Retired general Stanley McChrystal, himself a curious character, commented, as I interpret his words, in a recent article that Pete Hegseth’s focus on physical conditioning shows a basic misunderstanding of what modern warfare is about. Brainpower is much more important. Logistics, intelligence information and planning, I think he’s saying, beat brawn and physical courage every day of the week. Not that the latter aren’t important, but if you have no minesweepers or rockets to intercept drones, or ammunition or food, or any idea what an enemy is up to, physical strength and courage aren’t going to get you very far. This makes the current Hegseth-induced military leadership brain drain a worry in the US for tomorrow as well as for now.

Hegseth doesn’t do military pullups, if the YouTube of his challenge with RFK Jr. is any indicator. His palms face toward him when he grips the bar rather than away, and he ends his downward motion before the final couple of inches (the hardest part). I wonder why.

Back in the last century, when I was an oil analyst, there was lots of discussion about “peak oil,” which at that time meant peak supply–the time when all the recoverable oil would have already been discovered, and when the oil price would begin a steady upward climb. Nowadays, we’re at peak oil, but in pretty much the opposite sense–the time when the available supply being brought to the surface is equal to or exceeds what the world demands. The administration is very much pro-fossil fuel. And the oil and gas sector in the US is +32% year-to-date, vs. -36% for the S&P as a whole. Nevertheless, it seems to me that the supply disruption the US is creating by attacking Iran will ultimately speed the change away from fossil fuels. Given that the US is the world’s largest oil and gas producer, and generally the industry has given strong support to Trump, this is a peculiar outcome.

I’m not sure there’s a consensus view of why we’re at war with Iran, but a leading contender seems to be that it shifts public attention away from the administration’s failure to obey the Congressional mandate to release the Epstein files, especially as regards conduct of Trump himself. On the other hand, we have tariffs, and they make very little economic sense. Nor does using ICE to shrink the working population (why would anyone want lower GDP?).

Where does all this lead us as stock market investors?

–the dollar continues to weaken, arguing that it continues to be better to have costs in $US and revenues elsewhere–and to avoid firms with foreign costs and $US revenues. So far this year, this hasn’t worked well, for me anyway. Tech fits the revenue/cost description, and that’s where I’m concentrated. But valuations are high after an extraordinarily good 2025.

–I think the domestic consumer is a tough place to be, since it’s being hit by tariffs and a weak currency. Last year was a time for trading down, but my guess is that most of the oomph this gives to lower-end retail is behind us.

–I’d also been thinking that domestic brand names might be targeted by foreign companies seeking to build their US exposure. But I’m not thinking this any longer. My guess is that the eagerness of Congresspeople of both parties to allow Trump free rein is too much of an obstacle.

This leaves: foreign markets, especially, I think, China through Hong Kong; domestic tech, and biotech (which I know pretty much nothing about); maybe consumer staples (?). Put another way, the US is likely going to remain an overall bottom-feeder while the current regime is in office.

I’ve just updated my Keeping Score page for March price action.

After a brief period of not being the worst stock market in the world, the US has reclaimed the bottom spot, with a year-to-date loss of -6.1%, vs. -2.4% for EAFE, the best measure of the performance of non-US markets. The Russell 2000 index of mid-cap, US economy-centric stocks is only down by about -1% ytd, however, outpacing the S&P 500, EAFE and NASDAQ. I think this is more a result of years of the Russell underperforming the rest of the market than any special merit in holding domestic mid-caps. Sort of a variation on you can’t fall off the floor.

The new negative issue for US stocks, as I see it, is not just the attack on Iran, right or wrong, but the shocking botch that the administration has made of it. This stands in stark contrast with the success of the much smaller-scale raid on Venezuela.

How so? Paul Krugman observes that Secretary Hegseth seems to have a sharp distaste both for subordinates who are smarter than he is and/or who are women, and has been eliminating both from his inner circle, or from the DoD entirely. Therefore, the military isn’t nearly as intelligent as it has usually been. Maybe that’s the problem. I’m stunned that no one in authority seems to have checked to see whether we had enough anti-drone ammunition before starting the attack (Hegseth implies as much by blaming the apparent shortfall that has quickly developed on Joe Biden). I also imagine that if anyone in the administration thought that Iran would do the obvious by closing the Straits of Hormuz, Washington would have filled the Strategic Oil Reserve before commencing its attack.

