI game — and the CFOs are now checking the bill.

• Usage can keep rising while the money falls: spend = volume × price, and price is collapsing. DeepSeek charges 1/200th the price of OpenAI’s flagship, and on the largest model router, ~60% of top-model traffic already runs on Chinese open-source models.

Change 2 · CPI 4.2%

• Headline CPI hit 4.2%, the highest since 2023. Most of it is energy. The war is the inflation. But core was only +0.2%, below expectations, and real wages are falling.

• This doesn’t kill the hike story. It just hands the decision to the Fed. And remember last week’s real lesson: what hurts is the speed of repricing, not the level. One 13bp day did more damage than any fully-priced hike would.

• The next seven days are the densest event window of the year: 6/12 SpaceX debut → 6/15–16 BOJ (a hike to 1.0% is >90% priced) → 6/16–17 FOMC (Warsh’s first meeting). A hawkish surprise burns Japan and Korea. A dovish one burns the dollar — and squeezes Asia’s exporters from the appreciation side. There is no safe outcome — only a choice of what burns first.

Change 3 · SpaceX lists tomorrow

• The biggest IPO ever: ~$75B at a ~$1.8T valuation. 30% is reserved for retail (normal is ~5%). Even crypto retail is rotating into the IPO. 20+ SpaceX ETFs already filed. Schwab client cash is at the lowest since 2019.

• How to read tomorrow: pop or fade → does the buying stick → does it drain the AI-chip complex or bring new money in. Don’t trade the first print — read it.

• Bigger picture: Big Tech has flipped from buying stock back to selling it. Big-five quarterly buybacks are down 74% from the 2021 peak ($12.6B in Q4; NVIDIA’s $80B program is the lone exception), Alphabet is raising $80B+, and ~$4T of valuations (SpaceX, OpenAI, Anthropic) are queueing to list. The bid under US large caps is thinner than the index makes it look.

2. Last Week’s Calls

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The chart is the Silicon Data LLM Token Expenditure Index. Think of it as a meter for how much the world pays for AI inference. It doubled between December and May. In the past few weeks, it rolled over.

Steno’s read: if this keeps falling, the memory, hardware and datacenter trade is over for the cycle.

I think he’s right. But the chart is only the first domino. This piece walks the chain from that one line to the most levered player in the entire AI complex: SoftBank. And it explains why I don’t see a path where the AI trade keeps climbing and SoftBank stays safe at the same time.

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Change 1 · About Broadcom’s “pullback”: a value-capture fight, not an AI-demand bust

• AVGO (Broadcom) sold off after hours, but unpack it and the damage is narrower than the headline: Q3 AI-chip guidance of ~$16.0B came in below the ~$17.2B consensus — a real ~7% miss — and full-year AI chips were guided to $56B vs ~$57.6B expected. But it’s a line-item miss, not a bust: total Q3 revenue was guided above consensus (~$29.4B vs ~$28.6B), Q2 beat (revenue $22.2B, AI semis $10.8B, EPS $2.44 vs $2.39), the $110B backlog held, and CEO Hock Tan left the 2027 outlook unchanged — not cut. Against a stock that had added ~$270B of market cap in the five sessions into the print, an AI line that merely met-not-beat was enough to trigger the unwind.

• The deeper structural shift: the pressure on Broadcom’s AI line is partly a value-capture story: Google is pushing toward more in-house design + a more direct TSMC relationship (the Apple/COT playbook), and custom-silicon competition (Broadcom itself flagged rivals like Marvell) is intensifying — squeezing Broadcom toward the back-end / physical-design layer. The fight is over who captures the capex profit, not capex itself shrinking.

• Little impact on the AI-capex thesis: demand is still being added — Alphabet is raising $80B (incl. $10B from Berkshire) for AI capex, Anthropic keeps expanding TPU capacity, and Apollo / Blackstone are arranging ~$36B of debt to help fund the very chips Broadcom builds for Google. Broadcom’s networking / TPU agreement with Google runs to 2031.

• Broadcom itself: its XPU share / margin to Google is under long-term pressure, but networking / optical (Tomahawk switching, optical DSP, CPO) remains a strong growth engine — expect Broadcom to keep pushing on the optical side. Separately, CrowdStrike fell ~11% on soft Q3 revenue guidance (~$1.21B vs ~$1.23B consensus) — a company-specific guide miss, not a verdict on software broadly.

Change 2 · The mega-IPO drain season begins

• SpaceX’s largest-ever IPO, seeking ~$75B; Anthropic has confidentially filed at a ~$965B valuation; Alphabet is raising $80B for AI.

• The real risk isn’t the $75B raise itself — that number sounds manageable. The danger is overheated sentiment bidding the secondary / aftermarket valuation far too high (SpaceX has been pegged near $1.8T), trapping a pool of capital at the top that is far larger than $75B. The primary supply is just the trigger; the real drain is the market chasing the price with money that dwarfs the raise.

• The danger of a mega-IPO isn’t “how much cash it pulls out,” it’s “at what price, and how many it traps.”

Change 3 · Beyond concentration, a two-sided backdrop

• The credit leg is lighting up: Cliffwater’s private-credit fund faced 17% in redemption requests and gated Q2 at 5%; Partners Group’s Evergreen vehicle saw redemptions spike to 9.8% and also capped them.

• Geopolitics + rates: a lethal US–Iran clash near Hormuz on 6/3 pushed oil higher; US ISM manufacturing rose to 54 (its biggest jump in four years), reinforcing higher-for-longer.

• In last week’s “credit / Fed / geopolitics, two of three” framework, the credit leg is now starting to light.

2. Signal Scorecard

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From day one of the war, we kept mentioning the duration has not been priced in. Hormuz got locked down by Iran's cheap, asymmetric weapons and the global shipping insurance system. Looking back, the framework held up. Hormuz has now been effectively closed for three months straight. Our call was never "this ends fast." It was "this lingers." And that part has played out.

2. Oil, we got out at the top

We had argued early on that the chokepoint could push oil to a high level, and with hindsight we closed our position almost right at the peak of this leg. The exit, on April 29 to April 30, turned out to be a very good call.

Why didn't it go higher? Everyone started releasing oil from both strategic and commercial reserves, and the US stepped in as the supplier of last resort, which together cushioned the gap. From here, oil might still have room to run, but the risk to reward is no longer attractive. Even if it rises, the hit to the US stays limited: the US is a producer itself, and households in developed economies absorb higher prices more easily. The real pain falls on importers with thin reserves, especially the poorer ones. Economies like India, where the current account and currency are already fragile, take it on the chin first — a case we've leaned on many times in earlier work.

3. Equities and the VIX, the de-risking bias and the great AI decoupling

US households hold ~47% of financial assets in stocks, above the 2000 dot-com peak, so a falling market forces the president to walk policy back. History gives two strike prices: a VIX near 50 triggered last year's tariff climbdown, and a VIX near 30 triggered the dovish Iran turn two months ago. That de-risking bias flips at those thresholds.

AI has made the market numb to oil. Since the late-March ceasefire signals, US equities have decoupled from the shock; the chip rally and better earnings offset the energy hit, and Hormuz faded at the margin. We underestimated this.

