The Wrap: Iran War Continues, Warsh Ponders "Trimmed-Mean Inflation"

Jun 12
8 min read

Updated: Jun 13

This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. The IRA is fishing in Maine this week, but please do watch “The Wrap with Chris Whalen” on The Julia LaRoche Show next Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. This week we address some reader questions at the end of this comment.

June 12, 2026 | Yet another week has gone by and there is still no peace agreement between the US and Iran. The Strait of Hormuz remains effectively closed and much of the world’s capacity for producing key refined products is damaged and offline, yet officials in Washington refuse to acknowledge the obvious consequences of this war, namely higher prices and shortages of physical supplies of fuels, lubricants and chemicals.

Leen's Lodge, West Grand Lake (06/11/26)

In fact, the US resumed military strikes on targets in Iran earlier this week. Then, President Donald Trump again dumped then pumped the US equity markets by threatening then canceling military action. It is remarkable nobody seems to get the joke on Trump’s public statements on the Iran war negotiations. Hint: FHFA Director Bill Pulte used to pump and dump the stocks of the GSEs in the same fashion. Hello.

Meanwhile, "President Donald Trump said Thursday he will nominate Jay Clayton, the Manhattan U.S attorney, to be the next director of national intelligence," Politico reports. Clayton’s nomination comes after a bipartisan uproar on Capitol Hill over FHFA Director Bill Pulte serving in the important role in an acting capacity. The rejection of Pulte marks the latest political reversal for President Trump.

Miraculous Rebound

On Wednesday, the New York Knicks delivered one of the greatest comebacks in sports history at Madison Square Garden. A team led by three Villanova NCAA champion team alumni eliminated a 29-point point deficit to win against the San Antonio Spurs 3-1 in the NBA championship. The Spurs only scored 30 points in the second half. After the epic collapse, Charles Barkley ripped the Spurs, calling them the 'Dumbest basketball team in the history of civilization.”

A New Inflation Indicator? Again?

This week U.S. inflation came in at 4.2% for May, the highest level in three years. Middle East war tensions push energy and consumer prices higher. This is the third straight month of price increases and supports our view that we’ll see double digit inflation by year-end. Confirming this, Fed Chairman Kevin Warsh is reportedly pondering a shift to “trimmed-mean inflation” for the Fed's target.

Economist Komal Sri-Kumar writes:

“Incoming Federal Reserve Chairman Kevin Warsh has made clear that he favors a new way of measuring inflation — one that differs from the headline and “core” measures that policymakers and the public have relied upon for decades. During his Senate Banking Committee confirmation hearings on April 21, Warsh referred to his preference for “trimmed-mean” inflation, a term that is likely to become increasingly common in the weeks ahead.”

In 2012, the FOMC adopted an explicit inflation target, the conclusion of years of secret internal discussions by the FOMC. In January 2012, the Committee released the Statement on Longer-Run Goals and Monetary Policy Strategy which officially announced the 2% inflation target. The statement explained the benefits of such a target:

“Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances.”

Ben Emons, Chief Investment Officer at Fedwatch Advisor, reportedly views Federal Reserve Chair Kevin Warsh's push to shrink the $6.7 trillion balance sheet as a restrictive policy compromise. We have written similarly, but we need to be more precise in our description.

Emons notes that persistent inflation will likely force Warsh to put active quantitative tightening on the table, ultimately necessitating future rate hikes. But Ben and Kevin, reducing reserves does not reduce inflation per se. It's what the Fed does or does not do via open market operations that matters.

Bill Nelson at Bank Policy Institute reminds us that the size of reserves has no direct connection to inflation. Reducing reserves does not mean lower inflation, but does imply a change in asset allocation by banks. He writes:

“I’m no monetarist, but even if I were, I would have no reason to conclude that shrinking the Fed’s balance sheet will reduce inflation. When the Fed sheds assets, its liabilities, specifically reserves balances – deposits of banks at a Federal Reserve bank – decline. But reserve balances are not part of the money supply, at least not the one associated with inflation. As defined by Milton Friedman and pretty much every textbook, the money supply consists of currency in circulation and deposits of non-bank businesses and households at banks. Reserves are not in M1, M2, or M3. The “money” in the assertions that inflation is caused by “too much money chasing too few goods” and “inflation is always and everywhere a monetary phenomenon” is the money in public hands, which does not include deposits of banks at the Fed. While reserves are in “base money” or M0, that is not the money supply nor the kind of money associated with inflation.”

