The fact that some Iranian missiles got through Israel’s Iron Dome, causing horrific civilian damage, may have been what drew the U.S. into the Iranian conflict over the weekend, especially since the U.S. has B-2 stealth bombers that can carry up to two bunker buster bombs per plane. Israel’s biggest challenge was taking out Fordow, Iran’s most fortified nuclear facility, where Iran produces highly enriched uranium.
Fordow is built deep into a mountainside near Iran’s holy city of Qom, and since it could only be destroyed with a massive bunker-busting bomb, President Trump finally agreed to share U.S. assets with Israel, which had already advised residents of Tehran to flee the city, which is causing chaos, since 16.8 million people live in the greater metropolitan area.
In the previous week, Israel continued to kill more Republican Guard leaders and six nuclear scientists. President Trump had offered Iran several chances for diplomacy. In fact, President Trump left the G-7 meeting in Canada early after a dinner last Monday night to assess America’s options in the war between Israel and Iran, while sending the USS Nimitz aircraft carrier and at least 25 refueling planes to the area.
Here are the most important developments recently and what they mean:
- Despite the highest crude oil prices in the past five months, I am anticipating the relief rally to persist, since “uncertainty” has been removed. However, any relief rally could end abruptly if the fighting spins out of control and there are endless retaliatory strikes. Iran’s threat to close the Strait of Hormuz is not being taken seriously, but this threat did temporarily boost crude oil prices. President Trump announced on Monday a ceasefire between Iran and Israel within 24 hours, but after the announcement, Iran continued to lob missiles at Israel after the announcement. So, moving forward, the key is for this fledgling ceasefire to stick and any “uncertainty” to end.
- Fed Chairman Powell is now a lame duck, and new Fed leadership has emerged. Specifically, Fed Governor Christopher Waller said the FOMC may lower interest rates at its July FOMC meeting. In a CNBC interview, Waller said, “We could do this as early as July.” Waller added, “I think we’ve got room to bring it down, and then we can kind of see what happens with inflation.” Finally, Waller said, “We’ve been on pause for six months to wait and see, and so far, the data has been fine.”
- The Fed has been anticipating an inflation “bogeyman” that has not materialized. Central banks around the world continue to cut key interest rates, and at least one Fed member is now pushing for a key interest rate cut on July 30th at the next FOMC meeting. Deflation is becoming increasingly common around the world, especially in China. I am expecting the U.S. dollar to firm up due to (1) higher interest rates compared to the rest of the world, (2) stronger economic growth, and (3) military might. A strong U.S. dollar is also naturally deflationary, since commodities are priced in U.S. dollars.
- The big risk for central banks and the entire world is deflation. China is exporting deflation and may have to devalue its currency, since its interest rates are below Japan’s. Speaking of Japan, even though their economy contracted, in the past, Japan has shown that it can still generate GDP growth via productivity gains. Looking forward, AI will be the key to continued productivity gains, especially as AI takes over physical devices.
- As an example of continued productivity gains through AI, Tesla launched its Robotaxi service on June 22nd in Austin, Texas. There is a pad in the center console in Tesla Model Ys where passengers tap in their destination in the Robotaxi. For now, a human sits in the front passenger seat in Robotaxi in case anything goes wrong, but so far, the humans have not apparently intervened. One Robotaxi passenger on YouTube pointed out that during her Robotaxi ride, the Model Y stopped for a cat crossing the road, so Tesla’s FSD has clearly become more advanced.
- Next year, Uber will launch its autonomous vehicle service with VW’s ID.Buzz vans in Los Angeles. VW is now producing the autonomous ID.Buzz vans that Uber will be using. These ID.Buzz vans are Level 4 autonomous, like Waymo, and require no driver but are “geofenced” to a particular area that has been mapped in advance.
- I do not know if Waymo (Google), Tesla or Uber/VW will win the autonomous taxi wars that are now unfolding, but eventually, we will just be transported from place to place in Robotaxis as Elon Musk has envisioned. Elon Musk is predicting that Tesla’s Optimus robots will become commercially available within a decade. The computing power to control Tesla’s Robotaxis and Optimus robots will be off-site, so they will constantly be updated via online updates. This brave new world of physical AI is coming and requires massive data centers to fuel the AI boom. I should remind you that it is a good idea to have plenty of stocks that are benefiting from the AI data center boom.
In summary, due to recent uncertainty, I am expecting that central banks around the world continue to cut key interest rates and that the Fed may start cutting key interest rates at its next FOMC meeting on July 30th. The U.S. is an oasis amidst global economic chaos, so I am expecting the U.S. dollar to strengthen and for interest rates to steadily decline in a “flight to quality.” As the Fed commences cutting key interest rates, it will help to “turbo boost” our stocks as well as overall GDP growth.
