Strait of Hormuz Volatility: Narrative Theatre but Also Investment Opportunity

The geopolitical headlines from the last week were truly extraordinary, making managing an investment portfolio a trying exercise when the world oscillates between the end of a civilization and a wonderful ceasefire (the likes of which the world has never seen before).

The Art of the TACO

We believe the market is having a tough time deciphering and differentiating between the two kinds of TACO (Trump Always Chickens Out): Tariff TACO vs. War TACO. When physical assets are blown up the ability to execute a clean TACO reduces significantly. This reality left us very skeptical about Monday’s announced two week ceasefire and the ‘immediate’ reopening of the Straight of Hormuz.

First off, let’s start with the traffic data from the Strait of Hormuz, there’s no meaningful change from the prior weeks - the Strait remains effectively closed. And if the latest Trump pronouncement is to be taken as face value, traffic from the Strait will halt is going to zero.

"Effective immediately, the United States Navy, the Finest in the World, will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz." - President Donald J. Trump

Second, the Strait is booby-trapped. A recent New York Times report highlights a technical nightmare: even if Iran wanted to open the lanes today, they’ve essentially booby-trapped the Strait with mines they don’t even know how to remove.

And lastly, negotiations have not gone swimmingly; the American delegation is headed home without a deal.

This will certainly temper the market’s dovish orientation towards an unfettered War TACO. The dramatic selloff of the energy complex on the back of the ceasefire news highlights the market’s misunderstanding of the structural changes that have taken place and more critically how unloved energy assets are. Heck the only assets more unloved are SaaS (Software as a Service) stocks.

Below is a clip from our recent BNN Bloomberg interview where we shared our view on the profound structural changes taking place in the global energy marketplace, specifically LNG.

Who Wins From The Qatar LNG Shutdown?

The key question for energy investors is who benefits from a disrupted Qatari LNG industry?

In this research note we dig deep into the fundamentals of the global LNG market, quantify the Iranian conflict’s impact so far and outline where we think the investment opportunities are and the timeline for investment.

Lets get into it…