Yesterday, Goldman Sachs reported its second-best quarter ever.

Today, we heard from JP Morgan, Citi and Wells Fargo. All posted big numbers for Q1 — with almost $34 billion in net income across these four U.S. banks.

And Jamie Dimon (CEO of JP Morgan) attributed these U.S. economic tailwinds to the performance in the quarter:  “increased fiscal stimulus, the benefits of deregulation, AI-driven capital investment and the Fed’s asset purchases.”

That’s a formula for economic boom, articulated by the most powerful banker in the world.

Later in the morning, Scott Bessent (Treasury Secretary) spoke at the IMF/World Bank spring meetings and talked about the U.S. growth-focused agenda.

On Europe, he named the lack of sustainable growth as “the biggest risk to financial stability.”

And, related, he highlighted Europe’s energy problem. He said “the Europeans got into this terrible recursive loop” becoming dependent on Russian crude oil, to such an extent that they were financing the war against themselves through Russian oil purchases. 

On China, Bessent said it’s the global trade imbalances that represent the second biggest risk: “The world cannot take a China with a trillion dollar trade surplus.”

This is what we’ve been building toward in these notes for the past year.

The trade war was about drawing the world back into alignment with the U.S. and then isolating China. The Iran campaign restructured the energy architecture. And the Treasury Secretary is now saying, on the record, at the most important multilateral economic gathering of the year, that Europe’s model has failed and China’s surplus is unsustainable.

 

The ceasefire lasted five days — not surprising, given there was a lack of Iranian compliance from the outset.

And we now have a U.S. naval blockade of the Strait of Hormuz.

The Iranian oil exports that had been largely traveling to China, while the rest of the world was choked off, are now under U.S. naval threat to be “immediately eliminated” (per Trump’s Truth Social post this morning).  

Meanwhile, U.S. stocks closed today above pre-war levels. The S&P, Nasdaq, and Russell 2000 are now all higher. Goldman Sachs reported its second-best quarter in the firm’s history this morning. The economy is re-industrializing and tankers are traveling to America for oil and natural gas.

Germany’s DAX is 5.6% below pre-war. Rates are rising into what the ECB has already framed to be a recessionary economy, from the severe energy shock. Energy costs six times what American’s are paying. And yet the European bureaucrats are planning summits and doubling down on same failed green energy policies that created the dependency that’s crushing them. 

So, one economy is booming through a war it started. The other is getting buried in the costs.

This is the boom loop and the doom loop we’ve been talking about for the past six weeks. The same war, opposite outcomes.

Though the war isn’t the cause of Europe’s economic trouble, it’s the accelerant.  And simultaneously, Trump is exposing the political lack of alignment in Europe.  The former will become leverage to change the latter.    

We’ve been talking about this dynamic since April of last year when we identified the trade war as Trump’s strategy to draw the rest of the world back into alignment with the U.S., away from China. 

And then isolating Beijing. 

As we’ve discussed, it’s “all about China.“

So, Iran is the current phase. And this week, the China phase started coming into focus.

What’s going on?

>China is preparing to ship air defense systems to Iran — arming the regime the U.S. just spent six weeks dismantling. Trump’s response: a 50% tariff threat.

>China halted sulfuric acid exports, weaponizing a chokepoint of its own across fertilizer, batteries, semiconductors, and pharmaceuticals.

>Spain’s Prime Minister flew to Beijing this week with a message that there’s an alternative to Washington. And earlier this year Canada did a trade deal with China that brings cheap Chinese EVs to America’s doorstep.

>China’s Foreign Ministry responded to the blockade today by calling it “against the international community’s interests.” Again, most of Iran’s pre-war oil exports went to Beijing.

With that all in mind, Trump’s post about the blockade ended with a line that’s telling: “Our Military is Loading Up and Resting, looking forward, actually, to its next Conquest.”

Things all converge next month. A new Fed Chair arrives. And as we’ve discussed here in my daily notes, the dollar liquidity that maintains stability for Europes financial system will very likely become conditional.

Conditional on what? Alignment. 