This new era is still early. Short term, AI carries real volatility risk — stretched valuations, crowded positioning, a narrative running ahead of itself — so a pullback can come anytime. But zoom out and we're at the beginning: compute supply can't meet demand, and the build cycle for chips, power and data centers has only just started. Short term swings are noise; they don't change the direction.

The paradox is that the stronger the market, the less pressure to force a peace deal. With no market pain, the hawks sound more convincing, and the Hormuz talks keep stalling. Peace now feeds the US mostly through bonds and inflation expectations, not equities, while the hardest-hit oil importers aren't even at the table. The people paying the cost have no voice, and that's what keeps the standoff alive.

4. Gold, not a war hedge but a ticket off the dollar planet

Why did gold pull back after the war? Because war hedging was never the main driver — we laid this out in Day 22 of Hormuz: The First Crack in $39 Trillion. The real driver these past years was central banks: over a thousand tonnes of net purchases a year from 2022 to 2024, led by Poland, Turkey, India and China, motivated by de-dollarization and hedging sanctions risk. That's structural demand, not a war spike.

Gold's real role is a hedge against holding dollars itself. If the dollar ever suffers a deep, sustained devaluation, gold is one of the few tickets off the dollar planet. So it gets supported as the odds of major dollar debasement tick up from zero; there's no second currency ready to take over settlement, and gold is the vehicle for that. Short term it still swings with real rates and the dollar, but that's noise — it doesn't change the long term role.

5. Crypto, the liquidity tide is going out, but respect the cycle

The turning point was last year's 10/10: crypto liquidity dried up and no fresh money came in. Where did the money go? AI stocks became a new "crypto market" of their own, with some names even acting like meme coins, and next to that crypto lost its shine and money got pulled out.

Still, respect the cycle. This is just the old rule playing out — the bull ran too far, so now we're in a bear, and there's no need to be overly pessimistic. The bounces in bear market could still go higher. But don't kid yourself either: that doesn't mean money flows back and we're suddenly in a bull again. The next bull still has to wait for the cycle, so stay patient.

6. The next trade

The market never runs short of opportunities. For capital and individuals alike, the AI era is a once-in-a-lifetime chance. Even a bubble is often the only door an ordinary person gets to walk through: a bubble means dislocated pricing and that mess is exactly what leaves room for the people who come later. If markets were always efficient, maybe only a handful like Buffett would keep making money.

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Change 1. Geopolitics and the dollar

• Hormuz. The US hit Iranian targets. Rubio said there’s “good news.” Iran’s state TV leaked a draft deal; the White House called it a “complete fabrication.” Strike, then talk, then strike again. Like we said before, this is not something you fast-forward.

• Long-end pressure. The 30-year held near 5.07–5.18% this week, still at multi-year highs. Yardeni told the Fed in public: drop the easing bias or lose control. The 6/16 FOMC is Warsh’s first real test in the chair.

One catalyst alone still can’t break the market. You need two of three to stack up: credit, the Fed, geopolitics.

Change 2. AI capex spreads from the US to Asia

ByteDance is looking at up to $70 billion in AI capex this year. Tencent and Alibaba are also raising AI spend, though at smaller scale. Analysts now say the spending gap between US and Chinese tech giants is “smaller than the headlines suggest, and smaller still on ambition.” Same week: China tightened travel limits on its top private-sector AI talent. A two-way signal that AI is now a sovereignty story.

Change 3. The scarce-resource satellites are already running

The “scarce-resource satellite” bucket we opened last week (PLTR / SATS / ASTS) is paying off early. ASTS is up more than 50% in a single week. Scarce spectrum, assets you can’t copy, a growth path that does not need AI multiples to keep expanding.

II. Signal scorecard

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The US-China meeting came in mild, pretty much like we expected. Putin’s Beijing visit didn’t flip the table either. But 5/19 was a useful reminder. The 30-year Treasury hit 5.18%, the highest since 2007 — that’s the core signal. Gold and silver and stocks also pulled back in the same window. Then 5/20 Trump softened on Iran, 5/21 AI came roaring back, and the market mean-reverted fast.

The framework hasn’t changed. AI remains the main engine. Chasing up here could still be risky. When a real entry shows up, we’ll tell you. Meanwhile there are alternative instruments.

I. What changed this week

Change 1. Two big events passed quietly

At the airport, Trump got the VP, Han Zheng; Putin got the FM, Wang Yi. On paper Han outranks Wang. In practice the VP slot is largely ceremonial, while Wang sits in the Politburo and actually runs foreign policy. Beijing kept both sides happy without picking a favorite — and Xi’s framing of the Trump visit, a “constructive, strategic and stable relationship”, is exactly the register China wants on the Russia track too.

May 14 in Beijing: the US-China meeting was mild, as expected. No surprise. And no surprise is good news. Then on 5/19 and 5/20 Putin visited Beijing. On energy, arms, or settlement systems, nothing came out of it that would make Washington want to rewrite last week’s meeting.

A reminder, though. A few weeks out, Trump might do something weird like what happened after previous meetings with Xi. It probably won’t come from a direct US-China clash. More likely it comes from the Iran or Strait of Hormuz line. We keep watching.

Change 2. 5/19 was a useful reminder

The core of the day was the long end. The 30-year yield hit 5.18%, the highest since 2007. Gold and silver also pulled back in the same window, which tells you it wasn’t a one-asset story — long-end fiscal pressure was the through-line. Trump was threatening Iran at the same time, so the classic combo was there: stagflation worry, long-end fiscal pressure, and a geopolitical second-order kick. Then 5/20 Trump softened on Iran, 5/21 SoftBank ripped 20%, AI came back, and the tape mean-reverted fast.

Our read is simple. Macro can cause one noisy day, and 5/19 is a clean example, but a single catalyst alone doesn’t break the market. To get real damage you need at least two of three to stack up: credit, the Fed, and geopolitics. We’re not there yet.

Our long-vol tail did its job on 5/19. We’re keeping it on.

Change 3. Warsh is in, and the Fed minutes leaned hawkish

Warsh was confirmed 54 to 45 on 5/13 and took over from Powell on 5/14. His combo is to cut rates, keep QT running, push back on fiscal dominance, and rebuild the line between the Fed and Treasury. That’s not the traditional dove setup. The Apr 28-29 FOMC minutes (released 5/20) also leaned hawkish.

So the tug-of-war between the long end and AI multiples is still going. That’s the main source of noise for the next four to eight weeks. We don’t trade noise.

Change 4. Hormuz is already biting the weaker economies

Hormuz isn’t resolved, but how it spreads is already clear. It hits the weak and the poor first. The all-importers like India and Indonesia are already under pressure. The direct hit to US tech and the US economy is limited. This lines up with our INR short call from before. Position stays as is.

II. Signal scorecard

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Two hundred thousand satellites. One country. One week.

For context: the entire global active satellite fleet today sits at around 15,000 birds (with Starlink alone accounting for roughly 10,000 of them), and the US controls the overwhelming majority of LEO. China just filed for a single-month number that, on paper, would let it own the sky.

Everyone in our world is talking about AI right now, and they should be. AI is the trade of the decade. But sitting right underneath the AI conversation, almost invisible to most public-market investors, there’s a second story building that I think will end up as one of the biggest investment themes of this cycle.

That story is satellites. More precisely, it’s the spectrum and the orbital slots they sit on. They are finite. They are allocated by a UN body almost nobody reads about. And they are increasingly treated, inside every major government, as strategic national assets.

