Taco’s final call?

Are tacos traded?

Over the weekend, US bombing of Iran’s nuclear facilities declared that the concept of tacos (“always chickens”) was no longer true or never. Some of these people weren’t fans of my work, they were saying what I meant on the internet about. Others declared that the acronym was involved in Trump’s decision to actually drop the bomb. The latter comments ranged from jokes to half the jokes and not joking.

First, get rid of the second point. I don’t believe it. If I hadn’t produced tacos, the war would have unfolded in the same way. At best, “tacos” have been handy labelled to real phenomena that everyone had noticed. The ideas would have been combined in a different way without an acronym. The opposite suggestion terrifies me. I am a middle-aged financial writer from Brooklyn. I have nothing to do with history and I get older to like it like that.

The first point is more subtle and challenging. First, it reminds us of what tacos mean (as the non-organised intended). First, the undeniable pattern of behavior: a large policy promise or threat followed immediately – before serious negotiations with the counterparty begin – by a large watering of the threat. Second, it is labelled with psychological claims about Trump himself. It turns out he doesn’t care much about many of his signature ideas because it’s a bit under pressure. He wants to be recognized as a strong success. If the policy he trumpeted begins to appear to be tenuous in its perception, he collapses. Trump is not ideologically or personally committed to any policy.

In terms of self-image, it is fair to ask whether Trump is very different from other politicians in this respect. But the differentiator is the volume of his bluester first. Tacos are a reminder to get a huge discount on it.

The final point is that in the case of HOREDGED, TACO is not only about economic policy, particularly tariffs, but for example, immigration enforcement. Whether that applies to foreign policy is a question someone else should think about.

A few questions before declaring Taco Dead. Did Trump realize he would bomb nuclear facilities as a major risk of his popularity? Or did he think that Iran would become so weak that the general anti-Iran sentiment in the US would be unlikely to blow back on him, and perhaps help his position? I don’t know. However, if these are not a major risk in his own estimation, he cannot declare Trump a bold risk taker.

Next question. The moment Trump proved his geopolitical appetite for risk, does that mean that tacos never applied to domestic economic policies? For the record, my guess is that the president’s risk appetite (if it’s what he showed over the weekend) is domain-specific. For example, when it comes to tariffs, I think the taco trade will continue to work.

Oil (and other products)

Even before Trump’s ceasefire announcement yesterday evening, the market had largely abandoned the possibility that Iran would close the Strait of Hormuz. Oil prices were curbed most of Monday, and surprisingly, 7% fell sharply when Iran launched missiles at a US military base in Qatar in the afternoon.

It may have seemed like an escalation, but traders, experts and presidents apparently read it as the opposite. The Iranian strike appeared to be a signal that the regime was ready to escalate. It was limited and telegraphy. Iranian forces were launched into the US forces, rather than the straits or softer targets. Certainly, Iranian leadership has not made any public moves to close the straits. The closure will hurt Iran’s own oil exports at an already volatile economic moment, and jumping on oil prices and inflation will anger the international community, including a few remaining allies when the regime is very weak.

Oil prices are currently trading at the same level as before the US and Israeli attacks.

However, the decline may not have been a case of market foresight or market optimism. According to Ilia Bouchouv of Pentathlon Investments, the price drop is partly due to technical dynamics.

The world consumes 100 million barrels of oil per day, while the market trades at least 6 billion barrels per day. . . Oil prices are independent of inventory and are highly correlated with the status of money managers and hedge funds (oil market). From a specific perspective, they drive the market. Also, there is sometimes a liquidity gap, and there are not enough basic participants to take the other side (trade). . . Oil producers also tend to hedge price exposures (by purchasing put options to lock up higher prices and selling call options to fund them). As prices approach a strike, they sell futures. It exacerbates market movement.

Yesterday’s fall looks like a prime example, Bouchouv thinks. The market was not necessarily on the basis and he didn’t say that closures would never happen.

The rest of us and the comments have focused on the impact of the closure on crude prices, but we have not paid much attention to oil byproducts, especially fertilizers. This was pointed out to us by his old friend of Hedged, Dec Mullarkey of SLC Management. According to trade data company Kpler, 33% of the world’s fertilizers pass through the Hormuz Strait. When hostilities are redesignated and the straits are closed, we may see global food price movements beyond what a rise in agricultural costs generally means. In fact, since Israel launched its attack on Iran, we have seen agricultural commodity prices move along with oil prices.

However, commodity traders say that the agricultural commodity market is also primarily aiming for war. According to Dan White, head of research at Blue Line Futures, his colleagues Oliver Sloup, Soyabeans and other agricultural products trade along normal seasonal patterns. And as the US and other global producers often lock fertilizer prices ahead of their growth period, rising fertilizer prices will not be reflected in crop prices anytime soon. Corn is an example. The price of corn fell over the same period and was driven by supply dynamics.

A notable exception is soybean oil, which was set at a large gathering last week. It’s bigger than crude oil. According to White, this is not partially due to oil prices and upward drifts in other energy markets from Iran, as soybean oil is commonly used as biodiesel. But it also comes from other unrelated forces, including new US regulations.

I love a proper explanation that it is not bred. However, Iran has not explained everything about the commodity market this week.

(writer)

One good read

Denisovan.

ft HESHGED PODCAST

Is it not being properly kept? Listen to our new podcasts and dive in to the latest Markets News and Financial Headlines twice a week for 15 minutes. Check out previous editions of our newsletter here.