GM, this is Milk Road PRO, the financial equivalent of a compass to help you navigate this sea of conflicting data and shifting winds.
This is John Gillen. I’m writing to let you all know that I’ll be taking over writing these Milk Road Macro PRO reports going forward.
You may already know me as the Host of the Milk Road Macro Podcast and the co-Host of the Milk Road Crypto Show.
I’m really excited to be sharing some longer-form analysis for this amazing community, and I’m going to do my best to deliver value in every edition.
This report is where we take a ten-thousand-foot view of the biggest factors driving the global economy and asset markets.
We’re going to explore what’s happening and what might happen next.
The scarcity of two specific resources is driving the entire market.
Energy and computing power.
The ongoing closure of the Strait of Hormuz is contributing to an ever-increasing global shortage in energy.
The effects of this are going to be severe, but they are still on the horizon for now.
Meanwhile, the feverish bull run in compute has pushed Nvidia to $5T and semiconductor stocks in general to wild new highs with no major signs of slowing down.
You might be tired of hearing about this, but the market is definitely not tired of it.
It’s important to lock in and monitor these situations because they are completely ruling global macro and all markets right now.
In this edition, we will:
- Swan dive back into the ongoing oil crisis.
- Update on the Iran war and the Strait of Hormuz (it’s still closed).
- Try to frame what this means for the economic outlook.
- Catch up with Kevin Warsh.
- Take stock of the huge bullish move in stocks.
- Solve macro (jk lol).
As always, we’re going to try to give a big picture, but still offer enough detail to keep things in focus.
All aboard!
The world is staring down a barrel… of oil
The narrative is simple but terrifying: we are currently living through the biggest energy supply shock in history.
The Strait of Hormuz, the world’s most vital trade chokepoint, is effectively closed to commercial traffic.
What began as a “price spike” is becoming a physical scarcity event that is moving across the globe.
Inflation is creeping back in, and the global economy is starting to notice.
Let’s look at the metrics that actually move the needle. Here is the damage report so far.
The production shortfall
Pre-war, roughly 20M barrels of oil per day (bpd) passed through the Strait, representing 20% of global demand. Today, that flow is virtually nothing:
- The gap: Even with strategic stockpiles being released, the daily shortfall is estimated between 6M bpd and 11.4M bpd, depending on who you ask and when.
- The context: That is more than the total oil consumption of the UK, France, Germany, Spain, and Italy combined.
- Price ceiling: Brent crude has blasted through the "manageable zone" and is zig-zagging into the "stagflation zone".
To make up for this lost production, the nations of the world are being forced to draw down their reserves.
JPMorgan’s latest oil report shows global oil inventories drawing down at an accelerating pace: roughly balanced in Jan–Feb, then 4M barrels per day (mbd) in March, and a striking 7.1 mbd in April.
With spare production capacity now stranded behind the closed Strait, inventories have become the primary shock absorber for the market.
JPM notes that actual draws could be materially larger than the reported figures.
It’s hard to tell exactly how much certain countries have in reserve because this information is somewhat guarded. The actual buffer may be eroding much faster than the publicly available data shows.
If we’re being honest, it probably is.
More and more oil tankers are also now coming to the U.S. to fill up.
The U.S. is now exporting over 6M barrels a day and has flipped to being a net exporter of oil for the first time since 2001.
Oil optimism keeps getting knocked down
In mid-April, it looked like prices might stabilize as hopes of peace rose on news of the ceasefire.
By the end of the month, Brent Crude had pushed back up above $105 and is still bouncing around that level.
Here it is once again, the most important chart in the world until it isn’t.
The anticipated total loss
This isn't a problem that gets fixed the second a ceasefire is signed. The infrastructure damage is significant:
- Refining capacity: Roughly 30-40% of Gulf refining capacity has been destroyed.
- Repair timeline: According to the French government, full repairs could take up to three years.
- Permanent damage: Many Gulf states have "shut-in" production due to limited storage, and restarting these complicated systems can take months.
It’s important to note that all of these estimates about how much production has been lost and how long it would take to recover are dependent on the war NOT escalating.
Which, at the moment, is not a given.
Negotiations keep stalling. Both sides have used the ceasefire to build up military capacities. There remains a non-zero risk that the war gets worse. That could result in a regional or global war and a much worse economic crisis.
Posting for peace
Brent Crude Oil prices rose sharply at the start of the war. Several times, President Trump has made comments that made the market hope the war would end and the price would come down, but so far, the war has not ended, oil has not resumed flow, and the price of oil remains high.
Every time the President posts something to calm the markets, prices fall. But when the resolution to the conflict does not follow, they spike again.
There have been some comments made by the President claiming that this crisis does not affect the U.S.
Directly, he’s right. Indirectly, he’s very wrong.
U.S. gas prices are climbing.
So are diesel and jet fuel prices.
So are a lot of other prices.
And they’re unlikely to turn around until the crisis is over.
