Can Kerch & Hormuz entail no risk premium?

Please consider looking at the AlphaValue latest update on Iran/Hormuz (link). It is scary and not priced. Obviously one of these two propositions must be wrong. The odds of a major blow up through accident/lack of preparation are rising fast. The US administration is out of its depth when it comes to handling strong cultures not entirely driven by money/personal benefits. Yankee testosterones seem now in charge, even though its navy battle groups on site are getting tired and ammunition short.

Impossible communication with foes is a time bomb with the midterm elections likely to be a catalyst to precipitated decision. 

The silly posturing in Hormuz is taking place while Ukraine single-handedly is pushing Russia into a tactical corner. That corner is defined by forcing the closing down of Russian oil and oil product exports, its life blood. The war between ‘cousins’ trading missile blows on infrastructure is now beyond the absurd, so that the temptation for Russia to regain the initiative by unconventional ways is huge.

Europe sits in-between and must decide whether missing Russian gas this winter is worth a compromise at Ukraine’s cost, while spending more of shared resources on Ukraine's defence. 

Two lunatic western adults have brought the western planet to the brink of a major military accident. Such potential extreme events are of no interest to markets as they cannot be priced beyond toying with prediction markets. Markets concentrate instead on Warsh’s next step at the Fed. Forgetting Trump’s tinkering with a Qatari 747, to concentrate instead on Warsh's robust standing is indeed reassuring: markets will be led by a clear-headed Fed (and ECB…), and that is enough to keep the music playing.

The music's continued playing is largely dominated by retail money having another go at the AI illusion. It seems not to stop, as leverage kicks in at all levels of the investment folly. Single stock leveraged ETFs and perpetual futures are merely extreme expressions of risk taking, as are private equity funds offering ‘infrastructure’ assets which are merely chunks of data centres without a business model.

Retail money is a by-word for endless dumb money, which is akin to a cratering cost of equity for corporates smart enough to jump on the bandwagon. SpaceX managed that with talent. Sparkling equities dumb the perception of fear. This will need to be revisited as both Putin and Trump have painted themselves into their respective wrong corners, and are thus bound to enact an ill-judged plan. Oils & Metals would then be the beginning of an insurance policy.