There are two types of people in this world right now. One, who look at the US equity markets and think that things are still strong and will turn out to be okay and two, the ones who have slowly come to a realisation that all bets are off in the global economy and its only a matter of time before we hit the iceberg and drown collectively. If you’ve been reading this blog then you would appreciate that we were one of the very first ones to sound a note of caution even when the US equity markets have made us look like Cassandras all through this year!
Let us examine the facts as have taken place this year. The US began to bomb Iran on February 28, 2026 and claimed to defeat Iran conclusively on the same date. In a week or so, Iran closed the Strait of Hormuz which has remained so despite Trump claiming numerously that it will open, one way or the other and Iran was begging for a deal. So a lot of people looked at the crude oil futures prices and If they fell, believed that Trump was playing some 5-dimensional chess wherein everything was ultimately controlled by the US and eventually, equities should rally.
They believed that if oil prices rose, it will benefit the US producers and help its economy and if it fell, Trump was right all along. These people and there are a large number of supposed market experts, took their cues from the US equity markets and as long as the markets went up, everything was ultimately controlled by the US. If the US said they will open the strait, they believed it without noticing that no ships crossed through ; when the US announced a deal to stop 10 year yields crossing 4.5%, they said look, TACO trade works; when the US announced taking over of Venezuelan oil, they said oh the prices will crash without realising that it will take close to a decade for any meaningful supply and when Trump said Fed should cut interest rates, they believed it because, well US markets rallied.
Cut to today- the war had dragged on for over 7 months, brent trading over $109 as we speak, US diesel prices are at the highest in history, European natural gas prices have gone up 3x in a year, US 10 year yields are at 4.99% with multiple countries showing historic levels on their yield curves, since the US equity markets are still at all time high, the same group of people now claim that Iran is meddling in the US mid-term elections, a higher interest rate is good for stocks!
One more narrative which is doing rounds is that Scott Bessent, the US treasury secretary will be able to control the yields, the Japanese yen and oil prices in a manner which suits the US! They also claimed that Druckenmiller wrote his famous WSJ piece criticising Bessent because, well, now they can team up and control the markets and what not. So if interest rates are rising, it will benefit the US to pay off its debt by devaluation!!
It is quite astonishing that people on Twitter are openly aware of the largest market manipulation scheme in the history of mankind and are able to bet openly! To my mind, this is intellectually lazy and stupid to be honest.
The facts are as follows:
1. The Strait of Hormuz and now Bab-al-Mandab is under Iranian control and the US has suffered embarrassing beating from the Iranians. Every base of theirs has been bombed and deserted and every ally which depended on them- the Saudis, Qataris, Emiratis have looked for alternatives to protect their citizens. It wasn’t for nothing that the Irani President met UAE deputy PM in New Delhi during the BRICS summit. As far as the 5D chess is concerned, its plain bullshit. Everything the US claimed has either been a lie or a farce, at times comical. The Japanese might be pliant about not dumping the treasuries, but it wasn’t for nothing that Xi travelled to Delhi to meet Modi ji and Putin. The era of US hegemony is largely over and in a couple of decades, the world will be a different place. I’d request you to please re-read Great Power Games by Vikram Sood Sir.
2. The cost of capital has risen irreversibly across the western world. You name the country- US, UK, Germany, France, Italy, Spain, Japan etc- all part of the supposed developed world and find that their borrowing rates across the tenure are either historically high or at least highest in 15-20 years. The uninterrupted bond bull market in the west and especially the US which began in the 1982-83 is now coming to an end and it will not be pretty either.
3. The oil futures prices are not yet a reflection of the real prices of the refined products- diesel, petrol, etc. Diesel prices in parts of the US are now above $8 a gallon while nationally, they are at the highest in the history. If this doesn’t cause inflation, then nothing ever will. If high cost of capital doesn’t hurt the economy, I don’t know what will.
4. At no point, inflation in the Western world and even globally will be transient. I have been maintaining for about six months that the US Fed will have to raise interest rates and RBI will follow eventually. ECB has raised rates twice this year while BoJ is expected to raise again on 17th. BoE will have no other option but to follow and the global rates will be structurally higher in coming months than what we have been accustomed to see them at. The Indian WPI just came in close to 10% today and in a couple of months, the CPI will reflect the same.
5. The world will be forced to replenish refill of its oil reserves and unless there is a severe recession in the meantime, it will have to keep buying oil at higher prices. The loony-toon world of Bessent being able to bring oil at $40 will not happen unless of course, the US goes into a severe recession at which point, it wont matter if the oil prices are at $40!
6. The AI Titanic will eventually find its Iceberg sooner rather than later and it wont be a surprise if we all wake up one morning to a 1987 type of an event after which everyone subscribing to the 5D chess vision suddenly reads the above 5 points. For that to happen, the US equity markets will have to react violently downwards. Everything else will be clear from then on.
In my opinion, the US equity markets will not give returns anywhere close to what they have delivered in the past 10 years and in 3-5 years from now, more people will cry about global investing than they are about buying Indian Nifty. Similarly, in our markets, there is absolutely no reason why the flush of IPOs will be absorbed perennially and we will hit a phase where IPO becomes a dirty word. The small-mid and SME space will have to undergo catharsis in order to be valuable again.
We, at Caelis, are pretty confident that the whole narrative that since the Indian markets have not performed for the past two years so that they will breakout on the way up is going to be incorrect. The markets, especially the broader indices have to first meaningfully correct on the way down before any reasonable upside! When that correction happens, not many will either have the money or the courage to invest and that’s exactly what we aspire to do- buy when there will be blood on the streets for sure it will be a bloody time!
Life is all about Compounding! 