Investment Musings Episode 3 - Chokepoints

A ~$10bn military just deterred a ~$1tn one – no bomb, just a strait. It may be the biggest "TACO" yet: not a tariff walked back, but a war. Episode 3 of Investment Musings reads the Iran climbdown as the opening note in a much larger score.

This is the audio edition of "Chokepoints". The ceasefire over Hormuz is the sideshow; the piece traces a single fault line running under markets, geopolitics and the texture of work itself – the line between what can be measured, financed and copied, and what cannot. The cheap, the commoditised and the explicit are losing ground; the scarce, the non-substitutable and the tacit are where the value and the power are quietly concentrating.

IN THIS EPISODE
– TACO ("Trump Always Chickens Out"): why the Iran ceasefire is the pattern at its largest scale yet – bullish for risk in the moment, corrosive for US credibility over time.
– Economic deterrence: a chokepoint you can credibly weaponise as a third category beside the conventional and the nuclear – and the trap the West built for itself by weaponising the financial system and outsourcing its supply chains.
– The dollar squeezed from both sides: allies hedging toward Beijing (CIPS, the digital renminbi, gold overtaking Treasuries in reserves) and a US fiscal path that does not close – Social Security near benefit cuts, debt close to 100% of GDP, and only inflation or yield-curve control as exits.
– Weather and climate: why the war is a sideshow and the equity case rests on the AI capex cycle – with the long end of the curve as the one variable that decides it.
– The new risks in the machine: the demand question (small, cheap models that could make AI far less profitable than investors expect) and the political one (an administration that can switch off a frontier model overnight).
– The treasurer returns: what AI does to the value of a person – it commoditises explicit knowledge, leaving judgment, relationships and soft skills as the irreplaceable layer. The catch: tacit judgment can only be grown, and AI is eating the junior rung where it was grown.
– The human face: a generation gone "YOLO" – priced out of housing and entry-level work, betting on crypto, meme stocks and prediction markets. Financial nihilism with a political tail.

The through-line: what can be copied is being commoditised at speed; what can't is where the value went. Hormuz, the yield, and the analyst who can no longer be trained – the same story in different registers.

THREE LINES FROM THE PIECE

– "Everything else is weather; the long end is the climate."
– "If AI eats the bottom of the ladder, no one climbs to the top of it."
– "We are commoditising knowledge faster than we can grow the wisdom to use it."

SOURCES & REFERENCES
– Reuters – "The future of AI may be small, cheap, unprofitable" (18 June 2026): https://www.reuters.com/commentary/reuters-open-interest/future-ai-may-be-small-cheap-unprofitable-2026-06-18/
– Alpine Macro – reading of the Iran deal
– 13D Research (WILTW) – economic deterrence and financial nihilism
– Robert Armstrong, Financial Times – the "TACO" trade
– Taylor Pearson – tools and judgment
– Michael Polanyi – explicit vs tacit knowledge
– William Penn – knowledge and wisdom
– Clive Crook – the US fiscal bind
– Ernest Hemingway – "gradually, then suddenly"

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Investment Musings is a newsletter on macro, markets and the ideas moving them, written for people who invest.

The views expressed are personal and for information and discussion only. Nothing here is investment advice or a recommendation, and it does not represent the views of any employer or affiliated firm.
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A personal editorial view, read aloud – not investment advice.