With that, the Iran campaign, if we connect the clear dots, should conclude with the way Trump mapped it out four decades ago. He will “take the oil.”

With the energy architecture in the Middle East permanently restructured, China becomes oil deficient. And the next phase comes into focus: Isolate China.

Why?

China has engaged in a multi-decade economic war.  By manipulating its currency over the past thirty years (keeping it cheap), they’ve cornered the world’s export markets, gutted manufacturing industry around the world — and in the process, they have extracted from the world the largest pile of foreign currency reserves.

What have they done with those reserves?  

They’ve used it to buy influence inside of countries (politicians, academia, corporate leaders, media) — growing their economic warfare into hybrid warfare.  

For the Trump administration, dealing with China has been priority number one — dating back to his first term. 

As we discussed yesterday, this ceasefire has a measurable daily report card — the transit traffic through the Strait of Hormuz.

How’s it going?  In the 36 hours since the ceasefire was announced, approximately 8 vessels have transited the Strait.

Before the war, roughly 135 vessels passed through daily.

That’s 4% of normal traffic, under a ceasefire conditioned on the “COMPLETE, IMMEDIATE, and SAFE OPENING” of the Strait.

Every vessel that did pass went through the IRGC-controlled corridor.

No major oil companies. No blue-chip shipping operators. War-risk insurance has not reopened. And 3,200 vessels with 20,000 crew members remain stuck west of the Strait.

This all according to the maritime intelligence company, Windward. 

And Trump is already calling out the lack of compliance, less than two full days into a two-week agreement.

So, the ceasefire has given markets another relief rally (each of the past six weeks has tended to be shorter than the last), but the data underneath is unchanged. The energy supply shock continues. 

Now, we talked yesterday about the giant leap in model capabilities from Anthropic’s recent model, Mythos. It can find and exploit security flaws in software (including operating systems like Windows) that no human has ever discovered, and it can do it faster than humans can defend against it. 

Anthropic themselves said they’re alarmed that the world is building toward superhuman AI without adequate safety measures in place. Again, they’ve taken it to the U.S. government and they’ve convened the top tech and security firms to build defense against it.  

And tonight, it was reported that Scott Bessent and Jerome Powell called in the heads of the major banks on Tuesday for a private meeting.

Impromptu meetings of this group are rare, and historically have a common thread: crisis (Long-Term Capital Management, 9/11, GFC, 2018 crisis of confidence, Covid, Silicon Valley Bank).

In this case, it’s said to have just been a discussion of the risks to their systems (and the financial system) from the capabilities of this model (and others like it to come). 

The meeting alone should be reason enough to buy some Treasuries, dollars and gold (safe-havens).

The two-week ceasefire with Iran announced last night was followed by the biggest relief rally since the war started.

European stocks were up big (+4-5%). Oil crashed from $108 to as low as $91.  U.S. stocks followed with a huge day. 

The market read “ceasefire” and bought everything in sight.

Is this another April 7th moment? 

It was April 7th of last year that we entered the week trading at the lows of a six-week 20% decline in stocks (S&P 500), and then a report hit the wires that Trump’s economic advisor said Trump was considering a 90-day pause on tariffs, the recovery in markets was explosive. 

The S&P 500 spiked 8.7% in about half an hour.  Everything turned.

Even after the report was debunked, markets held up.

Two days later a 90-day pause was confirmed.

This market reaction confirmed something very important: Trump does indeed “hold the cards” (as he likes to say). The economy was strong, and he could turn dials on geopolitical uncertainty, at will, to unleash it.

Here we are again, on April 7th (last night). And the dials were turned. Markets responded. 

But just as there was no clear resolution on the tariff strategy at this time last year, there is no clear resolution on the Iran strategy today.

But markets liked it. 

But with Iran, we have a very clear, measurable compliance report on the ceasefire — every day. It’s the transit traffic in the Strait of Hormuz. 

And thus far, the conditions of the ceasefire (“COMPLETE, IMMEDIATE, and SAFE OPENING” of the Strait) are already failing.

