So let us take a look at the US Iran war and decide how to play this sorry situation.
You can fret, you can shout, you can cry but the bottom line is, there is zero we can do about any of this. Except we can place our investments in a way to support a positive outcome. The market is the backbone of the west and its efficient operation pays many of the bills and it is our job to provide risk capital to keep the machine well-oiled and spinning.
So, we can be sure that if we can make a profit from this situation its for the good. (Unless you don’t believe in freedom and markets and you are in the ‘money is the root of all evil’ brigade, in which case you will see it as evil profiteering.)
My model is the US only has three alternatives in this conflict.
Siege
Retreat
Invasion.
Siege. High probability
Siege appears to me the obvious route. For all the uproar, the outcome of a siege is not so terrible for the US. Everyone will be bored of the news flow soon enough, meanwhile oil is going to be routed around Iran’s choke points. With their loss of the Hormuz chokepoint what then for them sat under the black cloud of the US military?
With the midterms finally balanced, the chronic impact of a siege might make alternative plans seem possible, but the only one that has a chance of being popular is declaring victory and running away, which is unlikely to work this time around.
Run Away. Low probability
It would certainly be newsworthy if the US disengaged. The resulting chaos would be unlikely to de-escalate the situation and the US would carry the can anyway. The resulting situation might even force the US to come straight back, if an emboldened Iran decided that was a greenlight to lash out. It would also mean only a matter of time before Iran became a nuclear state and then what?
Invade Iran. Low probability
A ground war makes perfect apocalyptic sense when it comes to the vicious logic of war. However, there is no sign of 150,000+ US soldiers are at the ready. Whats more, that plan would be in the price of the military contractors already, and while they have spiked recently, they haven’t hit level you would expect if the US was going to try and conquer Iran. Setting up an invasion of that scale takes weeks of advanced warning and the cat would already be out of the bag. A ground war would also likely sink the Republicans at the midterms. We will hear it coming if a land war is on its way. So far we don’t hear it. However there is another alternative.
Invade by Proxy. Yemen. Medium Probability.
A ground war by the Saudis against the Houthis with US involvement is the kind of conceivable escalation that could happen next. The reasoning would be to secure alternative shipping routes for Gulf oil. The idea would be to fix the Houthi problem once and for all which has been a festering Iranian funded abscess for years. It would show Iran a ground war might not be unthinkable and demonstrate the US is NOT powerless.
So what does this mean for the markets and us, bystanders in this awful situation.
In a nutshell it means the simplest position is: long US assets, which is the same as long US, period.
You can tinker with Gold and Bitcoin and certain stocks but you may as well buy the S&P 500 because the die is cast.
What is the dice game? America’s fight to remain top dog.
The Trump administration is bringing this to a head. This administration is precipitating a put up or shut up moment both economically and militarily. With China economically and Iran militarily. The market must be successful, can not be allowed to crash, must continue to grind on up.
In any event the US won’t be humiliated before Presidents Xi Jinping’s visit to the US on September 24th, so you can expect plenty of window dressing till after that’s happened and I get the feeling a firework displays will be on the cards. That firework display if there is going to be a big one will be in Yemen.