So the peace deal now consists of two governments serving each other invoices for a war neither will admit losing.
Trump countered Iran’s claims for reparations by seeking compensation for the deaths it has caused over the last 50 years. He presented an itemised bill, folding in the seventeen sailors killed on the USS Cole in 2000 (an attack blamed on al-Qaeda) and, for good measure, the dead of Lebanon, Syria, Yemen and Gaza.
Oil settled 5% higher on Monday for a fourth straight rise, with Brent above $87. A negotiation conducted entirely in counter-claims is not a negotiation that reopens anything.
But beneath this farce sits a verdict from the people with the most at stake. According to the Wall Street Journal, the Gulf’s energy producers have concluded that Iran’s control of the Strait of Hormuz is permanent, and that conceding is preferable to another war that would put their own infrastructure back in the firing line. A Democratic congressman called it “the beginning of a capitulation”.
A war launched in February to stop Iran disrupting the world’s most important oil region is concluding, in the region’s own assessment, with Iran holding more leverage than before a shot was fired. Crude traffic through Hormuz has collapsed, and global inventories have drained by over 400 million barrels in six months.
Trump, meanwhile, insists the strait is open and “the only one that has control” is the US Navy. It is not, and it doesn’t. There is now a toll booth on a fifth of the planet’s oil supply, and the country that built the road has discovered someone else now owns it.
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In a world suddenly full of uncertainty of ownership with invoices that no one intends to honour, watch where the real money goes to settle up. It’s going to gold, which cleared $4,400 for the first time in two months yesterday, and look who’s buying. This isn’t a rate trade; gold is rising even as oil pushes rate-hike fears higher. This is certainty of ownership and good title.
China’s central bank added around 20 tonnes in July, its biggest monthly purchase since October 2023. The same month saw the largest inflows into Chinese gold funds in months. When everyone is demanding compensation that will never be paid, and governments are leaning on their central banks to paper over the gaps, the prudent quietly settle their accounts in the one asset that cannot be printed, sanctioned, frozen, or defaulted upon.
Which brings us to Japan, where the printing pressure now comes from two directions at once. The yen slid back past 159, surrendering most of what last week’s joint intervention bought.
But the real drama is fiscal. Prime Minister Takaichi, an avowed disciple of Abenomics, is pressing the Bank of Japan to buy more bonds to cap the government’s rising borrowing costs. The 10-year JGB is at 2.8% as the central bank tries to shrink its balance sheet. But the BOJ is in a vice. Scott Bessent has ordered and paid for a rate hike while Tokyo’s premier demands bond purchases.
There’s a name for a government leaning on its central bank to hold down the cost of its own debt, and a former BOJ official has now said it out loud. Doing so, he said, “would backfire by stoking concerns over fiscal dominance.”
Quite. It’s the global Hunger Games for bonds, and FX rates are the warning sign. Eventually, liquidity injections will be the “remedy”. It is just a matter of time, and in what disguise they show up.
One place to see it is in the AI bubble, which is taking a trip to China. Unitree, a humanoid-robot maker, floated in Shanghai with demand 8,000 times oversubscribed. Nearly ten million retail investors wanted in for an IPO priced at 118 times earnings, for a company that concedes its products have limited commercial use and whose profit just fell 53%.
The whole thing was state-choreographed. A slot at the Spring Festival gala, a photo-op handshake with Xi, a shareholder register of Tencent, Alibaba and DeepSeek. Beijing has added the bubble conjuring trick to the way it manufactures everything else. Le Shrub christened Scott Bessent, MUM (Markets Under Manipulation); Xi has shown again what a quick learner he is. With SK Hynix down 50% from its July peak, China seems to have captured the AI bubble bragging rights.
Perma bull Yardeni quietly warned today that 52% of American consumers now expect stocks to be higher in a year, which is the surest sign, historically, that they won’t be.
Tomorrow’s CPI and PPI prints suddenly have greater criticality.
A peace conducted in invoices, a strait with a permanent gatekeeper, a central bank told to print by two governments at once, and a robot worth 118 years of profit.
Everything is proceeding normally.
Good luck out there.
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Jeremy
The global Hunger Games for bonds. Great analogy!