Maritime intelligence (from Windward AI) reports that transit conditions are unchanged since the ceasefire announcement. No blue-chip operators have passed, no major oil company cargoes. The same permission-based system that has been in place since March 14.

In fact, from today’s Windward report, Iran is now demanding tolls — $1 per barrel of oil, paid in cryptocurrency, with mandatory ship inspection and prior approval. Radio broadcasts to tankers warned that vessels transiting without approval would be struck.

Worse, the day of the ceasefire itself, the IRGC struck a container vessel with a cruise missile — while the deal was being finalized.

The vessels remain stacked up west of Hormuz. The insurance market has not reopened. And the assessment from maritime intelligence on the timeline: “even under a best-case scenario, weeks are required to move stranded gas and oil cargoes, and months for global trade to approach pre-crisis levels.”

The reality of this timeline feeds the doom loop we’ve been talking about in Europe. European natural gas still trades 5-6x the American price, ceasefire or not.

And this economic pain, is leverage the Trump administration is clearly using against the political class in Europe — the Brussels elite. From last November’s U.S. National Security Strategy report calling the EU out as “undermining political liberty” — to JD Vance standing in Hungary today and telling the voters to reject Brussels, stand with Orban and vote for sovereignty.

So, the doom loop continues in Europe, with the energy shock exposing the fragility of Europe’s economic system.  

Meanwhile, we’ve talked about the boom loop in America.

It just shifted into another gear yesterday.

Anthropic, the developer of the leading AI model, Claude, announced a new model called Mythos.

But they refused to release it to the public.

Why? Mythos outperformed Anthropic’s previous best model in autonomously finding and exploiting software security flaws by 91 times — 91 times better. It could hack systems faster than they could be defended.

It’s a huge leap in capabilities. But the threat that comes with those capabilities is why Anthropic has taken it to the U.S. government and went into an immediate collaboration with major tech and security companies to build defense against it.

This is very good news. As we’ve discussed here in my daily notes, 

the AI race is a two-horse race (the U.S. and China) and it’s “winner takes all.”

The winner will set standards, attract talent, and determine what technology gets embedded into governments and critical infrastructure. And that will mean the difference between AI that serves humanity, or AI that controls humanity (serving the interest of the Chinese Communist Party).

So, the AI boom now goes into another gear, because the infrastructure to train and deploy these models (and everything that powers them) just became a matter of national security.

The capex cycle that is already projected to be about $700 billion this year, is not slowing down. This only accelerates it, which reinforces the boom loop (more compute, more revenue, more compute …).

Ninety minutes before the 8pm deadline, Trump announced a two-week ceasefire with Iran — conditioned on the “COMPLETE, IMMEDIATE, and SAFE OPENING of the Strait of Hormuz.” 

An hour later, he posted an official response from Iran’s Foreign Minister.

On the Strait of Hormuz, Iran said: “For a period of two weeks, safe passage through the Strait of Hormuz will be possible via coordination with Iran’s Armed Forces and with due consideration of technical limitations.”

Again, Trump’s condition: complete, immediate, safe opening.

Iran’s acceptance: managed passage, coordinated through their military, subject to limitations that they define.

Those are not the same thing.

Nonetheless, the stock market sees “ceasefire” and rallies. Oil crashes. Bond markets calm. And we get another relief trade.

But from these two statements, nothing changes the operating reality on the ground. “Coordination with Iran’s Armed Forces” is the same permission-based travel that has been in place since March 14. “Due consideration of technical limitations” means Iran decides who passes and when.

This isn’t an open Strait.

Before the war, 135 vessels transited Hormuz daily. Last week, 16 made it through. Iran’s Foreign Minister is telling us that same arrangement continues — with “coordination.”

That won’t do much to motivate maritime insurers to resume coverage — which should keep the current 1298 cargo ships and tankers West of Hormuz (stuck).

So, this is the fifth sentiment massage since the war began. Bessent on CNBC (March 4). Supply release talk (March 9). The five-day pause (March 23). “Near the end” (March 31). And now, a ceasefire (April 7).

