Rope-a-Dope

The worst thing that could happen to global markets at this point in the cycle is happening right now:

A late cycle surge in inflation due to a Middle East oil crisis.

This is a mid-week Iran war update. My last update was Monday.

What we have learned in the interim is that Iran has been preparing for this war since last June. They now believe that in a long-term war of attrition they can hold out longer than the U.S. and Israel. We know that the U.S. and Israel have inflicted tremendous damage to Iran's war infrastructure - specifically ballistic missile launch sites and naval warships. However, that does not mean that Iran is incapacitated. As long as Iran can shut down the Strait of Hormuz, they can inflict pain on the world. So that is their strategy. Without putting boots on the ground, there is no way that the U.S. can assure the security of ships in the Persian Gulf on a long-term basis.

Here are the facts:

Iran's Rope-a-Dope War Of Attrition:

"Reports indicate Qatar’s Patriot stockpiles could last only days at the current rate of use. The air defenses of Qatar, the United Arab Emirates, and the U.S. Fifth Fleet are absorbing the impact of hundreds of Iranian projectiles"

Iran has deployed the Shahed-136 drones, which cost approximately $20,000 each, in large numbers across the Middle East. U.S. and partner forces are using Patriot interceptor missiles costing around $4 million each to counter the drone threat"

Analysts fear Iran is reserving its most lethal ballistic missiles for deployment after Western defenses are depleted."

"President Donald Trump’s suggestion the U.S. will escort tankers through the Strait of Hormuz “as soon as possible” and provide risk insurance for ships traveling in the area seemed to provide only temporary relief, with investors noting Iranian warnings of missile and drone attacks."

Goldman warned that a five-week closure of the Strait of Hormuz would likely push Brent prices to $100 a barrel."

Also read:

Reality Is Setting In, This Won't Be A Short-term Oil Spike

Which gets us to financial markets.

So far the impact of this war has largely been felt outside of U.S. markets, which is highly ironic because right before this war Wall Street was pounding the table for everyone to get OUT of U.S. markets.

This was two weeks before the war:

"Stock funds in Europe, Japan and other international developed markets have drawn a combined $104 billion this year, dwarfing the $25 billion that’s flowed into US funds"

Now comes this from Monday:

“The dollar is your ultimate safe haven for this conflict,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. “‘Sell America’ was popular, but now push is coming to shove. With oil and gas skyrocketing, traders are looking for a familiar and comfy spot to settle and wait things out.”

In other words, the U.S. AI trade was popular in January then that trade imploded amid "AI panic". Then global ex-U.S. stocks became popular in February. And now U.S. stocks are deemed a safe haven in March.

Below we see via the equal weight NDX what really happened is that during February Tech stocks (NDX equal weight) corrected the AI panic selloff but now Tech is once again overbought at a second lower high (oscillator lower pane).

For now, every over night dip is getting bought as directed by Wall Street:

Goldman Rope-a-Dope:

“We see correction risks as high given current valuations, but expect this to present a buying opportunity with relatively low risk of a more protracted and deep bear market”

High valuations = low risk. Ok got it.

It gets worse via the same article:

Goldman Rope-a-Dope Cont...

"A broadening out of equity returns across geographies and investing factors has led to higher-than-average valuations, with all global sectors expensive relative to their 20-year histories"

In summary, the last thing the world needed in 2026 after the trade war in 2025 was MORE inflation.

But the only way it's coming down now, is the hard way. This financial crisis is starting off very similar to the pandemic EXCEPT it's starting off as an inflationary event which will delay the central bank reponse, until it's too late.

But don't take my word for it:

Goldman Rope-a-Dope Cont...

“The longer this uncertainty persists, or the worse it gets for energy supplies, the higher the perceived risk to growth and inflation will be”

Exactly what I said, only I didn't say the BTFD part. Because I don't do Rope-a-Dope: