Tonight, the President will address the nation (and the world) on Iran at 9:00 pm EDT (which is 5:30 am in Tehran according to Google AI, but 4:30 am if you use Grok). I felt that it might be useful to know what time it is in Tehran, but apparently AI has trouble with daylight savings time?

This is a President who regularly answers questions on Iran and the war. A President who sends out a lot of “missives” via social media. A President who is answering phone calls from reporters and talking to them.

Never have we gotten so much real-time information from the President in a time of war.

Despite all the communication, it is incredibly difficult to know where things stand.

Tonight Could Go In Almost Any Direction

We will try to assess the likely scenarios for tonight, along with some “outliers.” But the reality is, from brief conversations with the Geopolitical Intelligence Group, tonight’s conversation could go in a lot of different directions. Some paths are more likely than others, but very little seems to be off the table (consistent with the contradicting statements and views from the President).

We will try to wade through this, in order to be ready for tonight’s address (though it would be almost shocking if there were not market-moving headlines between now and then).

The “Framing” of the Conflict Has Improved

The administration seems to have become more consistent in framing the need for the attack.

• Iran is too dangerous of a country for the world to tolerate and they were only getting more dangerous.
• Iran supports violence through their proxies. They have been responsible for the deaths of over 1,000 Americans. They were building up a missile and drone program to attack their neighbors. That missile and drone program would also provide cover to build nuclear weapons. They have been hiding their capabilities. They support terror across the globe.
• Iran is not just dangerous to others, but the regime also represses their people, often violently, as they sacrifice their welfare in pursuit of their attacks on various “satans.”

None of this is new, but the admin has done a better job of consistently messaging it of late. It would be surprising if the President didn’t address this again tonight.

Setting “Victory” Conditions

Again, since the middle of last week, when the President first argued that killing so many leaders and potential leaders is the equivalent of regime change, the admin has been tightening up their discussion of what winning means. From Rubio, to Vance, to Bessent, to Greer, the messaging is much more in line.

• Navy destroyed. Seems largely done, though questions remain about smaller vessels and mining capabilities.
• Air Force destroyed. Seems clear.
• Weapons were depleted and manufacturing capacity was destroyed. Clearly, they have used a lot of missiles and drones. By all accounts we have been very successful in our attacks on their launchers (one GIG member estimated they have 75 or fewer mobile launchers down from 500 at the start of the conflict). We have certainly hit some of their weapon caches and production facilities. How much remains intact is a question, but very good progress on this front is our current base case.
• Ending the Nuclear Program. The facilities have been hit. From hard water to research, we have continued to set back their program. It had been set back last June, but obviously not far enough. Progress has been made on this front. Away from the killing of many leaders and potential leaders, there are reports that many senior officials in the nuclear enrichment and weapons program have also been taken out. The “enriched uranium” in existence is somewhat concerning, but maybe not enough of a threat to stop the U.S. from claiming victory, given all the other damage that has been done to their nuclear program?
• Regime Change. Since day 1, we’ve argued true regime change is unlikely, and almost impossible without boots on the ground, or defections in the IRGC or military (which we haven’t seen obvious signs of lately). The argument that there has been so much attrition of leadership that we have found new “leaders” who are more concerned with preserving their own lives, and those of their family, than continuing to advance the agenda of “prior” leaders is at least plausible.

Of all the “victory” condition arguments made so far, “regime change” is probably the weakest, but it might be strong enough to pave the way for a deal.

Things That Have Been Said

While we were on very solid footing in the prior two sections, this gets a bit trickier. Not because the things weren’t said, but because there have been a lot of contradictions.

