Nobody Knows Anything

Wars are fundamentally inflationary; you don’t worry about the long-term damage done by money printing, not when you’re in a shooting war. You can’t even stop to wonder why you’re shooting at all.

Illustration, Virgil and Dante at the Gates of Hell, from The Divine Comedy. Source: Getty Images

Tuesday, July 28th, 2026

Bill Bonner, from Poitou, France

‘A man’s gotta know his limitations.’

--Clint Eastwood, Magnum Force

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There’s a war on...oil is going up. No...it’s a glut situation; look for a lower oil price. Hold on...now it’s going up again. OilPrice.com:

Less than a month ago, analysts were warning of a looming glut of crude oil as tanker traffic via the Strait of Hormuz began to recover amid a U.S.-Iran ceasefire. Within days of these warnings, the ceasefire was a painful memory, missiles were flying again, and now Yemen’s Houthis are striking tankers in the Red Sea, which makes two blocked oil chokepoints and a very real danger of a global recession.

No, wait. It’s going back down. Reuters:

Oil prices tumbled more than 5% on Monday after the U.S. and Iran paused strikes over the weekend following two weeks of attacks, raising hopes of a diplomatic solution that would de-escalate the conflict and allow shipping to resume in the Strait of Hormuz.

We don’t need any more evidence. The facts are in. The jury has its verdict:

“Nobody knows anything.”

We write in humble praise of ignorance. What we think we can know is unbounded. What we actually know is very limited.

And stocks? What do we know? Investors must judge US stocks as beyond the reach of war...or bankruptcy. The Dow, for example, is still near an all-time high.

Wars are not necessarily good or bad for stocks. It depends on the situation. At the outbreak of WWI, US stocks lost about a third of their value. But in the two days following the outbreak of WWII, they were only down 7%. And after 9/11 they were down only about 11%.

Industries adjust to a wartime economy. They take orders for new materiel, the factories belch smoke, profits increase, and prices go up. Wars are fundamentally inflationary; you don’t worry about the long-term damage done by money printing, not when you’re in a shooting war. You can’t even stop to wonder why you’re shooting at all, not when your blood is up. War takes on a tit-for-tat life of its own.

‘What...a US soldier was killed? We’re gonna bomb those bastards back to the stone age!’

And then, inflation, at least at first, boosts sales and earnings...and stock prices.

Even losing a war can be good for an economy. France didn’t know its limitations in the run-up to the Franco-Prussian war. It invaded Germany on July 16, 1870. Two months later, the French suffered a military disaster. Emperor, Napoleon III, was captured and his whole army ‘hors du combat.’ France surrendered and was condemned to paying five billion gold-backed francs in reparations. To make the payments, it issued treasury bonds with a 6% yield.

This huge burden — equal to about a quarter of French GDP — was intended to cripple the French economy for decades. But once again, nobody knew anything. Bond sales were over-subscribed and the reparations payments were made ahead of schedule.

Then, something even more unexpected. Money went across the Rhine to Germany...where the un-earned increases to its money supply caused consumer price inflation. And then, Germans used their new money to buy French-made goods. France wasn’t crippled at all; her economy boomed.

The Belle Epoche, 1880-1914, was France’s Golden Age. Haussman rebuilt Paris. Industrial technology increased output. Wages rose. Luxury goods were most widely shared. The French had never had it so good. It was a time of abundance, growth, and prosperity.

And just when everyone came to believe that it was permanent, along came Gavrilo Princip with a pistol in his hand.

Each war comes with its own jackassery. WWI was a disaster for all the major combatants, save...maybe, the US. But in the economic turmoil following the war’s end, investment money poured into Wall Street and prices rose...to what the leading economist of the day, Irving Fisher, called a “permanent high plateau.” Once again, the genius didn’t know half of what he thought he knew. The plateau cratered in 1929 and the US entered the Great Depression.

The US has been involved in a number of wars since the end of WWII. In none of them did it misjudge its limitations so greatly as it did in its attack on Iran. In bombing the Persians, it chose an enemy that controls a vital oil shipping lane. And as the conflict widened, the Houthis threatened to block another vital oil shipping corridor. FDD’s Long War Journal:

The Houthis announced a complete maritime blockade of Saudi Arabia on July 20. In response, a growing number of vessels are rerouting to avoid the Bab al-Mandeb Strait, the southern Red Sea chokepoint near Houthi-controlled territory, demonstrating that the shipping industry is taking the threat seriously. However, the Houthis have not yet targeted vessels or port infrastructure to enforce their blockade.

If the two passageways were blocked...or even partially blocked...the effect on the world economy could be devastating. So far, the Iranian blockade has had little impact, largely because there were sufficient stocks of oil waiting beyond the Strait of Hormuz. Emergency reservoirs were tapped and there has been some slack in demand as a result of higher prices. Still, WTI crude traded at more than $110 a barrel in April. Now, it’s down to $82 this morning. Does this mean the threat has passed?

‘Nobody knows anything,’ sayeth the sage.

But some things are more likely than others. When you go to war you open up the gates of Hell. Who knows what monsters will come out?

And when you spend more than you earn, year after year, the financial hellcats will soon be clawing at your back.

Stay tuned.

Regards,

Bill Bonner