Markets on Edge as War Enters Critical Phase
Weekly Investment Update | By Brian Schreiner
Financial markets are on edge as the U.S./Iran war enters its fourth week and critical new phase.
The war with Iran is overshadowing all other investment considerations.
Disruptions to the oil market and gas prices are mostly noise.
Primary market forces related to the war are the limits of American power, the duration of the conflict and the geopolitical consequences.
The U.S. economy is headed for stagflation.
Losses in private credit expand to consumer loans.
Why we sold Bitcoin and bought Bitcoin Cash.
Last week was the fourth straight week of losses for U.S. stocks and the S&P 500 which was down 5% for the year at the close on Friday. The index is up 2% this morning as investors get whipsawed in volatility that swings both ways.
Gold, which has been on a tear for two years, had its worst week since 2011. U.S. Treasury yields rose and bonds sold-off over investor concerns that the Fed won’t be cutting interest rates anytime soon. Commodities, which have been on a steady climb for three months, were up again last week and bitcoin was down.
The war with Iran is overshadowing all other investment considerations.
Making an accurate assessment of developments in the conflict is challenging and time consuming because the words of politicians are meaningless and the mainstream media can’t be trusted.
For a better understanding of what’s actually unfolding, I recommend reading long form commentary or listening to interviews from independent analysts and retired military officers. They’re not without bias, but their work is more rigorous. Their on-the-job experience matters and they have reputations to uphold, unlike the mainstream media who are only interested in maintaining their captive audience and have no credibility left to defend.
Disruptions to the oil market and gas prices are mostly noise.
The International Energy Agency says that the closure of the Strait of Hormuz is the biggest disruption to the global oil market in history. Measured by barrels of oil per day, that’s true but the 1973 Arab oil embargo had much larger economic impacts because, at that time, oil accounted for over half of global energy consumption—and OPEC controlled half of it. In those days, there were few ways for oil transport to bypass the Middle East.
Today’s oil market is far more efficient and the global economy is far more adaptable and resilient to supply shocks. Most countries are strategically prepared for market disruptions. Energy sources are more diversified—oil accounts for about 32% of global energy consumption today—and the timeline for bringing new supply to market is months, not years.
From an investment standpoint, the most important questions are: What are the limits of American power? When will hostilities end? And how will the geopolitical consequences impact financial markets?
In my lifetime every war the U.S. has entered has been a “war of choice,” and they’ve all lasted longer than advertised. Speaking of advertisements… The Iranian people aren’t going to “rise up and take control of their country.” In the real world, in countries like Iran, new governments aren’t formed by concerned citizens “rising up”—they’re formed by organized political parties with military backing; revolutionaries who are likely radical, extreme, violent and oppressive.
Early in the war, U.S. officials insisted it would be short and without ground troops. Now, almost a month later, more than half of investors on Polymarket are betting the war will extend into June and ground troops along with all of their support personnel and machinery are getting into place to begin high-risk operations that make a quagmire not just likely but highly probable.
The limits of American power are being put to the test. From an investment perspective, the easy answer—which you will see over and over again in the financial media and endorsed by politicians—is that the U.S. military is capable of doing whatever it wants and success will be the ultimate outcome.
In one investment newsletter I read over the weekend, the author said, “The war continues to go very well… We just need to complete the job of getting control of the islands and the shoreline in Hormuz.”
Controlling the Strait of Hormuz during a war with an enemy that has been preparing for your arrival for decades is an immense military undertaking. Retired Army Lieutenant Colonel Daniel Davis Daniel Davis describes Iranian infrastructure surrounding the Strait using the term "fortress Iran." It’s a sophisticated, multi-layered defensive network that makes a traditional naval breakthrough nearly impossible without catastrophic losses.
According to Davis, Iranian fortifications include deep-bunker missile batteries bored into the rugged mountainous along its 100-mile coastline. These are hardened, underground launch sites that are nearly impervious to standard U.S. airstrikes. The batteries include launchers that remain protected by hundreds of feet of rock until the moment they fire. There are hundreds of hidden alcoves and reinforced coastal “nests" that house fast-attack boats and semi-submersible drones. These are not large, vulnerable naval bases that can be neutralized in a single strike, but rather a decentralized web of small, fortified positions spread across hundreds of miles of jagged coastline that extend into the Persian Gulf and Gulf of Oman.
Iran also has mobile land-based surface-to-air missile defense systems that have been constantly on the move between fortified decoys, making it extremely difficult for U.S. forces to suppress. The islands within the Strait have also been heavily fortified. Operating in the Strait, U.S. forces will be enveloped in a kill zone always within the sights of short-range, high-speed munitions that cannot be easily intercepted.
Yes, the U.S. can take control of the Strait, but it will require a massive ground invasion and cost the lives of hundreds of U.S. soldiers. In the words of Army Lieutenant Colonel Daniel Davis, taking control of the Strait of Hormuz is a “major miscalculation” and a "suicide mission.”