Even before Iran, the administration had put in place an economic policy that seeks to spur economic growth through the curious (deeply unsound might be a better word) plan of shrinking the workforce through ICE arrests and deportations, while also lowering the skill level of American workers by attacking higher education. For investors, this has meant reimagining the US stock market as a barbell of third-world style export-oriented manufacturing on one side, and multinational technology innovators based in the US but who could relocate at the drop of a hat.

As a result of these odd administration actions, for the moment, at least, the US seems to be striking both foreign- and domestic-based investors as less the land of the free and more a rudderless rogue state.

The obvious move is to tilt holdings away from Wall Street to other markets.

The way I’ve typically phrased the mental exercise of separating what’s crucial in evaluating the prospects for a given publicly-traded stock or group of stocks vs. the ethics of a given situation is:

—–I’m taking off my hat as a human being and putting on my hat as an investor.

To be sure, the assassination of foreign leaders, the killing of citizens protesting ICE violence, the imprisonment of domestic workers based on the color of their skin–all of this done with Congressional silence signaling approval–is steadily eroding the brand value of the US as the land of the free and the home of the brave. This situation isn’t being helped, either, by the apparent cognitive decline of the president or the sometimes-stunning ineptitude of those he’s picked to be his closest advisors. And there’s the astonishing, to me anyway, influence over public figures that the Epstein files are revealing Epstein to have had–with the administration’s foot-dragging on the full release ordered by Congress suggesting that all Epstein’s politically powerful clients have not yet been revealed.

Still, there are near-term economic issues, I think, that will have a more immediate and forceful impact on the stock market than the reputational black eye Washington is giving itself (and which will ultimately result in a lower PE being assigned to US-based earnings). They are:

–the (unanticipated?) higher oil price, which will be a plus for the earnings of larger oil and gas exploration companies, but a negative for consumers, and more so for oil refiners and marketers

–the increased domestic cost of living being relentlessly created by the administration, through tariffs, shrinkage of the workforce (pushing wages higher, as well as the cost of everyday necessities), and now the rising price of heating fuel and gasoline. The key here will be to assess where people will continue to buy, vs. where they’ll trade down and where they’ll simply not spend.

–the administration’s apparent desire from the outset to force domestic interest rates down. The idea, I guess, has been to lower the cost of the federal deficit–essentially shifting some of the burden to Treasury holders, many of them foreign central banks. Foreign holders of Treasuries, however, caught on immediately, and hedged their currency risk. So the result has been a sharp decline in the world value of the dollar, instead, making everything Americans buy from abroad–from food to clothes to foreign vacations–something like 15% more expensive.

Last year, the key to stock market success was to own companies with dollar-based costs and foreign currency revenues. Today, however, the rocket ship ride those stocks were on seems to me to be over. Prices are up a lot and companies are presumably going to find it hard to surprise on the upside any more. One thing they continue to have going for them, however, is that they aren’t totally reliant on a sagging US economy. Wall Street attention appears to be centered so far this year on domestic-oriented losers instead–on the idea that earnings news is going to be worse than expected, and for longer.

A year ago, I’d been thinking that woe begotten domestic-oriented companies might end up being acquisition targets, given the sharp drop in the $US. That may still happen. I’m no longer betting it will, though. It’s not clear to me that a US brand has the value in the world market that it did a year or two ago. And, of course, someone coming here to do due diligence has to think there’s a chance of being shot, or ending up in El Salvador, or both. So can a thorough assessment of a target actually get done?

A number of little things about the war seem strange to me, in addition to the BIG one that there appears to me to be no clear rationale for it.

What I find odd:

–Secretary Hegseth is reported to have explained recently that Straits of Hormuz are actually open for traffic–except for the incovenience that Iran is attempting to destroy any ships making the attempt

–Mr. Hegseth has apparently also explained that the US is running out of anti-drone munitions because former President Biden used a lot in defense of Ukraine against Russian attack. This lack apparently comes as a surprise. The oddity I find here is that the first thing any combat commandcr does when taking over a new unit is to inventory the supplies and equipment, to make sure that what’s supposed to be there–like, say, personnel carriers or rifles or ammunition–actually is. Either no one bothered to do what any captain/first sergeant worth his salt would when the Trump administration took over, or maybe no one connected the dots to conclude that anti-drone rockets might be needed, since Iran, a big war drone manufacturer (and supplier to Russia), might actually use drones itself

–the belated search for minesweeping ships–the US Navy apparently has none–to clear the Straits of Hormuz of mines Iran has placed there. implying this came as a surprise to US war planners.

The stock market implications of all this are indirect, I think: they have an effect on the USA brand.