The Entropy Trap

Our latest post drew quite a lot of comments (“Mickey Maini: The Entropy Trap and Growing Market Stress”). Fred Feldkamp:

“Jim Rickards should well understand Maini's point that, as one expands, the risk of event disruption grows--LTCM's 1998 demise was a great example. They watched long term rate spreads and assumed a rise of spreads was an "opportunity to buy" but when it happened because SEC blew up the money market balance mechanism (short-term funds), long-term spreads could not adjust and LTCM (as well as Russia) ‘died’.”

AI Rotates Down

Stocks experienced high volatility and a sharp rotation over the past five trading days, driven by cooling exuberance for artificial intelligence and semiconductor names alongside shifting inflation/rate expectations. Major tech giant stocks in particular faced losses, though the broader market staged a strong rebound on Thursday after the latest public comments from President Trump. Remember, pump and dump.

The big news on Wall Street is that SpaceX sold 555.6 million shares at $135 a piece, raising $75 billion in the largest IPO on record.The company had already set the share price, giving investors a take-it-or-leave-it deal. SpaceX saw its debut on the Nasdaq Friday under the ticker symbol SPCX.

Junior Bay, West Grand Lake, Maine (06/11/2026)

Bank stocks traded up small this week, with JPMorgan (JPM) up 1% and the 24-stock KBWB ETF up less. Implied mortgage rates in the TBA market rose this week after newly released economic data strengthened the case for Federal Reserve rate hikes this year. The average 30-year fixed-rate mortgage was 6.52% in the week through Wednesday, up from 6.48% a week earlier, according to Freddie Mac survey data.

Gold prices suffered a continuing bear market, plunging over 3.6% in a single session to settle around $4,133.30 per troy ounce on COMEX futures, the lowest levels since November 2025. Over the past 5 consecutive trading days, gold faced relentless liquidation, down over 6% amidst hotter-than-expected US inflation (PPI/CPI) data.

Likewise Silver prices dropped approximately 8.63% over the past 5 trading days, falling to around $67.50 per troy ounce amid hotter-than-expected jobs data, fluctuating interest rate expectations, and shifting geopolitical tensions. We’ve been adding to our silver positions as the market has retreated.

Why are we so bullish on silver? Global silver demand continuously outstrips mine production, resulting in a multi-year structural deficit. Driven by record industrial use in AI, solar photovoltaics (PV), and electric vehicles, the physical silver market faces cumulative shortfalls approaching hundreds of millions of ounces as inelastic supply struggles to catch up.

Reader Questions

Q: "A strong housing market has so many positive economic tentacles- how can we get that market get going again?

A: The short answer is to drop LT interest rates, but that is unlikely in the near term. With the 10-year Treasury at 4.5% and 30-year mortgage rates at 6.5-6.75, the sector is likely to be in the doldrums for the rest of the year.

Q: "Does Chris expect a blue wave at Midterms. What if after populist Trump comes populist from the left?"

A: The Democrats are likely to take seats in both houses in the Midterm elections, but remember that most House and Senate seats are not competitive either way. We already have the progressive left in NYC Mayor Zohran Mamdani and the likes of AOC and Senator Elizabeth Warren (D-MA), but they offer no answers to problems like inflation and affordability in housing. Warren's true talent is destroying jobs and opportunity through pointless regulations. After four years of silly socialism under President Joe Biden, Democrats remain very unpopular and have weak national candidates.

Q: "What is the thesis behind Chevron (CVX)? Chris mentioned that he got back into the stock."

A: We've owned CVX for years and have doubled our money. Took profits this year to raise some cash, but CVX is one of the best run energy companies in the world IOHO and we like to have it in our portfolio. BTW, did you see that the folks at Annaly Capital Management (NLY) raised their dividend again? Like we said, we own NLY as a core part of our portfolio.

Q: "How does Chris feel about the sourcing of funds to finance the AI buildout? Alphabet (GOOG) and others have raised a lot of debt finance. We we eventually see equity dilution from AI companies?"

A: Good question. We've written about the mad amounts of debt behind the AI buildout bubble. It is a good bet that eventually GOOG, Oracle (ORCL), Meta Platforms (META) and Space Exploration Technologies Corp (SPCX), which we own, and other highly leveraged tech firms will be forced to issue new equity to pay down debt, especially since so much of AI seems to be a throw-away that will not result in significant revenue much less profits. The tech firms should be issuing equity now, before the AI bubble cracks further.