Iran would likely retaliate not just against the U.S. invasion but also by targeting more sensitive locations in neighboring countries such as energy infrastructure and water desalination plants which would threaten many millions of innocent civilians.
The U.S. economy is headed for stagflation.
The rare alignment of stagnant economic growth and stubbornly high inflation is becoming reality.
Last week, the BLS reported that GDP growth was less than 1% last quarter—and it’s not just a statistical blip—it reflects a bifurcated economy where middle- and lower-income households are tapping out. With the unemployment rate slowly rising and job openings at multi-year lows, the "stag" in stagflation is becoming hard to ignore.
While growth cools, inflation remains elevated and it’s moving in the wrong direction. The Federal Reserve is facing a classic policy trap. Usually, when the economy slows, the Fed can cut interest rates to stimulate growth. But with oil prices over $100 per barrel and core PCE inflation stuck at 3.0%, cutting rates would be like throwing gasoline on an inflationary fire. Conversely, keeping rates high to fight inflation is a steady headwind on economic growth and could push the economy into a full-blown contraction.
In this environment, we’re focused on keeping our clients’ portfolios intact—not chasing growth stocks.
Losses in private credit expand to consumer loans.
Stone Ridge Asset Management announced last week that it would honor only 11% of client redemption requests in its Alternative Lending Risk Premium Fund—that’s ticker LENDX.
Until recently, stress in the shadow banking world of private credit has been limited to corporate lending—specifically loans made to software and tech companies—but last week we learned that LENDX, a fund that owns consumer and small-business debt, including "Buy Now, Pay Later" has seen massive redemption requests and the fund managers can’t match liquidity need.
Interval funds like LENDX don’t trade on public exchanges, so investors can't just sell their shares whenever they want. Instead, the fund offers periodic "windows" (usually quarterly) where investors can request withdrawals, but the funds are generally only required to buy back a small percentage (usually 5%) of its outstanding shares at a time. The problem is a classic liquidity mismatch: the fund owns highly illiquid assets (thousands of consumer loans that can't be sold off instantly), but investors want liquid cash right now. When too many investors rush for the exit at the same time, the fund simply doesn't have the cash on hand to pay everyone, forcing them to "gate" or limit withdrawals.
The LENDX run had ripple effects through the broader financial sector. Fintech stocks took a hit. When the news broke, shares of companies like Affirm, Block, and Upstart slid. Even though these companies just originate the loans and sell them off, shareholders panicked because if private credit funds don't have the capital to buy fintech loans, it could squeeze subprime and consumer lending markets.
Stone Ridge isn't the only private credit manager feeling the heat. We first highlighted the growing risks in private a year ago. Other managers, such as Cliffwater, are also limiting investors’ ability to take withdrawals.
After a decade of explosive growth the private credit sector is facing real strain. Investors are getting spooked by a mix of high interest rates, economic uncertainty, and an over-heated private equity market, leading to a "run on the bank" scenario for funds that simply aren't designed for the liquidity investors expect.
We’ve been invested in Bitcoin for many years and I’ve written extensively about why bitcoin is truely revolutionary. The core of our thesis hasn’t changed, but after reading the book, "Hijacking Bitcoin,” by Roger Ver, I’ve come to the conclusion that Bitcoin Cash (BCH) is superior to Bitcoin (BTC).
I’m drafting our 2nd Quarter Investment Outlook now and there’s a section called, “The Case for Bitcoin Cash,” where I’ll go in-depth, but here’s the summary:
Bitcoin Cash (BCH) emerged from a 2017 philosophical divide between bitcoin’s core developers and a large minority of developers over how the network plumbing should function. The core developers won and essentially voted to “hijack” bitcoin to enrich themselves. The main Bitcoin network (BTC) would have limited transaction capacity, which has resulted in the slow transaction times and high-fee high-fee network we know today and thus the bitcoin we know today (BTC) has evolved into "digital gold."
But as we know bitcoin was originally designed as a decentralized, fast, and cheap peer-to-peer electronic cash system for everyday transactions. And back in 2017, the minority group of developers, in keeping with this vision, executed a “hard fork” which created bitcoin cash (BCH) which would maintain the original vision for bitcoin.
Both the BTC and BCH networks have grown over the years,and today BCH is seeing a surge in utility and merchant adoption, staying true to the dream of bankless, borderless digital money.
Beyond its technical merits, Bitcoin Cash is uniquely positioned to benefit from a rapidly shifting U.S. regulatory landscape in 2026.
Last week, the SEC formally classified bitcoin cash and several other digital assets as commodities, not securities, paving the way for the potential launch of several new exchange-traded funds in the crypto space.
In fact, the SEC faces an important deadline this Friday, March 27. Grayscale Investments is pushing to convert its Grayscale Bitcoin Cash Trust (BCHG)—which currently trades at a significant discount to its underlying value—into a fully listed ETF. If approved, the discount is expected to collapse which presents investors with an opportunity to potentially capture substantial, yield-like upside while gaining liquid, transparent exposure to the original design of the Bitcoin network.
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