(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Do you feel the direction of the crypto market over the next 6 months will be up (bullish), no change (neutral) or down (bearish)?
Voting ended onJun 16
Am I dreaming - or is AI investing as easy as buying a subscription to Citrini Research and buying every stonk they write about?
Am I dreaming - or does the price of oil not matter to economics or politics and that is why Trump and the IRGC can continue trading rhetorical barbs over social media while ships languish in the Strait of Hormuz?
Am I dreaming - or does the 2-year US treasury yield trading 0.5% over the effective funds rate not lead to the Fed raising rates at an upcoming meeting?
Am I dreaming - or can the entire gains of AI to America accrue to a few tech bro douche nozzles?
To check whether I’m lucid dreaming about this FUBAR universe in which I inhabit, I must perform a reality test. And if this test fails, I know I am dreaming and must alter my portfolio. Let this essay be that test, and at the end of the cathartic experience that is tap-tapping on my word processor, my portfolio will have undergone immense changes or none at all.
My theory at the outset is that I am indeed dreaming. The most important variable that exerts a reflexive effect upon the whole investing complex is the price of oil and other hydrocarbons. Our ability to experience the universe hinges on the efficiency with which we convert energy into biological and or artificial intelligence. Nothing violates this truth. And while the markets may, for a blip in time, appear to negate this law, shit always comes back to bite you in the proverbial ass.
We start with oil and end with an election in Pax Americana. This story arc could produce a situation whereby the AI stock bubble pops and takes the entire crypto complex down with it. When the dust settles, then and only then, can Bitcoin rise from the ashes. Yes, I know I proclaimed we wouldn’t see $60,000 Bitcoin again, and obviously I erred, but that’s forecasting for you. But I deeply believe in having strong opinions loosely held.
Deal or No Deal - That is the Question
Politicians respond to incentives. US President Donald Trump launched a war of choice against Iran for some unknown reason. Only Trump knows why he did it; I certainly can’t discern the reason from the cacophony of justifications given every hour by him or one of his lackeys. It ultimately doesn’t matter why; we are here now, and the question is how, if at all, do Trump and the IRGC play their parts to end the conflict.[1] This is Trump’s war now, and unfortunately for him and his Team Red Republicans, he decided to strike in an election year.
Tell me the change in price of gasoline and other essential goods like food, and I will tell you who wins an election in Pax Americana. Trump and his Team Red Republicans are up against high and rising food and energy inflation, primarily driven by the closure of the Strait of Hormuz, which directly results from a war they launched against Iran with no consultation of the American public. If you are dumb, you might believe that Israel made them do it … lolz just lolz. If you think a WASP takes orders from a Jew, please read more American history. Americans are bloodthirsty, war-loving people as long as it doesn’t affect their daily lives and none of their family members return home in body bags. Trump routinely touts that ONLY thirteen brave American soldiers perished in this special military operation. That is why America wages video game war using high precision extremely expensive stand-off munitions. As much as Trump betrayed his base by launching another Middle East war with no coherent theory of victory, they have stuck by the party because it’s cool to kill some non-Christian towel heads. If you don’t think that is the case, Trump primary’d several disloyal Republican legislators, and these traitors to the party lost. The problem isn’t that his base won’t come out and support the team in November; it is that undecided voters facing higher food and energy prices because of the Iran war, decide to vote for the Team Blue Democrats. Therefore, “affordability” is Trump’s worst issue.
To bamboozle undecided voters, Trump needs to at a minimum maintain oil prices at these levels. Squashing inflation in its tracks is almost impossible at this point because supply chains are just beginning to reflect the rise in energy and other input costs. All Trump can do now is manage the perception of inflation, not the reality. This means that Trump’s motivation to accept a deal with Iran depends on the price of oil. As the oil price rises, Trump’s rhetoric shifts conciliatory. But then, if the market delivers lower oil prices in anticipation of a deal, Trump backs off because there is no reason to accept what objectively will be a worse geopolitical situation between Iran, the US, and the broader Middle East than before the war. The Trump-Iran deal is almost certain to be worse than the Obama-Iran deal, and a large part of the electorate will punish the Republicans at the ballot box for “losing” the war in their minds.
It takes two to TACO, and the IRGC is under a similar decision matrix. If the oil price rises too high, their main economic trading partner, China, puts pressure on them to make concessions to the Americans. But as soon as the IRGC signals they are ready to deal, the oil price sells off and Chinese pressure subsides.