This piece is my attempt to lay out the whole landscape. How the system actually works, who’s fighting whom, which public companies have real exposure, and where I think the money eventually flows.

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The direction has been our base case for weeks: both sides will advance on several fronts — AI, trade, people-to-people exchange, mil-to-mil channels will all get touched — but no single point will see a real breakthrough. What lands on paper will mostly be “framework” and “direction,” not “checklist” and “timeline.”

Net-net, this is a mild, low-risk meeting. Not reconciliation, not loss-of-control. More like both sides resetting the table — installing a “do-not-lose-control” default for US-China relations over the next few years.

What actually matters is not the meeting itself, but the 4-8 week implementation window that begins the moment Trump’s plane lifts off. The specifics — line items, deadlines, deliverables — only land once Treasury, Commerce, USTR, and the White House push out the actual paperwork. Until then, every “super-package” the wires are floating is narrative, not price.

I · What Changed in the Last Week

Change 1 · The US–Iran war window got pushed out, not shut

The Iran line has shifted from “mutual escalation” into a holding pattern — and holding is not over; the safety isn’t off. The cleaner US–China talks resolve, the faster Washington’s bandwidth rotates back to Iran / Hormuz. So the next escalation point most likely shows up on the Iran line. Trump’s own Truth Social cadence during the implementation window is a separate, stacked variable on top of that.

Change 2 · Putin lands in Beijing right after

This is the most under-priced variable this week. As soon as the Xi-Trump handshake settles, Putin arrives in Beijing (timing not officially announced, but the Kremlin confirmed on 5/14 that preparations are complete and the visit will be “very soon”). If the joint communiqué shows visibly deeper Russia–China alignment on any single front — energy, defense procurement, or settlement infrastructure — Washington’s read of “what was that meeting last week” gets rewritten.

Change 3 · The AI Capex top debate hasn’t gone away

DeepSeek V4 — released April 24, running on Huawei Ascend — and Huawei’s CloudMatrix 384 are by now both confirmed in production. AI is also expected to be touched at this week’s talks. Two threads run in parallel: on one side, “China can run frontier models on worse hardware”; on the other, “China is still in the queue for high-end US chips.” Both true simultaneously → NVDA top + China AI supply chain top. Main thesis unchanged.

II · Signal Scorecard

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The Xi-Trump summit is priced as a non-event in last week’s ETF Compass. The S&P forward vol curve has no kink around May 14-15. FXI and ASHR — the two main China ETFs — sit at the bottom of the expensive-vol screen, meaning options on Chinese equities are as cheap as they’ve been in months. Translation: nobody is paying up to hedge this meeting. Priced clean is not the same as priced safe. The handshake has no convexity left in it — the path after does.

The base case for Thursday is the same script that’s run for nine years: chocolate cake, beautiful lines, a planeload of US CEOs, a Boeing order, an ag list, a handshake that risk assets celebrate for forty-eight hours.

But there is the other half of the trade. Per Barclays’ ETF Compass last week, SPY moved more than 1σ around four of the last five Xi-Trump face-to-faces — and the China ETFs (KWEB, FXI, ASHR) moved harder. Read it as direction, not promise: the event has been priced clean and historically traded dirty. Consensus this time isn’t wrong — it’s just being bought at zero cost. The interesting question isn’t Thursday’s handshake. It’s the four-to-eight weeks after, when the script reliably reverses. That’s where the tail sits.

Chocolate Cake, and a Thousand Reasons

April 6, 2017. Mar-a-Lago. Dinner.

Trump and Xi sit down together for the first time. Dessert: chocolate cake. Trump later told Fox it was “the most beautiful piece of chocolate cake you’ve ever seen.”

Just as Xi took his first bite, Trump leaned in and told him: we just fired 59 Tomahawks into Syria.

That’s the opening frame of US-China summit diplomacy. Sugar coating, plus steel. The sugar came from the Trump side itself: Ivanka’s five-year-old daughter Arabella Kushner, with her three-year-old brother Joseph, sang Mo Li Hua / Jasmine Flower (a traditional Chinese folk song) in Mandarin and recited the Three Character Classic (the classical Confucian primer every Chinese child grows up with) for Xi. A deliberate charm gesture from Trump’s family to his guests. The steel was the host’s: mid-dessert, Trump leaning across the table to tell Xi about 59 cruise missiles.

Nine years on. This Thursday, the upcoming Xi-Trump meeting — this time on Beijing’s turf. No Mar-a-Lago dessert table.

Five Meetings, Four Episodes. Same Playbook.

Put the opening lines and closing results of the past five summits side by side. This isn’t coincidence. This is a machine.

April 2017 | Mar-a-Lago → November 2017 | Beijing State Visit

April 2017, Mar-a-Lago. Xi opens: “We have a thousand reasons to make China-US relations work. Not a single one to break them.” Trump closes: “We’ve made tremendous progress. Our relationship is outstanding.” The 100-day action plan gets announced.

Seven months later, Trump returns to Beijing on a state visit. Xi, at the state dinner: “China-US relations face limited challenges, but boundless potential for growth.” Trump, inside the Great Hall: “I don’t blame China. Who can blame a country for taking advantage of another country for the benefit of its citizens?” An official dinner inside the Forbidden City — described at the time as the first such treatment for a foreign leader since 1949. Deliverables totaling $253.5 billion: a 300-jet Boeing order (~$37B), long-dated LNG, bulk ag purchases. Highest protocol. Full props package. The closest analog to what we’re watching this Thursday.

Then the trade war started. March 2018, Section 232 steel and aluminum. July 2018, the first $34B in China tariffs hit. May 2019, the rate on $250B of Chinese goods got jacked to 25%. Total escalation inside 14 months.

December 2018 | Buenos Aires

Trump walks out of dinner: “An amazing and productive meeting, with unlimited possibilities.” On the plane he adds: “Our relationship is incredible.”

90-day tariff truce announced.

Three days later (three, not three weeks) Trump tweets: “I am a Tariff Man.”

May 2019: tariffs jump from 10% to 25%. The rest you know.

June 2019 | Osaka G20

Xi opens with ping-pong diplomacy — the 1971 small ball that, in his words, “played a big role in moving world events.”

Trump replies: “We’re right back on track.” Pauses the $300B tariff round. Soft pass on Huawei.

Five weeks later, on August 1, the new $300B in tariffs lands. Huawei stays on the US Commerce Department’s Entity List — the export-ban list that cuts a foreign firm off from American semiconductors, software, and IP. Not one day off.

October 2025 | Busan

Xi: “We do not always see eye to eye. This is normal.”

Trump on Air Force One: “Zero to ten, ten the best. I’d give this summit a 12.”

On rare earths: “There is no road block at all on rare earth. Hopefully that will disappear from our vocabulary.”

Two months later, a US carrier group rolls into the Caribbean, pointed at Venezuela. Four months later, the Iran war breaks out and Hormuz goes functionally dark. Stated reason: counter-narcotics, counter-terror. Real effect: two of China’s energy anchors squeezed at the same time, one in Latin America and one in the Middle East. Whether or not Washington calls it containment, the chessboard reads the same way.