Transcript

SPEAKER_00 0:00

Choke points. The biggest Taiko Ever by Nuno Amado Mendez. In brief, Taiko. Trump always chickens out. The Iran ceasefire is the pattern we have been becoming used to at its largest scale. The irreplaceable layer is human, not the model. AI commoditizes explicit knowledge, so the edge moves to the tacit. Judgment, relationships, soft skills, which can only be grown, not downloaded. The US fiscal path does not close. Social Security is years from benefit cuts, and debt nears 100% of GDP, leaving inflation or yield curve control. And pushing capital toward hard assets. The young have gone YOLO YO only live once, priced out of housing and entry-level work, a generation bets on crypto, meme stocks, and sports books. Financial nihilism with a political tail. A non-nuclear state with a military budget of nearly $10 billion appears to have deterred the United States. And nuclear power spending nearly a trillion dollars from finishing a war it had effectively started. No nuclear bomb was needed. The level was astray. The cheap thing beat the expensive thing because it held a choke point. The expensive thing could not root around. And found a moment it could not afford to test. While Iran could threaten Hormuz, a nominal force held the world's energy supply hostage, and an administration facing midterms with oil already high was at the table within weeks. That asymmetry is the signature of the moment, and the same fault line runs under everything worth reading now. Markets, geopolitics, the texture of work itself, the line between what can be measured, financed, and copied, and what cannot. The deal. On 17 June, Trump and Pazeshkian signed a 14-point memorandum, a 60-day ceasefire, free passage through the Strait of Hormuz, the blockade lifted and sanctions on a path to ending, assets unfrozen, and a proposed $300 billion reconstruction fund on the nuclear question. The Kazas belly. Almost nothing. Read plainly, it is an Iranian win. The regime survived, the damage program persists, and Tehran proved it can shut a choke point and be paid to reopen it. Alpine macro goes further. Victory on near-maximalist terms, caused by a loss of nerve under the midterm test. The trading floor has a blunter name for the patent, takeoff. Trump always chickens out. Robert Armstrong's FT coinage for the 2025 tariff cycle, where a maximal threat met resistance, folded, and taught the market to buy the dip on every escalation. This is probably the greatest take-off of them all. Not a tariff walked back, but a war, the climb down price, is the adversary's victory, and it cuts both ways, bullish for risk now, as the war cools and oil falls, and corrosive later, as adversaries learn to work the lever and allies stop leaning on the threat. The diagnosis of the cause is right. I would hold the verdict lighter. A ceasefire whose every durable clause sanctions relief, the straits future, the fund. Is conditional and reversible, is a deferral, not a settlement. And the arithmetic that bought it can unwind it after November, if not much earlier. I cannot possibly keep up with the constant headlines. The deeper frame is economic deterrence, a third category besides the conventional and the nuclear. North Korea, with nothing of economic value, bought the bomb and watched regime change talk evaporate. Iraq and Libya had value, but could neither defend nor weaponize it and were destroyed. Iran combines resource value, proxy reach, and a choke point it can credibly weaponize deterrence without a bomb. The sting is that the West built the trap itself, weaponizing the financial system through sanctions and outsourcing energy, materials, and manufacturing until it is as exposed to embargo as its targets. The best positioned beneficiary is China, squeezed from both sides. So every American-dependent ally watching Israel being sidelined to close the deal as Europe and Kiev or over Ukraine hedges toward Beijing on Beijing's terms. The hard evidence is real and at the margin. Records CIP's volumes, a digital Renminbi backed across 26 institutions, and gold overtaking treasuries as the largest share of official reserves. The soft evidence is where the narrative outruns the data. Swiss gold to Saudi Arabia up several folds since 2022. Read by some as proof that Riyadh will price oil in Ren Membai settled in gold, a story a flow statistic cannot yet carry. None of it is near-term regime change. All of it is a direction. The dollar is also under pressure from within. Under current law, by 2031, mandatory spending and net interest will exceed federal revenue as a share of GDP. Debt has risen from about one-third of GDP in 2000 to nearly 100%. And the Social Security Trust Fund is only years away from cutting benefits to the level covered by payroll taxes alone. Clive Crook's Bind has no clean exit. The populist right will not touch entitlements, while the populist left would tax only the rich, and neither solution closes the fiscal gap. That leaves the old escape routes, inflation or yield curve control. The process is gradual, then sudden. Though for a sovereign borrowing in its own currency, sudden does not mean default, it means the moment markets reprice debasement. The case for hard assets depends on the form that adjustment takes. An inflation-driven rise in long yields erodes paper claims and supports gold, while a real rise hurts both gold and equities. Even here, the long end decides. What matters is the composition of the move, weather, and climate. Cheaper oil is disinflationary, most of all in Europe, where