MacroVoices #535 Michael Every: NAFTA and NAPTHA – Warcraft & Fartcraft

Key Concepts

• Economic Statecraft: A national strategy where economic tools (trade, energy, currency, supply chains) are used to achieve geopolitical and national security objectives.
• Strait of Hormuz Crisis: A critical geopolitical bottleneck currently experiencing a blockade, leading to significant crude oil supply constraints.
• NAFTA (North American Petroleum and Hydrocarbons Trading Hub Association): A hypothetical "closed-loop" energy strategy proposed to insulate North America from global energy shocks.
• Stablecoin Statecraft: The use of digital tokens as a tool for financial influence, potentially replacing Eurodollars and facilitating trade with strategic allies.
• Nuclear Threshold State: A condition where a nation possesses the material and technical capability to develop a nuclear weapon but has not yet made the political decision to do so.
• Strategic Petroleum Reserve (SPR): Government-held emergency oil stockpiles used to manage supply shocks and influence market prices.

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1. The Geopolitical and Energy Landscape

The podcast highlights the ongoing closure of the Strait of Hormuz, which remains a major source of global economic instability. Despite President Trump’s rhetoric suggesting a resolution by Labor Day, experts argue that the situation is a "gray rhino" event—a highly probable, high-impact threat that is being underestimated by many market participants.

• Supply Shock: Approximately 13–15 million barrels per day (bpd) of production are currently "shut in" due to the inability to export.
• Inventory Depletion: Global commercial inventories are being drawn down at the fastest rate on record.
• The "Taco" vs. "NAFTA" Scenarios: Michael Every posits that the U.S. faces a choice: either abandon its Middle Eastern allies (the "Taco" or "whole enchilada" retreat) or form a closed-loop energy alliance (NAFTA) to prioritize domestic and allied energy security at the expense of the rest of the world.

2. China’s Role and Market Anomalies

A significant portion of the discussion focuses on China’s curious behavior during the crisis.

• Import Collapse: Chinese crude oil imports have fallen by roughly 50% (from 12 million bpd to 6 million bpd).
• The Mystery of Demand: Despite the import drop, mobility data (trucking, flights, road congestion) does not show a corresponding collapse in economic activity.
• Hypothesis: China may be drawing from "invisible" underground inventories or non-reported stockpiles. Alternatively, China is intentionally withholding support to force the U.S. into a disadvantageous position, while simultaneously positioning itself as a "good guy" to other Asian nations by filling supply gaps.

3. The Shift to Economic Statecraft

Michael Every argues that the U.S. is transitioning toward a new policy regime characterized by:

• Rebuilding the Physical Economy: A move away from pure financialization (supporting financial assets) toward strengthening industrial capacity, ports, and military supply chains.
• Fed Policy Evolution: The potential for a "Kevin Warsh-led Fed" to move beyond simple demand management (interest rates) toward targeted support for the physical economy, potentially using swap lines or stablecoins to fund strategic infrastructure.
• Dollar Swap Lines: These are increasingly viewed as geopolitical tools rather than purely technocratic liquidity measures, used to secure alliances with commodity-producing nations like the UAE.

4. Market Analysis and Technical Outlook

Patrick Saresna provides a technical breakdown of the current market environment:

• Equities: The S&P 500 is at historic highs but showing signs of exhaustion. The current rally is described as "unsustainable," with poor asymmetry for further upside.
• Gold: Despite geopolitical tensions, gold has been weak, likely due to investors selling to raise dollar liquidity. It is currently testing the 200-day moving average (approx. 4415).
• Uranium: Long-term bullish, but currently in a seasonal "soft patch" until the WNA conference in September.
• Copper: Remains the strongest commodity, trading at 52-week highs with clear momentum.

5. Trade of the Week: Industrial Rebuild

To capitalize on the shift toward the physical economy, the hosts propose a long-term position in the PAVE ETF (U.S. infrastructure).

• Methodology: To manage the risk of a short-term market correction, the position is hedged with a July 17th, 2026 $55 put.
• Rationale: This provides exposure to the industrial rebuild theme while defining a clear floor for downside risk, allowing for tactical flexibility if the broader market experiences a summer correction.

Synthesis and Conclusion

The consensus among the participants is that the global financial system is ill-equipped for the current structural supply-side shocks. The "transitory" narrative is failing, and the market is currently being held in a state of artificial calm by presidential jawboning and Chinese inventory management. Investors are advised to prepare for a potential "rip higher" in oil prices once buffers are fully exhausted and to pivot portfolios toward physical assets and industrial infrastructure, as the era of prioritizing financial asset inflation over national security and physical capacity appears to be ending.