After “12 out of 10”

Busan was late October 2025. Inside four months: US naval forces enter the Caribbean in December under a “counter-narcotics” banner, aimed at Venezuela. February 2026, war on Iran. Hormuz functionally closed. March 2026, Venezuelan crude exports effectively shut in.

Venezuela ships China roughly 400,000 barrels a day of heavy crude — about 4-5% of Chinese seaborne imports, most of it disguised in customs data as Brazilian or Malaysian — and is Beijing’s single largest oil-and-debt exposure in Latin America. Iran, once you re-attribute the so-called “Malaysian” barrels (Malaysia ships China roughly twice as much crude as it actually produces), is among China’s three biggest crude suppliers, the Middle East anchor of the Belt and Road, and a key node for yuan-denominated oil settlement. Together they’re roughly 15% of China’s real crude imports. But the real weight isn’t in the barrels.

Put those two moves side by side. Hit Iran, and you cut China’s Middle East anchor. Squeeze Venezuela, and you cut China’s Latin America exposure. This is one chessboard. The game isn’t over.

But there’s a reversal no one fully priced: the war meant to pressure China has also constrained Washington. When you are the co-belligerent in a Middle East conflict, energy markets are rattled, and your own Court of International Trade — the federal court that adjudicates tariff disputes — just shook the legal foundation of your current tariff workaround (even if the tariffs themselves haven’t disappeared yet), you walk into Beijing needing stability as much as your counterpart does. Trump arrives in China with a thinner hand than he had in Busan. Xi knows it. That’s what “emboldened” looks like — not louder, just more patient.

Beijing Understands the Game

Five handshakes in, China’s leadership has finished a full cognitive cycle on Trump.

2017 China: treat him as a new president. Full charm offensive in return. “A thousand reasons.” State visit invite. Forbidden City state dinner. $253.5 billion in deliverables.

2018-2019 China: start to realize the man reverses course the moment he lands back home. A “commitment” to him isn’t political credit. It’s marketing content. The line circulating quietly in Beijing’s diplomatic circle back then: the better the meeting with Trump, the harder the crash after.

2025 Busan China: Xi’s line, “We do not always see eye to eye. This is normal”, was not diplomatic boilerplate. It was a categorical statement. Translation: I have accepted that you will renege, and we will still talk. That sentence has never come out of China’s top leader’s mouth before.

2026 May China: complete mental shift. The goal isn’t to build the relationship. The goal is managing uncertainty.

Beijing’s own flagship mouthpiece confirmed the frame this morning. A long-form People’s Daily front-page commentary on the morning of May 13, signed by Guo Jiping (the paper’s house pen-name reserved for major foreign-policy set-pieces, distinct from the more frequent Zhong Sheng column), ran under the headline: “US-China relations cannot return to the past — but can have a better future.” That’s not boosterism. That’s managed expectations at official register. The line buried mid-text: “dialogue is better than confrontation, cooperation is better than zero-sum, stability is better than chaos.” Three comparisons, in descending order of ambition. Published to a domestic audience, on the morning of the summit. Beijing almost never runs expectation management in public before a summit. This time it did.

Trump’s strongest asset was never tariffs. It’s unpredictability. That is the one variable no counterparty who treats commitment as political credit can hedge. Beijing has now internalized that variable into its own reaction function. The internal framing of this summit is defensive.

So What Is Beijing Actually Doing This Week

If you accept the premise that Beijing no longer believes Trump, every visual symbol of this summit reassembles.

The potential 500-jet Boeing order and the ag purchase list. This isn’t really “a public stake Trump can’t walk away from.” Given his style, he can pivot any time and blame China. The order doesn’t lock him in. He won’t even pretend to care. But it is a deal that fits Beijing’s diplomatic profile: quantifiable purchases, traded for controllable stability. If what the US side wants right now is tariff de-escalation and a posture of “winning,” this is a price Beijing will pay, and they’ll happily hand Trump the off-ramp. Short of a full surface blow-up, this kind of shopping list has never been a real problem for China.

Beijing even pre-loaded Trump’s victory narrative. Xi first offered that framing at Busan; People’s Daily put it back on the front page on the morning of the summit: “China’s development and Trump’s ‘Make America Great Again’ are not mutually exclusive — China and the US can fully achieve mutual success and shared prosperity.” That sentence isn’t a concession. It’s a face-saving ramp, built in advance, so Trump can walk away claiming a win without Beijing giving up anything structural. The other side of the table has stopped being a counterparty. It’s become a co-author of Trump’s press release.

Musk, Cook, Fink, Fraser, Ortberg in tow. These CEOs are US capital’s dependence on the China market, in human form. Beijing inviting them in puts “we still want to do business” on the table in plain view.

But one thing has to be clear. The price tag here only buys “stability in trade and tariffs.” It does not come close to buying “China cooperating with the US on Iran.” China’s position on Iran is strategic. Energy. Geopolitics. Yuan-based oil settlement. None of that gets traded away for a Boeing order. If Washington actually wanted China to lean on Tehran in a decisive way, the corresponding ask back would have to be the things China has wanted for years and the US has refused to give. Chips. Real loosening of export controls. A defined boundary on Taiwan. None of those are on the table right now.

On top of that, after the US Court of International Trade’s May 7 ruling, the legal foundation of the tariff tool itself is shaky. The US hand is getting thinner. What Beijing is willing to give right now is a courtesy. What Beijing won’t give, the US doesn’t have the cards to force.

Xi pre-saying it himself: “We often don’t see eye to eye, and that’s normal.” That’s expectation management, delivered ahead of the room. Don’t romanticize this summit, in markets or at home. Before a summit, Beijing only ever puts out positive talking points. Not this time.

Putin lands in Beijing next week. Days after Trump leaves, Putin arrives. This is for Trump’s benefit: whether you show up or not, the other side of the line is already there.

The whole event has stopped being a negotiation. It’s a risk management ritual.

What’s Likely to Be Announced Thursday

Washington’s wish list has been summarized in five words by a CSIS senior adviser: Boeings, Beans, Beef, Board of Trade, Board of Investment. Three are purchases. Two are committees. Note which category is missing: enforcement.

Likely deliverables: a 737 Max order that could run as high as 500 jets. An ag purchase list (soy, pork, beef, poultry). A 12-month rare earth export extension. A counter-narcotics framework (officially packaged as fentanyl cooperation) — both sides already announced a cross-border drug network takedown days before the meeting, and the US extradited a fugitive to China, giving both governments a zero-cost win to attach their names to. Something called a “US-China Trade Commission,” a quasi-cabinet-level working group designed to handle trade issues without touching national security questions — i.e., a mechanism for kicking every hard problem six months down the road. (The US Trade Representative already pre-downplayed it before Trump landed.)

Unlikely to be structurally resolved: a real pause on Taiwan arms sales. Any substantive loosening of AI chip export controls. Any Chinese concession on Iran. A reopening pathway for Venezuelan oil.

Both sides will smile. Markets will rip. Trump will say “13 out of 10.” Xi will say “China-US relations enter a new phase.”

And then.

The Tail: Where the Cheap Hedge Sits

This is the part the non-event pricing leaves on the table. Not a forecast. Just an observation about where the asymmetry lives.

If the last five summits are any guide, the first crack tends to land four to eight weeks after the handshake — usually on Trump’s Truth Social. The form is familiar: “China is not following through on agricultural purchases,” or “China is helping Iran rebuild.” Then the toolkit comes out.