• 2 to 3 more weeks. Just yesterday, the President said 2 to 3 more weeks, so is tonight’s address about what will happen in those 2 to 3 more weeks? Was the threat of attacking for 2 to 3 more weeks just more leverage to force Iran to a deal?
• Boots on the ground. Boots on the ground will lead to more casualties for U.S. forces than we’ve seen so far. There is almost no way around it. Boots on the ground is dangerous. President Trump has always been cautious on loss of life, so is he really willing to give the order to put “boots on the ground?” Many of the proposed targets, like Kharg Island, can increase leverage on Iran, but will be costly in terms of lives, hardware, and money to maintain control. One argument is that you wouldn’t send the troops there if you weren’t planning on using them. The counterargument is that you cannot extract leverage if the troops aren’t there as the threat isn’t real.
• Leaving Hormuz in Iranian “control.” We wrote a lot about the Strait and Asymmetric Warfare in this weekend’s T-Report. Is this a threat to get NATO and the Gulf countries to actually contribute? Forcing them to “understand” that they can step up now, while the U.S. is there, because it will be a lot easier for them while the U.S. is in the region. Leaving the region with the Strait “as is” seems to be a difficult one to sell as a “victory.” Doesn’t mean the President won’t do it, but it would raise far more questions than answers. The President wants the Strait open.
• The rhetoric against NATO from the administration has been increasing. Not being able to use bases or air space seems particularly vexing. Again, a subtle (or not so subtle) threat to push NATO into action sooner rather than later?
• Attacking Critical Infrastructure. This is a bold, but risky strategy. Many facilities are “dual use” in that they are a public service, but also serve a military purpose. Electricity production in and around military bases or armament manufacturing is one example. There is a lot of “grey” zone here, but it does create the risk of amplifying the “humanitarian” crisis that is already likely developing in Iran (the regime seemed to spend more time on military survival than on their own citizens). Probably just “leverage” but we have seen more damage done to energy infrastructure in a month, than we’ve seen in years with Russia and Ukraine (at least it seems that way, I haven’t fully verified that statement).
• Finish it. The best endgame is one where the “old” Iran is gone and a “new” Iran is created that fits into the region and the world much better. It would be great and there is a clear path to that. Is the 2 to 3 week timeframe enough for that? This is an incredibly difficult option to take as the risk, primarily to U.S. forces, is great but the “prize” would mean so much for stability and even energy prices, so it has to be considered.

Who is In Charge in Iran?

We have glossed over this so far, but it is a real question mark.

In-person communication is dangerous for the leaders and potential leaders of Iran.

Communication via electronic methods is likely being monitored, making it dangerous to use as well.

How do you form a “credible” government under those conditions?

Presumably, some group (or faction) with some authority has attempted to take charge (or actually taken charge). They have been allowing some transit of the Strait as a sign that they are in charge (wouldn’t make much sense to negotiate with someone who couldn’t control the Strait).

It is a real question mark.

On the other hand, does the admin really need someone who will ultimately be in charge? Or do they just need someone to do a deal with, that is credible enough in the moment?

The latter is quite plausible.

The Range of Options

• We won. We have a deal. We will be leaving. The admin seems to be pointing that way. They will need to provide information on why they think the person giving them the “deal” is in a position to do the deal. A little harder to sell as victory, so not quite my base case, though it is up there.
  • A “cool” wildcard would be to have some sort of direct link to whoever is claiming to be able to make a deal. Kind of a “told you so” moment for the admin.
• We are about to win. The admin tries to bring maximum leverage on Iran. On NATO and the Gulf nations. On Israel (though I’m not sure Israel needs any encouragement). He sets a timeline for more attacks. That the U.S. will consider the job done, soon, and if anyone wants to help, it is time to put up or shut up. This is my “base case” for tonight.
  • A wildcard would be launching a series of strikes in and around the time of the press conference (one reason why I wanted to know what time the press conference is in Tehran).
• Shock and Awe. Boots on the Ground. A real fire and brimstone speech followed by heavy attacks on infrastructure and putting boots on the ground. Relatively low probability, given all the other messaging, but it cannot be entirely discounted.
• Too many others to even contemplate. We stuck to the big 3, because this administration, particularly with this conflict, has been very unpredictable (except that the GIG was able to predict that we would attack).

Bottom Line

Great rally in markets yesterday and so far this morning. I think 1,000 points on the Nasdaq 100 in little over 24 hours!

Difficult to tell how much of that rally was aided by month-end and quarter-end rebalancing (especially for the one large ETF that had a lot of options to sell).

We were “oversold” on many stocks and sectors (the software ETF IGV was one I saw mentioned multiple times).

Yields were definitely too high with what I viewed as too much inflation fear mongering and not enough recession risk consideration.

I think the “we are about to win” scenario sets the stage for the best longer-term rebound, though we might fade a little on risky assets if that is the scenario laid out tonight. There will be some uncertainty. If the “we are about to win” is launched with communication of other nations actively becoming involved in the coming days including getting ships to transit the Strait, then there should be no dip.

The “we won” outcome probably sends stocks a little higher, but think that fades. The region will potentially be messy for years to come if the U.S. extracts itself now. Relationships with the U.S. will be fraught with difficulty as many countries will have trouble figuring out “exactly” what went on?

Truly ending it is probably the best outcome, but likely the worst for risk assets near-term. Not so much because the ending is uncertain, but because of the damage (that will be done in the interim) that could affect the global economy for years to come.

Damage done already, jobs, the AI story, private credit, working poor, affordability, and Asia and Europe in disarray will all still be with us tomorrow morning.

The market wasn’t down just because of Iran. There were a lot of factors, and those factors will not be resolved tonight, capping the rally in risky assets.

Tonight should be “interesting” to say the least. I wish we had “better” or very specific answers, but this administration has many options at their disposal and it is incredibly unclear which option they will choose (none of the above is certainly feasible too).

Good luck and let’s all hope for good news tonight!

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