Stop Searching for Normal, It Left Five Weeks Ago
The Snapback Everyone Is Waiting for Isn't Coming...
KR Opinion
As this week begins and the first quarter draws to a close, there is always the possibility of some window dressing in the final session, but given the war and the magnitude of changes that have already swept through portfolios, most of that repositioning has likely already taken place. The real story begins as we cross into the second quarter, because this is where things are going to get genuinely interesting.
We are about to start seeing the actual economic effects of the conflict, including emerging pressures on labor markets and inflation, and the extent to which disruption has already embedded itself into the data. Some of this will begin to surface in the coming weeks, but the full comprehensive review won’t arrive until May, so expect some complacency as the new quarter begins. A few indicators suggest we could see a short-term bottom soon, and things are looking somewhat overdone to the downside, but there are no solid signs indicating a genuine reversal is in progress.
The mainstream media keeps focusing on the oil situation, but what is really happening in this conflict goes much deeper than just crude oil. We are seeing disruptions in many areas I’ve been talking about for weeks, and what still frustrates me is how news outlets and analysts tend to look back in history, pick out a past conflict, and try to apply it to the current situation. They reference the events of 2022, study previous episodes, and assume that because something happened a certain way before, it will happen the same way again.
This situation is so unique that there is simply no valid comparison. When the United States invaded Iraq, we did not see Iraq launch retaliatory strikes against all its neighbors or try to destabilize the entire Middle East. What we are witnessing now is fundamentally different. The Iranians clearly had a plan before the Americans started their campaign, and as soon as the attacks began, Iran responded against its neighbors and has continued that process nonstop, despite the fact that the United States has taken out nearly all of Iran’s major military infrastructure. By most common assessments, you might think the conflict was basically over, but it doesn’t seem to be. Trump keeps repeating the same rhetoric he has been saying for more than four weeks now; we are entering the fifth week of this conflict, and what we continue to see is more damage to shipping assets, port infrastructure, and supply chains. This isn’t on the same scale as the 2020 pandemic disruptions, but in some ways, it might actually be worse.
