Peace Through Strength

By Peter Tchir of Academy Securities

Academy’s Geopolitical Intelligence Group (“GIG”) weighed in on the American Strike. The overall assessment was that this was a good move:

• Helped re-establish deterrence and sent a strong message to all adversaries.

• The assessment was that Iran had limited capacity/capability to strike back.

• Iran would be under pressure internally and externally not to mess with the Strait of Hormuz.

We recommended buying the dip in stocks and bonds, in a large part due to the GIG’s assessment.

Academy had the privilege, yesterday, to be on Bloomberg TV, Bloomberg Radio and the Wolf of All Streets (a more crypto centric podcast). We discussed and re-iterated our view that the strike was likely a good decision and would lead to good things! Academy’s section starts at the 56 minute mark in this Bloomberg TV Clip. Much of what we discussed has come to pass – and we sent out an optimistic SITREP shortly after Iran Attacks U.S. Bases.

At this stage Peace Through Strength seems to be working out according to plan. Things can obviously change, but not only has a lot of progress been made in the region, but all of our adversaries have to consider us in a different light after that bold (and successful) strike.

There has been some discussion about how much damage was inflicted. What Iran may or may not have moved away. It is still early to tell, as it will take time to collect the full intelligence, but we argued, and continue to argue:

• The damage was likely extensive. Sensitive equipment, even if not fully damaged, may be inoperable for a long time.

• The damage was secondary to the message delivered. To a great extent, it doesn’t matter what was hit or not hit. Those facilities are likely to be inoperable and inaccessible. Anyone considering entering the facilities, for repair, further work, or extraction, has to realize they will likely be attacked (for those attacks, the Israeli Air Force is more than capable). If things have been moved, it is likely they will be found (intelligence has been very good) so they will ultimately get attacked.

This combination of so many factors, which the GIG has the experience, understanding and insights to lay out, has been working well.

There is talk about Regime Change, and we discuss that in the clip above. Whether that can occur or not, remains to be seen, but our current thoughts are:

• It has to be an organic, groundswell, from the people of Iran.

• It should not be something orchestrated (certainly not via military) by Israel or the U.S.

• With the IRGC command structure hurt badly, with the Ayatollah in hiding, the opportunity may be there.

There is reason to be optimistic that this strike has set the region on a better path.

The “Other” Moving Parts

As discussed in Sunday’s T-Report, there are A LOT of Moving Parts. We will be watching progress on the Big Beautiful Bill now.

More Tariff extensions seem the most likely and obvious path. One thing that we are hearing more about, are various “tariff mitigation” strategies. We have already discussed the potential to change the component values to import the same good into the U.S. at lower tariff rates, by shifting the various input values to countries with lower tariffs (primarily, not China at current levels). We are seeing a surge in USMCA Compliant approvals – a process that was largely ignored, until it had the ability to sidestep tariffs.

On the Fed, we have now had two members, Waller and Bowman try and put July on the table.

The market (nor the Fed) are with our more aggressive view on timing and number of rate cuts, or bond yields in general (we are more bullish than consensus), but things are moving that direction and Peace Through Strength should further help our view.

Things could still go wrong in the Middle East. Iran could dig in its heels on nuclear enrichment, etc., but for now, we can be optimistic. It is not unreasonable for this success to translate into renewed efforts with Russia/Ukraine, which would also be a positive (especially for global bond yields).