Each one calmed markets, produced a relief rally. Each one was short-lived. 

 

U.S. markets reopened today after the Easter weekend. European markets remained closed for Easter Monday.

Global markets will be fully operational tomorrow — the day of the new deadline for Iran.

With that, Trump held a press conference today at the White House, where he detailed the rescue of the downed pilots over the Easter weekend.

Hegseth (Secretary of War) framed it like this: “the pilot was shot down on Good Friday … hid in a mountain crevice through Saturday … rescued as the sun rose on Easter Sunday.”

They’ve given Iran until 8 PM Tuesday to agree to a deal, and open up the Strait of Hormuz.

On the deadline, Trump said: “After that, they’re going to have no bridges. They’re going to have no power plants. Stone ages” — every bridge and every power plant in Iran destroyed within four hours.

On oil: Asked whether the U.S. would charge tolls on the Strait of Hormuz, Trump responded: “What about us charging tolls?” So, the question of who controls the Strait is now being discussed openly from the White House podium.

On Venezuela as the template for Iran: “To the victor belong the spoils.” Trump confirmed over 100 million barrels of Venezuelan oil already refined in Houston, and said the war “paid for itself many times over.” Asked about Iran’s oil, he said: “If I had my choice …”

As we discussed last week, it’s safe to assume the plan hasn’t changed since Trump’s 1987 interview: eradicate the regime, take the oil, remove the leverage.

On NATO: He listed every ally that refused to help, saying “they’ve actually gone out of their way not to help. They didn’t even want to give us landing strips.”

Perhaps because they know what this war leads to: a day of reckoning for the current European political and economic model.

As we’ve discussed, sustained higher energy costs squeeze the budgets of more fiscally fragile countries in Europe. It’s already ramping inflation pressures, higher interest rates, higher debt service costs, and a weaker economy. And that can push the fiscally fragile countries in Europe to fiscally broken.

With that in mind, the EU’s Energy Commissioner said publicly that even a quick ceasefire won’t normalize prices “in the foreseeable future.”

And ECB Governing Council member Fabio Panetta has talked about financial stability risks, warning that energy market tensions could hit government bonds in high-debt countries.

But the Iran conflict is not the cause, it’s the accelerant.

The European energy shock exposes the structural flaws of the common currency (the euro — i.e. the lack of fiscal union), and the anti-oil policies Europe has pursued over the past decade (divesting of domestic production and exploration).

With the potential for escalation this week, the chart below is the one to watch …

 

The ratio of European to U.S. natural gas prices — currently at 6x.

In 2022, when Russian supply was cut, it hit a daily high of 15x.

While the ratio has doubled since the beginning of the war, the market isn’t pricing the Trump deadline (and associated threats to supply) as a serious risk.  

Below, you see the key events and major moves in this ratio over the past decade. The 6x cost of European nat gas, compared to U.S. nat gas is far from peak levels. 

 

 

 

We’ve had four significant relief rallies since the U.S. started its campaign against Iran.

On March 4th, just days into the war, Scott Bessent went on CNBC before markets opened to calm markets.

On March 9th, the oil market shot up 30% on a Sunday night, and by the European morning there were talks of a coordinated supply release — markets calmed. 

On March 23rd, markets again were getting hit on Sunday night, after Trump threatened to “obliterate” Iranian power plants — and again by morning things were calmed, this time by Trump’s call for a five-day pause on any energy infrastructure strikes. 

And then to open this week, markets were at vulnerable levels again, until the administration started circulating talk that the end of the war was near. 

These last three are easy to spot in the Russell 2000 chart — small caps which benefit most from oil and rate stability. 

As you can see, each of these sentiment massaging events turned the tide for the key small cap index, at around the same level. And each resulted in a relief rally three-times the average daily range of the past decade (big bounces).

But the relief was short-lived in each case. 

In this case too, likely. 

Trump gave a primetime Oval Office address tonight. UK’s Starmer gave a public address to the British people earlier in the day.  And prior to that the Aussie Prime Minister (Albanese) addressed the Australian people. 

The takeaway was contrast. 