What’s different this round is the toolkit itself. Per The New York Times, the US Court of International Trade ruled that Trump’s 10% global tariff on most imports is illegal. His space to launch a trade war without explicit Congressional authorization has shrunk.

So if the script does reverse, it probably won’t use tariffs. It will reach for the dirtier stuff:

• Entity List additions — Commerce Department export bans on specific Chinese firms (the Huawei treatment)

• SDN sanctions — Treasury’s Specially Designated Nationals list, the harshest financial sanction the US issues; cuts a name out of the dollar system entirely

• Tightened chip and semiconductor export controls

• Secondary sanctions on Chinese refiners buying Iranian or Venezuelan crude

Tariffs are blunt. These are scalpels. The market is numb to the first. It has not really priced the second.

And this time, Beijing won’t pretend to be surprised. The reaction function is already loaded — rare earth export quotas snap tighter, a US company in China suddenly walks into an antitrust review, the Putin visit gets upgraded. All pre-staged.

None of this needs to happen. The base case is still that Thursday is theater and the weeks after are quiet enough. The point is just that the tail isn’t expensive right now, and five handshakes of history suggest it’s worth keeping a line on.

Closing

When Trump lifted that chocolate cake at Mar-a-Lago in 2017, the market thought it was the beginning. Nine years later, we can see it was just page one of the script.

Every China-US summit, the market re-prices “political credit.” Every re-pricing turns out to be wrong.

Because political credit, in this relationship, has never existed.

This Thursday, you’ll see a beautiful handshake. You’ll hear beautiful lines. Markets will rip. CEOs will smile. The planes will be announced.

The meeting is the relief trade. The post-meeting implementation window is the risk.

Enjoy it. Just don’t hold it.

The market is right that Thursday is a non-event. The cheap question is what shows up four weeks after.

Garrett’s Signal · May 2026 · Xi-Trump Series #1

No news. No noise. Just signal.

5/4 weekend we pushed the Project Freedom tactical note out ahead of everyone. Three hours later, shots were fired. Both sides pulled back. Nobody really swung. But pause is not cancel. After Trump-Xi (5/14-15), that military window can reopen any time. This is not the start of good news. This is real escalation deferred, not removed.

Those two are how we are reading the world this week. The exit was right. The warning is not done. What follows: how the fake peace is being painted, and how much the cracks underneath widened in just one week.

The Whitewashed Truce

This week’s tape wants you to relax. Don’t.

Up top, everything looks fine. Saudi-Iran’s 14-point MOU got signed. Trump-Xi is on for 5/14. AAPL guided Q3 +14-17%, way past the 9.5% the street wanted. AMD data center hit $5.8B in Q1, an all-time high. Q2 total revenue guided to $11.2B. Three big cloud names came in +20-28% YoY. KOSPI and KOSDAQ both at fresh highs. BTC quietly walked up to the $82-83K door. Risk-on, music playing.

Underneath, it’s a different picture. Credit is starting to limp. Qualtrics has a $5.3B deal that no one will take. Spirit Airlines went bankrupt. HSBC added more reserves on the Iran war. Bloomberg’s credit weekly is flagging Aegon and Barclays. China just upgraded its anti-blocking law and sent Wang Yi to lean on Iran in person. That’s both hands on the table now: one on demand, one on the chokepoint. The War Powers clock is a week past expiry. The Pentagon blacklist added Tencent and CATL. Berkshire’s cash pile hit $397B, a record. Greg Abel’s first quarter as CEO, same playbook as Buffett. DeepSeek V4 is real. Huawei’s CloudMatrix 384 is running. Chinese domestic substitution is not a slide deck anymore.

Our read: a fake peace can be painted, and it gets painted right up until it can’t be. Late May is a potential breaking point, but we don’t pin a date. If AAPL, AMD, and SK Hynix keep printing, the music can run all the way to Mag7 Q2 around late July, and the breaking point gets pushed 4-6 weeks. The cracks underneath are widening, and the breaking point isn’t here yet. Pause is not cancel. After Trump-Xi, the war window can reopen. That’s the real escalation.

II · What Changed This Week

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Markets read it as de-escalation. Brent opened down 2.4% before fading back to $108. SPX is printing all-time highs. Asia is waking up to “geopolitics is over” headlines.

Read it again. Slowly.

This isn’t a Navy escort. Per WSJ and Axios, U.S. warships will sit in the vicinity — not alongside the tankers — ready to respond if Iran’s military targets shipping. The Navy already declined direct Hormuz escort requests back in March, citing risk. What Trump rolled out Sunday is a softer architecture: coordination, DFC insurance, recommended lanes, warships standing by.

It’s the 1987–88 playbook. When the U.S. reflagged Kuwaiti tankers during the Iran-Iraq War, Iran mined the waterway. The USS Samuel B. Roberts hit a mine. The American response was Operation Praying Mantis — half of Iran’s surface fleet sunk or crippled in a single day.

“Project Freedom” puts Iran in the same box. Let the ships pass and concede Hormuz leverage. Disrupt them and hand Trump the casus belli he doesn’t currently have.

And here’s the part to write down. Hours after the announcement, UKMTO confirmed a tanker took “unknown projectiles” 78 nautical miles north of Fujairah. Crew safe. The vessel and the attacker haven’t been identified yet.

That’s the exact type of incident this framework was built to respond to.

Markets see this as the war winding down. I see it as the fuse getting lit.

What follows are five things — none of them a smoking gun on its own — that have been quietly stacking around that fuse for two weeks. Together they explain why this is the wrong week to be comfortable.

What’s Already Stacked Around the Fuse

1. Iran’s storage tank is filling

Kpler’s April 27 report put it bluntly: Iran has 12 to 22 days of storage left. Bessent confirmed it on the 30th — Kharg Island is “approaching saturation.”

Once Iran is forced to shut in production, the U.S. window for the “best strike” closes too. Bombing a country that’s already not pumping doesn’t hurt it the way bombing one that is does.

The optimal strike window isn’t after the tanks are full. It’s before.

We’re in the front half of that window right now.

The bull case for Project Freedom: if storage truly maxes out, Iran loses the day-to-day leverage of oil flows and might let ships pass just to relieve domestic pressure. Possible. But it doesn’t relieve the strike window’s expiration — and the political calendar doesn’t wait for storage math.

2. The Pentagon is in attack posture

Count what’s already moved into theater:

• A 4,500-person Amphibious Ready Group, arriving in early May

• Carrier Ford — longest deployment since Vietnam, overdue for maintenance

• Carrier Bush — rotating in mid-month. The two-week overlap is when U.S. firepower in the Gulf peaks.

• CENTCOM’s Cooper has briefed Trump on a “short, sharp” strike package

• Dark Eagle hypersonics under consideration for first-ever Middle East deployment

You don’t move that much steel for a routine cruise. You move it when somebody might pull the trigger.

3. Hegseth invented a war power that doesn’t exist

April 30, Senate Armed Services Committee. The 60-day War Powers Act clock was about to expire on the Iran war.

Hegseth’s testimony, paraphrased: the clock pauses during a ceasefire. Legal scholars pointed out, in real time, that the WPR has no such provision. He made it up on the stand.

