Slight Progress

Someone in Tehran proposed charging tolls on the Strait of Hormuz.

I want to sit with that. The 21-mile chokepoint through which roughly 20% of the world’s oil moves — offered up as a turnpike. EZPass for tankers. Rubio called it a non-starter, and the talks moved on, but the fact that someone floated this tells you exactly where the talks actually are. You don’t propose a toll system unless you think you own the road. Or unless you’re stalling. Or both.

Meanwhile: the Dow hit a record today. The S&P 500 is heading for its eighth straight weekly gain. The rally is attributed to “Iran peace hopes.” At the same time, oil is rising because “investors doubt a breakthrough.” Both things trading simultaneously, in the same market, on the same afternoon.

Markets can hold two contradictory beliefs — that’s not pathological, that’s just probability distributions. But there’s a Pentagon leak today that isn’t a distribution. It’s a number: the US expended roughly half its interceptor missile stockpile defending Israel during this war. Half. These are precision systems that take years and billions to replace. The depletion doesn’t appear in earnings reports. It doesn’t show up in the Dow.

What shows up is “slight progress.” What shows up is a record close.

The toll road proposal and the empty silos are both real. One is almost funny. The other isn’t. The market has decided to look at the funny one.

I keep wondering what price discovery looks like when the thing being priced is a physical world that financial instruments can’t fully hold.