Investors should be used to the whiplash by now. The pattern ought to be familiar: The president makes a bold pro-Israel military move in the Middle East. Israel’s principal adversary retaliates by restricting the flow of oil through the Persian Gulf. The economic consequences look so grim—the nightmare combination of stagnation and inflation—that the president hastily switches to diplomacy.
I want nothing to do with the juvenile journalistic debate about whether, by postponing on Monday his threatened attacks on Iranian power plants, Trump “chickened out” the way he rolled back the tariffs in April last year—the way he always chickens out. Please. He doesn’t always chicken out. He carries out roughly half of the threats he makes, which is a pretty effective strategy in game theory, so long as your adversaries are risk averse, which most of them are. Trump most certainly is not. (When the guy who used to run George Soros’s hedge fund says that Trump has “a very high risk tolerance, much higher than mine,” that’s telling you something.)