But here’s what actually matters: a withdrawal resolution failed the same day. A handful of Republicans broke ranks. Not enough.

So the executive branch now has, in effect, a fresh 60-day immunity coupon. If Trump restarts strikes, Congress would need to pass another binding resolution to stop him — and they just failed to pass one with active hostilities still running.

The legal guardrail people assumed existed? Doesn’t.

4. The political window isn’t opening. It’s closing

Trump lands in Beijing on May 14–15 to meet Xi. He cannot strike during that visit.

So the path forks two ways: hit before he leaves, or hit after he gets back.

“After” means walking into Beijing carrying three months of unresolved Iran on his face. For a president who treats every meeting as a leverage exercise, showing up empty-handed is unthinkable. Striking first — and showing up two days later as the guy who just demonstrated resolve — is the opposite.

The political value of a strike on May 9 is larger than the military value of a strike on May 9.

5. Iran just slammed the diplomatic door

April 30. Iran’s Supreme Leader, Mojtaba Khamenei — who took the seat after his father was killed in March — gave his first public address since the succession.

The message, stripped of ceremony: we keep the nukes. We keep the missiles. We keep Hormuz.

Tehran’s 14-point proposal is now in the open: lift the blockade, withdraw U.S. forces, end sanctions, pay reparations — then we’ll talk. Trump’s reply was one word: “unacceptable.”

There’s no diplomatic ramp this week. There’s barely a hallway.

Five conditions stacked. The fuse was lit Sunday night.

Not a prediction. Just the signal. Stay cautious. Stay hedged.

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Garrett’s Signal · Tactical Note ·

No news. No noise. Just signal.

Three things this week: ① Keep trimming duration. ② Build the Long Vol tail (25% of planned size) now. It covers gap events (airstrike, credit, liquidity) that the slow triggers can't catch in time. ③ Write out the trigger plan for the main 75% (currently zero).

Strategy count is a cost. This week we subtract.

I. Where We Are | Coordinates

II. Phase | From “Deploy” to “Prepare”

Current phase: long commodities is the core. Light net short on equity. China Compute sits as conditional risk-on. The biggest unhedged risk is a gap event from military escalation. That’s exactly what the new 25% Long Vol tail covers. Once the Long Vol main triggers, the book pivots to defense by itself.

Last phase (4/16–4/29): main trade was long crude duration. It paid. Brent $90 → $126. Trimmed on 4/29. Curve steepener under review. This phase (from 4/30): trim. Lock direction. Sit on our hands. Next-phase themes (Compute, China, hedge for the knock-on) are directionally clear. Timing isn’t. This week we build the Long Vol tail (25%) for gap events. Main 75% stays at 0. Wait for triggers. Switch signals (any two triggers → start Long Vol main 75% build + reassess Compute Stack): ① VVIX over 95 for 3 days running (vol of vol loosens first). ② SPX skew (SDEX / 25-delta put) steepens hard (long-dated protection bid up). ③ HY-IG dispersion widens (credit loosens inside first). ④ NDX/RSP rolls over from highs (breadth weakens first). ⑤ Compute dispersion spikes.

Our read: we don’t know yet if the music’s still playing. We watch. One side: CTAs still bid, first earnings wave strong (GOOGL, AMZN), Fed sitting through June. Risk assets can extend. Other side: Fed 8:4 hawk-locked, 10Y 4.41%, Brent $126. Margin compression is already biting. Both paths are real. Don’t over-allocate to either. Wait for triggers. Mid-May to early June is structurally fragile (CPI knock-on + FOMC). We don’t assume that has to be the inflection.

My lean (not a base case): music probably runs another 2–4 weeks before the real damage hits. This is a lean for what to watch. Not what to size. Not when to time.

III. NEW DEVELOPMENTS | Probability Shifts This Week

Below are the probability shifts from this week’s news that reposition the framework.

IV. Signal Scorecard — Apr 30

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Hormuz is still functionally closed. Brent has gone from just above $70 pre-war to above $113 today. Physical Dated Brent printed as high as $144 in early April. The UAE just announced its exit from OPEC effective May 1. And per a WSJ report, Trump is now positioning the U.S. Navy’s blockade of the Strait as a long-term, deliberate strategy.

Time to sit down and run through the past two months, and our long-crude trade, the highest-conviction position we've sized into since the war started.

I. What We Got Right

1) Hormuz Has No Solution

This was the earliest, and clearest, line we put down once the war started.

Late February, early March: the market was still pricing oil on a one- to two-week Hormuz disruption. Sell-side models were still running the standard “short-term event shock” playbook. We took the opposite view: this thing has no short-term solution. Not because Iran is strong, but because what’s closing the Strait isn’t the Iranian navy. It’s “Iran’s asymmetric arsenal × the global maritime insurance system.” Air strikes don’t reopen it. Press releases don’t reopen it. A unilateral “we’re open” statement doesn’t reopen it.

On March 9, we put this view at the top of Hormuz Is the Real Battlefield: the market got the duration of the shock wrong, not the magnitude. Seven weeks later, that line has held. Hormuz is still closed today.

2) Crude Duration Was Severely Underpriced, Especially the Back End

The second call, validated over and over the past two months: the long end of the crude curve was extremely underpriced.

Our thesis from day one was duration. No short-term solution: the back end has to be wrong. So we started in the front month, but most of the work after that was bottom-fishing the back end at low levels, over and over. Every time the curve flattened, every time the back end got pushed back down, we treated it as another cheap chance to add. Long the back end, arb the curve. Repeatedly.

3) Even After “Hormuz Reopens” Rumors, We Kept Adding

April was full of “Hormuz is about to reopen” rumors. The April 8 ceasefire, and the April 17 unilateral declaration from Iran’s foreign minister that the Strait was “fully open” (falsified the same weekend by the renewed closure on April 18 and several vessels U-turning in front of the Strait). Every time, the market hammered the back end back to the floor.

We didn’t cut. Reason: none of those rumors touched the core of the problem. The Strait is closed by the insurance system, not by a press release. P&I clubs need weeks to months of continuous, safe transit history before they re-underwrite. Until that changes, Hormuz is closed, and the back end is wrong.

II. What We Got Wrong: Boots on the Ground

When we wrote Boots on the Ground. in late March / early April, the core call was this: long-term, for the dollar, for U.S. hegemony, for the entire U.S. alliance system in the Middle East, a ground operation was actually the most favorable outcome. Yes, expensive. But it would deliver a one-shot, decisive resolution to the Iran problem, and a structural relock of Hormuz as a U.S.-controlled chokepoint.

That’s not the road the U.S. took. It picked another. Possibly the right one in the short term: cheaper, more politically manageable, but with potentially deeper long-run consequences.

But to be clear: this doesn’t change the trade itself. Our trade thesis was never “the U.S. will send ground troops.” It was “Hormuz has no short-term solution.” Ground operation, long blockade, indefinite stalemate: none of these three paths reopens the Strait in the short term. The fact that the back end was underpriced holds under all three.

III. The Stress Test of April 17

The standout day of these two months: April 17. Iran announced that night Hormuz was “fully open.” Brent fell roughly –11% intraday, from around $99 to $88. Sell-side desks calling “$130 oil” the night before flipped overnight to “war over, oil heading to $70.” Long-crude hedge funds were liquidated en masse again, and CTA models went short across the board.