Brent at 60 to 70 takes more than a point off headline inflation, making the ECB's 11 June hike look like an error and a September move unlikely, while a hawkish Fed will struggle to tighten into falling energy. The cyclical setup reads constructive. Pro-Growth Washington, the OBBBA, OBBBA impulse still flowing oil falling, with one honest blemish, tariff settling near 9 to 11%, or a tax on growth and a push on prices, not a tailwind. The dominant driver is the AI CapEx cycle, and the constructive view rests on one assumption it assumes rather than tests that the build-out continues. Three things can break it on three independent axes. The cost of capital, the durability of demand, and political access. And the debate that fills the tape is only about the first. Supply side of a top and funding against verifiable demand both reduced to the long end. Google raising equity is a yellow flag. NVIDIA issuing cheap debt is a counterpoint. The bear skill criterion is a level on the index. The bulls is the cost of capital rising before CapEx guidance comes down. Within that argument, the yield is the climate, and the rest is weather. But the rates of session forgets the other two axes can become climate of their own. The new risk in the machine. Those two axes sit on no underwriting model, demand first. The AI boom is built on the idea that bigger is better. A recent study suggests the opposite may soon be true. Small language models running on desktop computers may be able to handle most of the tasks currently performed by large language models. If so, the future of AI is smaller, cheaper, and far less profitable than investors expect. Then access. Late on a Friday, Anthropic pulled its two most capable models, Fable 5 and Mythos V, for every user on Earth. Not by choice. 8 stayed live. Washington calls it a national security event. Anthropic says the technique was narrow, surfaced only known bugs, that rivals do the same, and the evidence is merely verbal. The uncomfortable part is how self-inflicted it looks. The order landed two days after the CEO argued the state should be able to block dangerous models after months of marketing mythos as close to ammunition. The signal matters more than the incident. A third axis, harder to model than the other two, an administration willing to switch off a frontier model overnight, on contested evidence, mid-IPO, where access sits and under whose law are no longer footnotes to what the technology can do. It is part of the risk itself. So the one thing worth putting in writing, the constructive case is rented, not owned. And the rent is the long end. A 10-year below, roughly 4.5%, keeps the build out and the multiple alive, sustained above it, while CapEx guidance has not yet come down is what breaks both. It is the single chart I would watch over any headline out of Tehran or Washington. The treasurer returns. Step back from the tape. And the bigger change is what AI does to a person's value. For two centuries, knowledge work was split among specialists, designers, engineers, writers. With coordination treated as overhead. The caveat is under all the version skips. One person covers most of what it is. And the case is the line that shifts inward. Judgment holds only for judgment. No one codifiable. What difference intensity is whether the human augments the model operates it? Jensen's knowledge can be codified. Not by algorithm, but by relationship. A model trained on it, she can own beer. So the value states decisions that matter are still made for getting a comeback. Or, as Bezos has it, read a thousand books on gymnastics, and you still cannot do the routine. And here is the trap, the optimistic read never closes. Done beside someone who already has it. If AI is the bottom of the ladder, no one climbs to the top of it. The thing that survives becomes the thing you can no longer learn. The analyst is becoming impossible to train. The human face. This is where the macro and the human meets. 13D calls it financial nihilism. Around 60% of American Gen Z millennials now believe the only route to wealth runs through alternatives. Crypto, meme stocks, prediction markets, sports betting. Two in 1990, flat real graduate wages for three decades, entry-level hiring down by roughly a third. And it is the same lost wrong scene from below. The bottom was where skill was grown and where wealth began. Remove it and a generation accumulates neither. The tail is political. People who stop believing the economic system rewards them will stop believing the political one represents them. Germany is the same revolt in a European key. Two years of contraction, the lowest birth rate on record, Aztec now worth more than the entire DAX, the main German stock market index. An insurgent right on course to take its first state on a reindustrialization ticket, Dakota. The threats converge on one idea with a sting, the explicit layer. The data, the consensus, the same model in every hand is being commoditized at extraordinary speed. And what is left is the tacit layer. Judgment, relationships, the work that cannot be codified. That is the comforting half. The sting is that the tacit layer cannot be downloaded, only grown, and we are dismantling the ground it grows in. The cheap force that held the straight, the allocator who leaves early, the deal maker over dinner, the analyst who can no longer be trained. The same story in different registers. We are commoditizing knowledge faster than we can grow the wisdom to use it. And the treasurer, it turns out, takes a generation to make.