Both the US and Iran have no incentive to meet in the middle while the price of oil is at this level. Yes, it’s up materially from pre-war levels, but it ain’t that bad yet. Regarding the rest of the commodity complex, there aren’t any large populations starving, and many countries have been able to secure supplies of critical industrial commodities from other parts of the world. This fucked up Goldilocks scenario cannot continue forever. You cannot remove 10s of percentage points of supply of a global commodity and prices remain moribund. Once excess capacity is exhausted, the system will ration supplies by ramping up spot prices. This is the doom and gloom many commodity analysts espouse. The reason the mangled chickens haven’t come home to roost is that the excess supply was quite substantial going into the war. If the US-Iran war muddle-through continues deep into the second quarter, the setup for the third quarter is ballooning spot prices for hydrocarbons and other essential commodities.
I’m going to bastardize a Winston Churchill quote, “You can always count on [politicians] to do the right thing, after they have exhausted all other possibilities.” Only when shit is truly fucked, will Trump and Iran do a deal. Which, in my mind, means this severely reduced Strait of Hormuz traffic situation will persist, possibly into early Q3.
For this thought experiment, let’s assume the price of oil slowly grinds higher with intense volatility around the trend-line. What then? How do rising oil prices and Trump’s Team Red Republican re-election campaign rhetoric move reflexively?
November Kickoff: Team Red vs. Team Blue
If the price of oil slowly rises, but not enough to force Trump and the IRGC to deal, how else can Trump snatch victory from the jaws of defeat?
These Polymarket odds indicate that the Republicans, as it stands now, will retain control of the Senate by the hairs of their chinny chin chins. But they will receive a walloping in the House.
While it looks like a foregone conclusion that the Republicans will lose control of the House, I want to challenge this view. I believe Trump still has a path to victory, and it goes through a change in his rhetoric towards data centers and AI regulation/taxation.
To set the stage, currently, the distribution between parties is the below (218 votes needed to pass a piece of legislation):
Based on current Polymarket odds, here is the projected party composition after the election:
That looks super-duper bad for Team Red. But the empire struck back with redistricting measures. When the rules of the game point to defeat, you’ve gotta change the rules. This is politics, degen. Let’s assume that Polymarket is correct, then the Republicans need to make up 19 seats. Redistricting can reduce that number.
Here is a table of the likely impact of redistricting:
Now we are down to 11 seats the Republicans must make up. Let’s move onto which races are a toss-up, and within the band of statistical error based on current polling could lean Red.
There are 35 races which could go either way. I already spoke about affordability and the limited things Trump can do to shift the narrative on the disastrous impact of inflation on undecided voters. The other issue that animates the entire electorate on both sides is the construction of data centers and AI’s impact on employment. Unless you are uber-wealthy, everyone is worried about data center inflation and AI taking their jobs. This fear manifests itself in many local moratoriums on the construction of data centers and a crescendo of talk about taxes on AI companies to fund welfare payments to the 99.99% of the population that aren’t CEOs of AI-related companies and their highly paid employees.
For electoral maths consider a few local initiatives in contested districts regarding data centers (Perplexity generated tables):
Trump can capture the remaining 11 seats needed by selling the AI tech bros down the river. All that is required at this stage is rhetoric, not concrete legislative action. The point is to convince plebes that if you vote for my party, we will deal with AI after the election. As a consummate politician, Trump can promise the world and never or partially deliver post-November. Just look at his handling of the Epstein files. Maximalist campaign rhetoric about exposing the alleged pedos, but once in office a minimalist release of materials; you might say that Pam Bondi dressed herself in black face “REDACTED”. In a similar vein, Trump could declare while campaigning that he will sign legislation to slow down data center build-up and impose an excessive profits tax on AI companies to fund another round of stimulus checks, then backtrack once the election concludes and Team Red’s rule remains.
For those of you who recoil in horror that Trump would adopt measures championed by disgusting pinko commie Democrats like AOC and Elizabeth Warren, please remember that Trump conducted the largest government handout to Americans since the New Deal.[2] He even gave welfare kings and queens in the hood a few thousand dollars and didn’t prevent them from buyin’ 40’s at the corner store. Now tell me he won’t turn on Elon and Jensen, at least for a few months, profess his desire to level the playing field between AI and humans, to save his political hide.
If Trump executes this AI pirouette, the market will not be intellectually flexible enough to consider this purely an expedient electoral caper but believe that Trump actually will curtail AI capex build-out and tax the AI bros. Almost immediately, the market will convulse, and this will pop the AI bubble. For those who do not appreciate how skittish the market could be when Trump turns on the AI bros, remember the made for social media spat between Elon and Trump?
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