Goldman Sachs trader warns: Trump's "mouth cannon" cannot replace oil, if the closure of Hormuz continues, the second wave of inflation may be on the way.

The crisis in the Strait of Hormuz is pushing the market into a fundamental contradiction between rhetoric and reality. A senior trader at Goldman Sachs bluntly stated that words cannot replace physical action, and when verbal threats fail, the real pressure test has just begun. Rich Privorotsky, head of Goldman Sachs' One-Delta business, pointed out in a recent client memo that despite the US delaying its deadline for a strike on Iran's energy infrastructure, the oil market's reaction has been moderate, with market focus narrowing to one question - when will the Strait of Hormuz reopen. He warned, "You cannot replace physical action with words." In terms of market impact, Privorotsky believes that the inflationary impact of the Hormuz closure has spread far beyond crude oil itself, affecting diesel, petrochemicals, plastics, and even helium. The related price pressures will gradually spread to a broader economic level in the coming months, forming a potential second wave of inflation. At the same time, he emphasized that the trend in interest rates is still the core variable dominating everything, and a significant rise in real interest rates will put pressure on the stock market. "Dilemma of action": Verbal pressure is losing market effectiveness Privorotsky characterized the current situation as a growing divide between fundamentals and narratives. He noted that the market's reaction has weakened - the White House's statements are still there, but their impact is diminishing, and once this tool is completely ineffective, the market will face a repricing. From his perspective, the current fundamental situation still points to a further escalation, but he does not completely rule out the possibility of a turning point, though these turning points are "not obvious and will not be led by the United States." The first round of negotiations seemed to fail before officially starting, so the market has entered a waiting mode, betting on whether some compromise can naturally emerge after the accumulation of pressure. Second wave of inflation: Impact spreading downstream Privorotsky maintains a bullish long-term outlook on oil prices, citing the option value of the Hormuz interruption as a real and repeatable risk premium. The depletion of the Strategic Petroleum Reserve (SPR) means that at some point in the future there must be a buyback, further supporting the prices of distant-end crude oil. He believes that buying distant-end crude oil and leading energy companies in any upgrade market is a reasonable operation. But more alarming is the path of inflationary impact spreading. He pointed out that if the interruption continues, price pressures will no longer be limited to crude oil but will spread comprehensively to diesel, petrochemicals, plastics, and even helium, with second-order effects expanding and gradually reflecting in inflation data in the coming months. Interest rates are the core: Asset logic in a stagflation scenario Privorotsky explicitly stated that the trend in interest rates is more important than anything else. He warned that the end of the cycle tightening is the worst environment for stock assets, and aggressive bear flat curve overlays with a breakthrough in real interest rates will lead to sustained pressure on valuations - even if corporate earnings barely hold, a contraction in price-earnings ratios will be difficult to avoid. On the asset allocation front, he pointed out that in a scenario of stagflationary impact, governments may be forced to choose between defense spending and energy and food subsidies, explaining why the defense sector's performance is below expectations. Regarding gold, he believes that it is currently more of an opportunity than a warning. A tightening at the end of the cycle combined with fiscal deficits on the other side can simultaneously support a strong dollar and a rise in gold prices. Risks and turning points: If the strait reopens Privorotsky admitted that holding risk assets at the moment is unsettling. The US's 10-day pause in strikes on Iranian infrastructure did not eliminate the risk of conflict reigniting over the weekend. Although positions and sentiment provide some support to the stock market, there is also a need for funds at the end of the month, but interest rates are the decisive variable. He outlined a key reversal scenario: if the Strait of Hormuz reopens, the bearish curve flattening will be alleviated, real interest rates will fall, energy and financial conditions will be eased simultaneously, and the market will have a significant dual release. He concluded: After enough pressure accumulates, compromises usually follow, and maintaining a constructive stance in such environments has historically been the right choice. This article is an excerpt from "Wall Street See Hearings", written by Yang Chen and edited by GMTEight: He Yucheng.