Though strictly speaking, the real “everyone wiped out” day was the April 8 ceasefire. WTI –15% on the day (per Bloomberg, the largest single-day drop in nearly six years), Brent –16%. That session cleaned out the speculative WTI longs that had been chasing the rally for weeks. April 17 took out the next batch: the WTI longs who, after April 8, had bought the dip and bet “this time it’s really over.”

That night I replied the “don’t Panic Sell” tweet on X:

Same argument we’d been making for six weeks: trade the duration, not the headlines. A unilateral statement out of Tehran can’t reopen a Strait that’s been functionally closed by “Iran’s asymmetric arsenal × the global maritime insurance system.” Insurers don’t go back to a war zone on a press release. Until that changes, whatever Iran says, the Strait is closed.

The week after:

• Brent rallied for seven straight sessions, back above $110+

• Marine insurance for Gulf-routed VLCCs didn’t normalize

• Actual transits through Hormuz barely moved

• And the back end of the curve started printing new highs for this war cycle

April 17 was the cleanest stress test this framework has had. The framework held.

IV. The Back End Is Catching Up

1. The pre-war curve was flat. From October 2025 through mid-February 2026, Jul / Aug / Sep ‘26 are basically one line. The market priced the duration risk premium across a 3-month window at zero.

2. Post-war, the curve fans out, in deep backwardation. A $10 spread across a 3-month window is roughly 5–10x normal.

3. At the far right, even the September contract is making new highs. The back end is catching up to the front. Five months from spot is no longer being treated as “post-war normal.” The market is pricing the war into Q3.

V. WTI vs. Brent: The Price Relationship Is Back

One detail from these two months that really matters when you’re picking the instrument: WTI is the speculative vehicle. Brent is the truer transmission of physical reality. And do not trade CL on crypto exchanges if you trade with size. We’ve pointed out on X why the design is broken; in any market with material futures spreads, it’s effectively untradeable for size.

At several points between March and early April, WTI traded above Brent across multiple parts of the curve. A relationship that should normally run $1–3 the other way flipped into a structural inversion. The mechanism is clear:

• Hedge funds wanting to be long crude during the war piled into WTI, not Brent. WTI has deeper U.S.-domestic liquidity, easier retail futures access, and sits better in prime broker workflows.

• WTI is a U.S. inland benchmark. Its direct exposure to Hormuz is smaller than Brent’s. The money flowing in is pure positioning, not physical demand.

• So when ceasefire scares hit (April 8, April 17), the speculative WTI longs were the first to get squeezed. April 8’s –15% single-day move was the real choke point for that wave of WTI specs; April 17 took out the next round. After each crash, WTI clearly underperformed Brent on the rebound. That’s the cleanest evidence we have that WTI was being driven by the news cycle these past six weeks.

This week, Brent’s normal premium over WTI is reasserting itself, which in our model means the market is back to trading geopolitics.

And this spread still has room to go. WTI’s speculative premium is still bleeding out, and Brent’s backwardation is still mean-reverting.

VI. From War to Stalemate

Aside from UAE, the other big story this week: per a WSJ report, Trump is positioning the U.S. Navy’s long-term blockade of Hormuz as a deliberate strategy. Not a transitional posture. A permanent one. The logic he’s pitching: a closed Strait is a cheaper way to pressure Tehran than further escalation.

This is what we meant earlier by “the U.S. chose another path.” It doesn’t end the war. It changes the war’s shape.

It looks more like a war in a stalemate phase: no ceasefire, no resolution, no further escalation, but both sides quietly transferring costs to each other under the table, weaponizing time itself. Strait stays closed. Floor under oil prices is permanently lifted. Duration premium is permanently stretched.

For the curve: the front month doesn’t unwind quickly, and the back end has to keep climbing to catch up.

VII. OPEC / UAE Sidebar

This week’s headline: UAE will exit OPEC effective May 1. The full strategic implications go in a separate note. This is the biggest cartel-level fracture in fifty years, and this time it really is different. But for this review, only one question matters: what’s the short-term price impact?

Short-term: close to zero. Medium-term: this is the single most important downside catalyst on the curve.

Why short-term is zero: even if UAE goes flat-out from May 1, the extra barrels still have to get out of the Gulf. UAE has only one major route bypassing Hormuz, the Habshan–Fujairah pipeline, capacity around 1.5 mb/d. That pipeline is already running near full. With the Strait closed, UAE’s marginal output is structurally walled off behind that pipe. As long as Hormuz stays closed, UAE’s OPEC exit is a political event, not a physical event.

Why medium-term it matters: the moment the Strait reopens, what walks out of UAE is a world of zero quota, zero discipline, ADNOC publicly targeting 5 mb/d of capacity. That pool of latent supply is laying the groundwork for a Saudi–Abu Dhabi market-share war the curve hasn’t begun to price.

VIII. Positioning: Starting to Wind Down

Our view on Hormuz hasn’t changed. This is a long, stalemate-phase event, and the Strait isn’t reopening any time soon. But we have to admit: the crude trade is getting boring. The bulk of the duration premium we argued was warranted has now been priced in. The back end is catching up. Brent–WTI is mean-reverting. From here, we’ll be winding the trade down gradually rather than adding.

But the next trade actually worth the effort isn’t in crude anymore.

The most interesting trade over the next month should be the transmission effects of crude. Once $100+ oil sustains, the market has to start clearly pricing it into the inflation path, into central-bank reaction functions, into the rate curve, into the margin squeeze across different sectors. That’s where the real second act of this war starts. We’ll lay it out separately in upcoming Weekly Signal Playbook notes; won’t unpack it here.

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Yesterday’s issue — The Music Is Still Playing — laid out a simple observation: risk assets are at all-time highs, CTAs are pouring record capital into equities, and early Q1 earnings look strong. The music is loud. The dance floor is packed.

But we also pointed out something uncomfortable: the assumptions behind this rally — Hormuz reopens, oil falls back, inflation cools, the Fed cuts — show no signs of coming true. Brent back about $100. The strait is under a two-way blockade. Trump unilaterally extended the ceasefire on Tuesday — indefinitely, until Iran submits a “unified proposal.” Iran rejected the terms. Both blockades remain in place. And on Thursday, the IRGC fired on three vessels and seized two of them in the strait, as if no ceasefire existed at all.

The music is still playing. And momentum is a powerful thing — rallies driven by mechanical flows and sentiment tend to persist longer than fundamentals justify. The music doesn’t stop until it stops. But the question that matters is when.

This week, five separate fault lines came into sharper focus — each running on its own timeline, each largely invisible to the equity market. And for the first time since this war began, we believe a plausible first window for the music to stop has emerged.

The Rally’s Foundation

Let’s be honest about what’s driving this market.

The S&P 500 is at a record high. The Nasdaq just posted its longest winning streak since 1992. Mag 7 stocks have bounced 20% from their March lows. Goldman Prime data shows CTAs deploying capital at the fastest pace ever recorded. If you’re long, it feels great.

But zoom out one click:

• The rally has no breadth. Equal-weight S&P 500 has not confirmed the new high. This means a handful of mega-cap names are doing all the heavy lifting. When breadth is this narrow, any reversal tends to be violent — because there’s no second line of defense.