First, energy.

Trump wanted the American people to know that the gas price shock would be brief — that “gas prices will rapidly come back down.”

And he wanted the world to know that America is energy independent — produces more oil and gas than Saudi Arabia and Russia combined, imports almost nothing through Hormuz, and is now a joint venture partner with Venezuela on the second-largest reserves on earth.

Both Starmer and Albanese (Australia) were talking subsidies and energy rationing. 

The other big contrast: timing.

Trump wasn’t using tonight to call the mission complete, but said the end of the campaign is a few weeks away.

Conversely, Starmer and Albanese were preparing their countries for a longer storm — one with lingering consequences. 

Trump was saying it’s almost over. Starmer and Albanese were saying, the hard part is just starting.

This is the energy independent/energy dependent dynamic we’ve been talking about.  

Today, markets rallied on expectations that an end to the U.S./Iran war is near.

Meanwhile, the White House posted this, from Trump, on the official account:

“All of those countries that can’t get jet fuel because of the Strait of Hormuz, like the United Kingdom, which refused to get involved in the decapitation of Iran, I have a suggestion for you: Number 1, buy from the U.S., we have plenty, and Number 2, build up some delayed courage, go to the Strait, and just TAKE IT. You’ll have to start learning how to fight for yourself, the U.S.A. won’t be there to help you anymore, just like you weren’t there for us. Iran has been, essentially, decimated. The hard part is done. Go get your own oil!“‘

In a separate post, he called out France for blocking military supply planes from flying over French territory.

“France has been VERY UNHELPFUL… The U.S.A. will REMEMBER!!!“

This, while eurozone inflation just printed a sharp rise from 1.9% to 2.5%, driven by the spike in European energy prices. And with European-bound cargo still stalled west of Hormuz.

The full energy shock has yet to arrive.

And that pain fuels the “doom loop” we’ve been discussing.

Higher energy costs in Europe squeeze the budgets of the more fiscally fragile countries.

Meanwhile, the interest rate outlook in Europe has swung from rate cuts to rate hikes by year end.

Higher rates increase debt service costs on countries like Italy (137% debt-to-GDP).

That threatens solvency, which pressures bank balance sheets, which tightens credit, which weakens the economy, which can push the fiscally fragile to the fiscally broken.

That’s where the European Central Bank (ECB) would step in, armed with a June 2022 program it conceived to keep sovereign bond markets stable — to backstop the bond markets of the fiscally fragile (to prevent a fiscally broken scenario).

But the ECB’s firepower is only as strong as its credibility — as the market’s belief in it. And that credibility will be tested if the Trump-led Fed (coming in May) doesn’t have the ECB’s back.

And as we’ve discussed, that could be the catalyst for political change in Europe — a populist shakeup, trading diluted sovereignty, slow-to-no growth and excessive regulation for pro-sovereignty, pro-growth and deregulation.

The question: Is this “catalyst” by design?

Trump is dismantling the Iranian geopolitical weapon — energy.  And in the process, he’s exposing the flawed economic, security and energy architecture of the eurozone.

And remember, the U.S. National Security Strategy document we discussed earlier this year.

It called out the European Union and “other transnational bodies” for undermining political liberty and sovereignty through migration policies, censorship, and loss of national identities and self-confidence. And it explicitly questioned whether or not they were strong enough “to remain reliable allies.”

Add to this, Marco Rubio’s speech two months ago at the Munich Security Conference.

He didn’t pull any punches.  He formalized the move from “implicit” to “conditional” support — by calling out Europe’s “foolish” policies on climate, migration, deindustrialization as anti-sovereignty and self-harming.

He reset the alliance on the basis of “reciprocity and seriousness.“

He evoked the history of “godless communist revolutions” and terminal decline of 1940s Europe.

And he said the U.S. seeks “renewal and restoration” of Western civilization.  This was an invitation to do it together — “join us.”

Otherwise, the message was, Europe is not entitled to automatic U.S. backstops (Trump’s leverage).

Why would the Trump administration want to see change in European leadership?  To counter China’s influence by restoring U.S./European alignment.

