WE'RE NOW AT THE BRINK OF WORLD WAR

We just took one step closer to the edge, and now we’re on the brink of world war. A place we were always going to find ourselves, as I’ve discussed with you, macroeconomically, financially, and geopolitically.

Let’s review the events of the last few days.

The “negotiations,” a sham, failed. The idea that a figure like JD Vance was going to act in good faith is about as laughable as sending a burglar to peruse the Louvre. And so they broke down, as they were designed to.

So now Trump’s announced a blockade of the Strait of Hormuz. Which is a little like holding a gun to your own head. Iran’s already blockaded the Strait, of course. Trump’s gambit is transparent: to turn the screws on Iran’s economy, which depends on oil exports. To whom? To China.

Let’s imagine what could happen next. America blockades, or seizes, or maybe even attacks, a ship in foreign waters. One that’s bound for China, or flagged by China. That, my friends, is an act of war. A formal and literal one. Not just against Iran, but against China.

Then we are somewhere profoundly dangerous. America is at war with China. De facto war. No declaration needs to be made, because this is technically an act of war. Just like that, bang, we’re on the brink of world war.

Put the shoe on the other foot. Imagine some other country began blockading, attacking, sinking, American ships, or ships bound for America, in international waters. Easy enough to see how it’d be an act of war. This idea is one of the most foolish in modern history.

Iran, meanwhile, has already responded by saying that oil and energy facilities across the Middle East are fair game. Cue more days and weeks of chaos. The oil shock already ripping across the globe gather speed and momentum like a tsunami. Trump will almost surely attack Iran again, and perhaps try to seize its oil outright.

What happens if events proceed this way? China depends critically on oil. It’s the world’s second largest consumer of it. That’s why tonight, it’s already called for calm. It doesn’t want to be at war with America. It has been trying to emanate equanimity since all this began.

But if America does something as reckless as the above, seizing ships bound for China, attacking them, sinking them, then China will be forced to respond. If only to maintain its own position in the world. How will it do so? If America blockades China’s oil, China can just as easily blockade America’s microchips, which come from Singapore and Taiwan. Bang. Just like that, again, we enter the beginnings of a world war.

China can also respond with capital war, not just physical war. It can dump its vast holdings of American assets. We all know by now that China can financially nuke America overnight, by dumping T-bills. It hasn’t yet, not just because a fire sale doesn’t benefit the seller, but more crucially, because it doesn’t want to. But in this scenario it’ll be forced to.

What happens if China does that? The American economy crashes overnight. All of it. Stocks, bonds, the dollar. It’d be an event so immense that even a bailout from the Fed would be about as firing a shotgun at an incoming meteor. Understand that I’m not saying that’s what will happen. We’re discussing risks and probabilities now.

What’s crucial to grasp is how close to the brink of world war we are coming now. Really coming. We are now mere steps away. The events above could happen in days or weeks. And once such escalations begin, they’re difficult to stop, because things take on a momentum of their own. America sinks a ship. China is compelled to respond. America escalates. Game over.

Trump has no plan, that much is obvious. Nor can he “win.” That’s equally clear. But this war has never been about Iran. It’s always been about oil, and it’s always been about China. Trump wants to control the world’s oil supply, and he wants to do that because he imagines that he can suffocate China that way. The world to him is a zero-sum game. Less for you, more for me.

In his eyes, China is America’s latest greatest enemy, responsible for a "bad deal” that impoverished America. No such thing is true. America itself designed this world economy, and China just played by the rules. And it’s Americans who voted for the gains from the last several decades of world trade to go to billionaires, not the average person.

Now things are coming to a head. They always do. Because this war has always been about China, and oil, that is precisely what it is now revolving around. Iran is merely a means to an end. And very, very soon, America and China might be formally at war. Not, it bears saying, through China’s actions, but through America’s. If you were China, and America was “blockading” your purchases of oil, what would you do? Just sit there and fret? Perhaps you see my point.

Let me make it even clearer.

This is the course history was always going to take under Trump. Trump was always going to take the world to the brink of world war. It’s inaccurate and irrelevant to simply say that “he doesn’t have a plan.” True, but what he has are impulses and fantasies. Of omnipotence, grandeur, and malevolence, on the level of emperors of falling empires of millennia past. Men like Trump always take civilizations to the edge of all-consuming violence. It’s in their nature. It is their most fundamental wish, desire, and longing.

What should you do about all this? You should not be in the markets. I warned you that if the negotiations failed, things would go south, and they are. The markets will have a very, very difficult time now. Go ahead and chuckle: if they thought things were bad before, now we have not one but two countries blockading the same Strait. Like I said recently, we live in times of colossal idiocy.

We now face a horrific scenario for the global economy, and I’ll talk more about that in days to come. Markets are already cratering in anticipation of the blockade, and there’s much more of that to come. The longer the Strait stays closed, the worse the damage will be.

And heaven forbid the events I’ve described above come to pass. If they do, Americans’ life savings will be instantaneously wiped out. Please be mindful of these severe and extreme levels of risk.

If you’re a subscriber, and you followed along with the last two suggestions, energy and commodities, you can enter those specific positions, strictly bearing in mind the caveats I gave you before. These are risky bets, and they should only be taken in small amounts, and definitely not by those who aren’t well versed in futures and volatility.

Understand how grave the stakes are now. We’re one, two, three steps away from the beginnings of a world war. The deepest fantasy of malevolent authoritarians has always been to take us there, to rape and degrade a civilization. We’ll be fortunate to escape one.

Love,

Umair (and Snowy!)