• The rally was born from a short squeeze, not conviction. In March, Goldman reported short-selling outpacing long-buying at a 7.6:1 ratio — the fastest global net selling in 13 years. When the ceasefire headline dropped, the “most shorted” basket surged 7.1% in a single day. The rally began as forced covering, not fundamental buying.

• Forward earnings optimism is at 2021 levels. The spread between forward EPS and trailing EPS has reached the same peak that preceded the 2022 bear market. Not a timing signal, but a fragility signal — when expectations are this stretched, any disappointment gets amplified.

None of this means the rally can’t continue. It can. Momentum is powerful. But it means the foundation is narrow, mechanical, and sentiment-driven — exactly the kind of setup where an external shock doesn’t get absorbed. It gets amplified.

Five Threads, One Question

So what could stop the music?

Not earnings — those are fine for now. Not the war headlines — the market has been pricing those out for weeks. Not a single dramatic event.

What could stop the music is plumbing — the invisible infrastructure that keeps the financial system’s daily operations running. And right now, five separate stress points in that plumbing are all running hot:

1. The repo market — America’s financial water pipes — is showing the highest stress readings in 8 years

2. Private credit funds — a $2 trillion market — are hitting redemption gates, and the next quarterly window opens in days

3. The biggest dealers on Wall Street just lost serious money and are pulling back from market-making

4. Systematic trend-followers have piled into the most crowded long position on record — and their sell triggers are clustered at the same price levels

5. The Fed — the traditional backstop for all of the above — has its hands tied by $100 oil and wartime inflation

Each of these is a story on its own. Together, they form a potential chain reaction. The music will stop eventually — it always does. The question is when, and what lights the fuse.

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Updated Apr 23. Markets are pricing peace. Oil is repricing. Bonds are siding with oil.

The Music Is Still Playing

Brent crude is at $103 today. The S&P 500 is at an all-time high.

Just weeks ago, hedge funds were aggressively shorting everything. Goldman Prime Brokerage data showed short-selling outpacing long-buying at a 7.6:1 ratio in March — the fastest global net selling in 13 years. Citi reported institutional short interest on S&P 500 names at a three-year high. Jefferies flagged record short share counts across US-listed ETFs.

Then the ceasefire headline dropped. Goldman’s “most shorted” basket of 50 stocks surged 7.1% in a single day — more than double the S&P’s move. This was an epic short squeeze, not a conviction bid. Sentiment flipped from extreme fear to extreme greed in a matter of days.

Now CTAs (trend-following funds that trade based on price momentum models) are pouring record capital into US equities. The Mag 7 have bounced 20% from their March 30 lows. The Nasdaq just posted its longest winning streak since 1992. Early Q1 earnings are strong. There are plenty of reasons for the music to keep playing.

But the assumptions behind this rally — Hormuz reopens, oil falls back, inflation cools, the Fed cuts — show no signs of coming true.

The orange area shows the spread between S&P 500 forward EPS (next-12-month expected earnings) and trailing EPS (past-12-month actual). A wider gap = greater optimism about future earnings growth. This spread has now reached its 2021 peak — last time, the 2022 bear market followed. Not a prediction, but a signal: when optimism is at extremes, the snapback when expectations roll over tends to be proportionally severe.

Oil and War

Last weekend’s 48-hour farce was a perfect illustration of why Hormuz has no solution.

April 17 (Friday): Iran announced Hormuz was “completely open.” Brent crashed 9% to ~$90. Markets celebrated.

April 18 (Saturday): Less than 24 hours later, the IRGC opened fire on tankers and broadcast “any vessel will be destroyed.” At least 9 tankers made U-turns. The strait shut again.

April 20 (Monday): The US seized an Iranian cargo ship. Brent +8%.

April 22 (Wednesday): The ceasefire expired. Vance cancelled his Pakistan trip. Trump unilaterally extended the ceasefire. Iran’s response: unclear.

April 23 (Thursday — today): Iran’s IRGC fired on three vessels in the strait and seized two of them. A two-way blockade is now in effect: the US blocks Iranian ships, Iran blocks everyone else. Brent is back at $103.

This is not a surprise. It is what Hormuz looks like. As we argued weeks ago in Hormuz Is the Battlefield : the strait isn’t closed by a physical wall. It’s closed by the deadly combination of Iran’s cheap asymmetric weapons and the rational retreat of the global shipping insurance system. The irreplaceable supply gap of 14–16 mb/d (net disruption out of ~20 mb/d total strait transit, after shadow fleet flows and alternative routing) is the largest energy disruption in human history.

Even if a ceasefire is signed tomorrow, supply cannot recover quickly. Insurance rebuilds and shipping restarts alone take weeks — we’ve been making this point since issue one; regular readers know the drill. But here’s the part the market is still underpricing: seven weeks of war have caused massive physical destruction to energy infrastructure. Israel bombed South Pars (Iran’s largest gas field). Iran’s retaliatory strikes hit Qatar’s Ras Laffan LNG hub, UAE aluminum smelters, Kuwaiti tankers, and port facilities across the Gulf. These aren’t valves you turn back on. They need to be rebuilt, repaired, and recommissioned — on timelines measured in months, sometimes years. Even if the strait reopens, physical production capacity will lag far behind shipping recovery. The supply that’s been lost is gone.

Hormuz has no solution. Duration will catch up. Commodity traders booked $20–30 per barrel in Q1 profit — normal levels are measured in cents. That number alone is the most direct proof of the duration thesis. $103 is not “high.” Dated Brent (the spot price for actual physical cargoes, as opposed to futures contracts) hit $144 in early April. Futures are being artificially suppressed $15–20 by financial markets pricing in peace that doesn’t exist. Below is a chart showing different oil prices as settlement on April 15th.

Note the ~$17 gap between Dated Brent (physical delivery, $116.45) and Brent financial (futures, $99.39) — direct evidence that futures are being suppressed $15–20 by peace expectations, as argued above. North American crude (WTI Cushing $87.77, WCS $72.70) trades far below international physical prices, explaining why the US domestic economy absorbs less damage than Europe or Asia.

Core View This Week

The music is still playing.

The gap between physical markets and financial markets has hit its widest level since the war began. Oil is starting to price in a blockade that could last months. Risk assets are pricing a world where Hormuz reopens in two weeks.

White line: Brent crude (left axis). Orange line: MSCI World 12-month forward EPS (right axis). The gray shaded area marks the three months after Russia invaded Ukraine — oil surged and global earnings expectations were revised sharply lower (the “2022 playbook”). This time, AI-driven EPS keeps climbing despite oil at $103. The market is betting it’s different. This chart poses the issue’s central question: is it really?

The rally in risk assets is real, but its foundation is not. The CTA mechanical bid, the “valuations are cheap” excuse, the ceasefire illusion — these are all reasons the music keeps playing. None of them are reasons it won’t stop. The market is in a classic game of musical chairs: everyone knows the premise is fragile, but everyone believes they can get out before the music stops.

Hormuz has no solution. Last weekend’s 48-hour circus — open, fire, shut again — isn’t an accident. It’s the defining feature of this crisis. Even with a ceasefire, insurance rebuilds take 6–8 weeks minimum (per Hapag-Lloyd CEO), shipping recovery takes longer still, and the supply already lost is gone for good. Duration is not a risk. It is the only certain variable.

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