Steno Signals #201 - The Mullahs Are Toast - re-inflation is back!

It seems Israel is going all-in on a regime shift—and they might actually get it. While this leaves the region facing an uncertain scenario, we struggle to see how Iran can meaningfully push back.

Happy Monday from Copenhagen.

What a comeback by JJ Spaun at Oakmont yesterday (sorry to the non-golfers), and what a comeback risk is about to make this week. Iran’s mullah-tocracy is on the brink, and it could be a catalyst for a big bounce in risk appetite.

Geopolitical crises often dominate the headlines, but they rarely leave a lasting scar on financial markets—unless, of course, we truly cross into global catastrophe. In fact, history shows that the overwhelming majority of military escalations and political shocks have turned out to be buying opportunities rather than sustained downturns. While there are a few notable exceptions—World War II, the Korean War, and 9/11—these are vastly outnumbered by instances where markets dipped briefly on fear, only to recover just as quickly once the worst-case scenario failed to play out. The historical pattern is clear: panic sells, but patient capital wins.

A famous anecdote from the Cuban Missile Crisis illustrates the logic. Mike Epstein, a young trader at the time, was on the floor of the NYSE as warships squared off and nuclear tensions peaked. With missiles pointed at each other and the world seemingly on the brink, he asked his boss what to do. The answer was clear and cynical: “Hit the ask and buy ‘em. If they don’t nuke us, the market will bounce. And if they do, you won’t have to worry about paying for them.”

This brutal clarity still holds true. In scenarios where the world doesn’t end, capital returns to risk assets with force.

That brings us to today’s situation in Iran. Despite the noise and the headlines, our assessment is that this is not the start of World War III or even a regional proxy conflict of the Cold War variety. Putin has his hands full in Ukraine. There’s no credible evidence that Russia is prepared—or capable—of escalating the Israel-Iran conflict into a broader confrontation. And Israel, for its part, has full air superiority over Tehran, as confirmed by our sources on the ground.

The Iranian regime is in deep trouble. A truce might eventually halt the airstrikes, but it likely won’t stop the political unraveling. The military is demoralized. Dissidents inside the country are energized. And Iran’s neighbors—from the Taliban to Azerbaijan—are surely reassessing their posture, watching for a moment of structural weakness. What comes next could be regime change, a palace coup, or even a descent into civil conflict.

From a market perspective, the situation looks like a textbook fear-dislocation. When markets are down on nuclear headlines, the investment logic can be distilled into a simple matrix, courtesy of a great X-profile called @bunjil :