The global economic impact
A higher oil price doesn't just hurt you at the pump. It works its way through everything you touch:
- The energy bill: The global annual budget for oil was $2-3T pre-conflict. It is now moving toward $5-8T. That extra $3-5T has to be cut from spending elsewhere in the economy.
- Shocks: Asia is feeling the squeeze now with rationing and "save every drop" policies. Europe will feel the impact by mid-May, while the U.S. is "last in line" but still facing record prices.
- The Fed’s nightmare: The Federal Reserve can't "print" more oil. They can only hike rates to kill demand, which is a very blunt tool for a supply-side crisis.
It’s not just oil, either. Liquid natural gas prices in Asian and European markets are spiking like crazy, too.
There are simply too many impacts of all of this to go through everything.
The goal here is just to point out that although you may not feel it or see it yet, it’s still happening.
And it’s bigger than most people realize.
UAE leaves OPEC
This culminated in the UAE announcing that they are leaving OPEC as of May 1st after 59 years as a member in the organization.
OPEC is the Organization of Petroleum Exporting Countries.
Why is the UAE leaving?
Well,
Money.
Leaving will allow them to increase their oil production and take advantage of the huge global demand for oil.
It will also help them stay in the black economically.
The closure of the Strait has hurt a lot of economies, not just Iran.
This move shows just how much this conflict has changed global alliances and how acute the economic and financial pressure has been on many nations.
The UAE leaving OPEC isn’t where this ends.
So what’s the latest on the conflict itself?
The outlook for an Iran resolution:
- Truce: A two-week ceasefire was extended at the last minute, but it's "fragile" with violations on both sides.
- Lebanon-Israel: There’s a tenuous ceasefire in this conflict too, which matters.
- Chokepoint: The Strait of Hormuz remains effectively closed, with Iran reportedly "losing track" of mines it planted, making a quick reopening difficult.
- Market vibes: Equities are shrugging off the risk for now, but oil is still hovering near $90-95 as the physical supply shock starts to bite.
Iran has lost a lot of its centralized leadership structure in this conflict.
This makes it hard for it to do things like negotiate coherently.
Or find its own mines.
Not great.
U.S. envoys Steve Witkoff and Jared Kushner landed in Islamabad on April 25, 2026, for a high-stakes showdown with Iranian Foreign Minister Abbas Araghchi. This is the first real chance at a permanent settlement since the war kicked off in February.
At the time of writing, the latest news is that the Trump administration is planning to resume limited strikes in Iran to add pressure to the negotiations. There is a chance this leads to Iran retaliating in yet unknown ways.
The risk of escalation is rising. For now, the whole situation is TBD.
Markets hate uncertainty. This conflict has caused a lot of it.
Kevin Warsh: The new sheriff or Trump's sock puppet?
Warsh walked into the Senate Banking Committee hearing room facing a tough crowd.
Democrats called him a "sock puppet" for Trump, but a few Republicans threatened to oppose his confirmation unless the DOJ probe into current Chair Jerome Powell was dropped.
Which apparently worked better than closing the Strait, because the DOJ promptly dropped the investigation in Powell.
Make of that what you will.
- New Fed?: Warsh is pitching a "Back to Basics" Fed. He wants to stop the "mission creep" into climate change and social policy and get back to just two things: killing inflation and keeping people employed.
Warsh isn't just looking to continue business as usual. He wants a completely different approach to Central Bank policy.
- "Inflation is a Choice": This was his mic-drop moment. He argued that the Fed must take 100% responsibility for price stability. No more blaming "transitory" supply chains or "bad luck". With U.S. inflation currently hitting a two-year high of 3.3%, he’s making it clear he has work to do.
- The AI boost: While Warsh is historically a hawk (loves high rates), he’s now bullish on AI-driven productivity. He thinks AI might be boosting the economy's "speed limit," which could allow him to cut rates without sparking more inflation.
- AI is deflationary?: Maybe the biggest thing he said is that he believes AI will be deflationary and needs to be taken into consideration. This is a bold stance for the Fed to take, especially as it is something about which economists still disagree. It would give him coverage to cut rates, though. Bullish!
- Balance sheet shrink: If you like "Liquidity Plumbing," pay attention. Warsh wants a smaller Fed balance sheet. He wants to let the commercial banking sector take over more debt issuance and scale back the Fed’s balance sheet. This would be a big change, but it might add even more fuel to the economy.
If his AI-productivity thesis is right, tech and high-growth sectors could thrive even if the Fed stays "higher for longer". However, his plan to kill "forward guidance" (making Fed meetings "messier" and less predictable) means we should expect bigger swings on FOMC days.
Okay, we’ve talked about the oil crisis. We’ve talked about the new Fed Chairman. Now, let’s talk about the fun part. The bull run just came back in a big way.
The bulls are back babyyyyy
For the first time since January, retail investor sentiment is bullish again.
Not to be outdone, institutional investors are also going wildly long on tech stock futures.
This constitutes a gigantic bullish reversal. It is also an indication that there is still a lot of capital looking for opportunities in the risk asset markets.
The S&P 500 is reporting its highest net profit margin in over fifteen years.