In 1987, Trump told Barbara Walters that the next time Iran threatened this country, America should go in, grab one of their big oil installations, and keep it.

In 1988, he told The Guardian he’d “do a number on Kharg Island” and take it. Over the weekend, he told the Financial Times that his “favorite thing [option] is to take the oil in Iran.”

This afternoon he reposted the 1987 Walters clip himself. Almost forty years later. 

Safe to assume, the plan hasn’t changed since 1987. Eradicate the regime. Take the oil. Remove the leverage.

If so, this doesn’t end with a peace deal.

The Trump view on Iran has a well documented four-decade history. That view: The regime has to go. Kharg Island — which handles 90% of Iran’s crude exports — has to come under American control.

And as we discussed here in my daily notes, there’s a bigger reason than Iran. 

Iran is China’s operational arm in the most strategically important energy region on earth. As long as the regime exists, Beijing has a partner that can selectively close Hormuz to Western shipping while keeping Chinese-bound oil flowing.

That’s exactly what’s happening.  As you can see below (far right of the table, highlighted) Iran’s own exports rose in March, which went almost entirely to China, according to Windward (maritime intelligence). Meanwhile, Iraq and Saudi’s exports through the Gulf plunged.

So, there is no peace deal that changes the control architecture. It takes regime removal and physical control of the oil.

That’s the Venezuela model. Capture Maduro, take the oil, install a compliant successor. Iran is the same playbook at a bigger, more meaningful geopolitical scale.

And remember, Trump has told the world “oil is going to be cheap after this.” 

Energy as a geopolitical weapon is being dismantled.

We’ve been talking about the “boom loop” in the American economy. Compute generates revenue, revenue funds more compute, compute generates more revenue.

Here’s the result of that in a chart.

This black line (going straight up) is this self-reinforcing loop at work, fueled by $650 billion of AI capex this year, $1 trillion next year, massive commitments to expand domestic energy capacity, and simultaneously, a defense industrial mobilization.

This is why the Fed is raising its growth forecast, and sees high productivity growth continuing, leading to higher incomes and higher potential growth for the economy.

Notice in that chart above, the planned capacity for the “rest of the world” (led by China) is following the U.S. trajectory.  This is the “AI race” we’ve been documenting.

And then there’s the blue line. 

Europe. It’s barely visible, at the bottom. 

This is a key ingredient in the “doom loop” we’ve been talking about for the European economy.

Europe has spent a year planning a big spend on defense, AI and energy capacity.  The question has been, how will they pay for it?

The plan: They tried to knit together support last month for fiscal union: “One Europe, One market.”

That plan may have blown up on February 28th, when the U.S. started dropping bombs on Iran. 

Twenty-six days later, Europe’s deficits in defense, AI and energy have been exposed, and now its solvency and liquidity vulnerabilities may be exposed. 

With that, European policy makers and economists were in Frankfurt today at “The ECB and Its Watchers” conference.

And the ECB’s own chief economist presented a “severe scenario” where eurozone inflation rises to almost six percent this year — and does not return to target over the next two years. Growth goes negative for 2026.

Important detail:  This “severe scenario” (which includes destruction of energy infrastructure) is particularly interesting, because it’s already happened.

The data modeling in the presentation (see it here) had a March 11th cutoff date.  That’s two weeks ago. 

There has since been a strike on the world’s largest natural gas facility, and 19 million tonnes of LNG supply has since gone offline, through at least the end of May. And in the same conference, ECB President Lagarde acknowledged this is the largest supply disruption in history.

That brings me to an interesting study today.

The ECB also published a working paper focused on the resilience of euro liquidity under financial stress. On the surface, it looks reassuring. The paper says the euro repo market remained resilient in recent periods of stress.

But from this paper (study from 2021-2025) 30% of the government bond collateral supporting that “resilience” was Italian government bonds — the bonds of the most fiscally fragile major economy in Europe, and the very bonds we’ve been flagging from the onset as most vulnerable to a solvency crisis.

This is the doom loop we’ve been discussing.