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Comment by jpiasetz

24 days ago

> The stock market keeps going up in the face of the indefinite closure of Hormuz

Why wouldn’t it? The closure leads to price increases which leads to inflation which leads to non-dollar assets (ie stocks going up in value)

Second from a US perspective the strait matters the least it has since world war 2. If the price stays high a bunch of fracking will come back online.

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jpiasetz

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kalkin  24 days ago

> The closure leads to price increases which leads to inflation which leads to non-dollar assets (ie stocks going up in value)

I think this argument proves too much. Historically energy shocks have led to recessions, and in recessions the stock market usually doesn't go up. And the US economy is certainly exposed to global recession regardless of whether we're a net exporter of fossil fuels.

  • jpiasetz  24 days ago

    The shock is smaller, and oil’s importance is less so less likely to cause a recession. In the 70 price went up 400% and oil was rough 1.5x more important. Today price up 100% so the past oil shock was 6x larger

    • thephyber  24 days ago

      You are pretending like the oil crisis of 26 has already run its course. In the 70 crisis, we have the hindsight of several years of how it played out. We don’t even have 1 week of data after the last ship leaving the Strait docked in the US.

      Also, the US SPR was created in 1975, so we are going to get to see if it actually works to absorb an oil shock like this.

      Most likely there will be some places which are almost unaffected while others are going to see unaffordable price spikes (more than 400%). The pain won’t be spread evenly.

  • ericmay  24 days ago

    Well, there are quite a number of factors. I think you're right that "it's inflation" is a little too simple, but it does seem to be at least a significant factor, in my opinion.

    The Strait of Hormuz is, basically not a big deal unless you're driving your big ole' truck. Americans are price sensitive and so some companies will have to absorb pricing increases, customers will absorb some others, and so forth. In other words, business as usual. Of course the closure of the Strait is a big problem for most of the rest of the world. They better get on with figuring out how to get Iran to stop being so chaotic in the region or we'll just keep it shut down indefinitely. No big deal.

    Because the United States has so many advantages (primary global reserve currency, robust and efficient capital markets, highly sophisticated and dynamic economy across all sectors except luxury goods, &c.) it's able to weather these storms much easier than most other countries. As a country that also imports so much, if we spend less on imported products that's less of a problem than not being able to sell products. A recession isn't great, but the current parameters seem to suggest to me it's less of a problem for the United States - perhaps why we're in part seeing stock market valuations continue to climb.

    • thfuran  24 days ago

      >The Strait of Hormuz is, basically not a big deal unless you're driving your big ole' truck

      Are you serious? Even ignoring the other things that ship through there, a significant disruption to global energy supply is significant to most people. If you're not driving a truck, you're probably using goods that contain plastic or took energy to produce or were moved from one place to another in fuel-powered vehicles. If, somehow, you're not, you're probably using services that are.

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    • thephyber  24 days ago

      > The Strait of Hormuz is, basically not a big deal unless you're driving your big ole' truck.

      Worst take I’ve ever seen on this website.

      > Americans are price sensitive and so some companies will have to absorb pricing increases, customers will absorb some others, and so forth. In other words, business as usual.

      No. Not all goods/services have the same price elasticity. At some point, people stop buying some goods if they are too expensive. They stop commuting to work. We start to see breakdown of the supply chain.

      Literally 100% of many towns in the US depend on trucks to deliver food to their grocery stores and the inventory on hand usually only lasts a few days. Once those trucking deliveries become unaffordable for either party in the contract, society starts to. Real down.

      Consumers don’t magically make more money when the price of gas rises. It starts to crowd out their ability to spend on other things. The poorest of the working class likely has to commute the furthest so they will end up sacrificing something to keep paying for the commute - food or rent or utilities.

      The US doesn’t weather this because we have “a sophisticated supply chain”. _If_ we weather it, it’s because we created the US SPR after the last major oil crisis and we have significant domestic supply (although not all oil is fungible so we might not have enough light sweet to keep the economy running at 100%).

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