Bank of America is reporting that the 25% Stocks/Bonds/Commodities/Cash split portfolio is having its best year of returns since 1993.
Bank of America also noted that they think this increases what they call “right tail asymmetry.”
Meaning they expect that this strong performance will attract more capital as allocators increase exposure to avoid missing out on these gains. This could add more fuel to the reignited bull market.
You may recall that in the recent bull market, a lot of analysts were flagging concerns about concentration. Meaning, although the overall indices are making new highs, a small number of companies account for most of the growth.
It seems like this phenomenon has returned.
Just six companies account for 70% of the S&P 500's earnings upgrade for 2026.
Most of these profits are driven by scarcity. Either scarcity of energy or of computing power.
Whatever the reason, and regardless of how concentrated this earnings growth is, it is still significant.
The expected earnings growth is now the highest it’s been in decades, other than the post-COVID recovery and the GFC recovery.
This means that the markets are very bullish on earnings and willing to tolerate even more extended stock valuations to match them.
Semiconductor stocks in particular had an absolutely wild move. I’m going to just present this chart and quote because I think it captures it well.
"SOX working on its 17th straight up day, an all-time record. It’s now 43% above its 200 DMA, the widest spread since June 2000. Of course, into the March peak it got much more extreme at over 100% above its 200 DMA, but that was largely considered the biggest bubble in the modern era. Outside of that we are in extreme/unsustainable territory…17-day rate-of-change over 42%. This is perhaps the wildest stat because it exceeds the move into the March 2000 peak. It is only exceeded by the move out of the Oct. ‘02 bottom, which came after an -80% bear market. So this is the biggest such move into a new high in the history of the semiconductor index." -BTIG
The streak ended up lasting 18 days.
Wild.
It actually just went straight up for half a month.
Obviously, the semis are at their most overbought level ever as well, but that doesn’t mean that they can’t stay overbought longer than the market can resist the FOMO.
Remember the ISM?
Those who have been following Milk Road Macro for a while will recall that for months, while everyone has been turning bearish and afraid, we have been pounding the table calling for a business cycle reacceleration.
Specifically, we’ve been saying that the ISM Manufacturing PMI would pick up above 50 and we’d see risk assets outperform.
Well,
It seems like this is finally playing out despite all the volatility and noise.
Bank of America’s Global Research report seems to indicate they expect this bullish momentum to continue.
The implication is that the already elevated ISM levels could go higher for longer.
Bitcoin breakout?
This environment of high liquidity, ISM above 50, and low interest rates is usually where Bitcoin and crypto perform at their best.
For now, Bitcoin remains in a downtrend and a bear market. The market seems to expect it to make new lows.
However, there is a non-trivial possibility that these bullish tailwinds could result in a short squeeze on Bitcoin that sends crypto higher and allows it to finally rejoin the bull market.
The Clarity Act could still be a catalyst that makes that happen in May or June.
Tired of winning
However, for the companies that are NOT benefitting from this scarcity in oil and computing, these circumstances present headwinds.
Rising costs of oil and compute will put downward pressure on earnings forecasts for a lot of companies that are price takers of these resources as we go further into 2026.
Currently, more stocks are seeing earnings revised lower than revised higher.
So, what does this all mean?
It means the few winners are winning big, but there are a lot of losers who are not exactly getting crushed yet, but are definitely feeling the pressure.
Wrapping up…
It’s been a volatile year.
There are many reasons to expect inflation to rise.
There are some reasons to expect the labor market to weaken.
However, the new Fed Chairman and the Secretary of the Treasury seem to have a plan to implement a dovish monetary and fiscal policy agenda despite these circumstances.
Liquidity is rising as the sources of liquidity are also changing. The U.S. is pivoting its monetary policy and balance sheet management practices.
The conflict in Iran is not over, and the risk of serious escalation remains substantial.
Eventually, these factors may present challenges for the economy and the market.
Here at Milk Road Macro, we have maintained for some time, even when it has not been popular, that we are in a reflationary economic environment.
We have highlighted that the economy was re-accelerating, even when bears were screaming sell.
We are now seeing our thesis continue to play out in a big way.
We don’t believe that we have yet reached the end of this cycle.
We are not sure how much longer this conflict will last or how severe the economic impact will be. We are not sure how much higher the bulls will run.
However, we remain constructive on the market and the economy.
We expect volatility and uncertainty to continue, but we also expect to watch the markets and data closely so we can continue to capture the upside opportunities available to investors.
Now, more than ever, it pays to lean into your Milk Road PRO Community and stay connected.
And, as always, stay safe, stay educated, and stay bullish!
AI-generated podcast 🤖
We’ve turned this PRO report into an AI-generated podcast to make it even easier to digest. You'll find the audio player below. 👇️🎧️
Scarcity: Crisis or catalyst?
Disclaimer: This podcast was created using AI and is based on the research report above. While we've done our best to ensure accuracy, the audio may contain minor errors, technical glitches, or mispronunciations. Please note that this podcast provides an overview of the report and is not a comprehensive or definitive take on the topic.
