Notes From Underground: Come On Wall Street Don’t Be Slow, This Is War a Go-Go-Go

*NOTE: THERE IS NO POLITICAL VIEW IN THIS BLOG (AND SPECIFICALLY IN THIS POST) I ascribe to the wisdom of Deng Xiaoping. To paraphrase: Quality analysis doesn’t care if the “cat is black or white,” only if it catches mice.

Come on Wall Street, don’t be slow
Why man, this is war a-go-go
There’s plenty good money to be made
By supplying the army with the tools of its trade
But just hope and pray that if they drop the bomb
[Fill in the target of choice] 
                      — Country Joe, “I Feel Like I’M Fixin’ to Die Rag”

As President Trump was delivering his statement on the Iranian sanctions agreement, CNBC commentators kept using defense sector stocks as a barometer for sentiments about the true bellicose nature of what the U.S. decision would bring upon the world. Yes, profits are to be found where they can be had but the continual promotion of defense stocks is not only INSIPID but flawed.

Buying defense stocks in a sense of anticipation of conflict is as poor a decision as buying GOLD on the outbreak of an actual conflict. As I have continuously told my readers: Buy gold if you wish on the sound of cannons but make it a very SHORT-TERM trade as I have the scars to prove that it is not an intelligent decision. The heightened tensions caused by the uncertainty in the Middle East has already led to years of massive defense-oriented spending. But I digress and wish analyze the Trump decision in another format.

The missing piece from the punditry analysis is RUSSIA. The JCPOA, which the U.S. is curtailing was originally the work of the P5+1 (China, France, Russia, U.K., U.S. plus Germany). The intricacies of the action plan are built on trust and a time line with a sunset provision. The JCPOA was done to prevent the Iranians from attaining nuclear weapons, which would create an unwanted arms race throughout the region. Have the provisions been followed? We don’t know as various parties have a view based on suppositions but not much fact. Yes, the Israelis revealed captured Iranian documents that exposed Iran’s continued pursuit of advanced technology in violation of the JCPOA. Several of the nations party to the plan have stated that while it’s not a perfect accord it has indeed kept Iran from acquiring a weapon.

The Trump administration maintains that Iran has violated a “rotten agreement,” which validates the suspension of the agreement. Is this factual? I don’t know but I will watch Russia to judge how this plays out. Because of the Russian success in Syria, Moscow has a far greater influence than the other signatories to the JCPOA.

In early October I advised against being short OIL because of a historic event that took place on October 4-5: The Saudi King went to Moscow on the first ever official visit. The Saudi/Russian connection has seen the price of oil rise to $70 a barrel from $45 a barrel. I find it more than coincidence that the Saudis have helped lift oil prices in a bow to the strengthened position of Putin’s Russia in the tapestry of Middle East politics.

It is the Saudis that have elevated the fears over the rise of Iranian influence in the region. The Saudis have been leery of Iranian designs on control of the oil supply emanating from the Gulf region. Iran’s success in supporting Syrian President Assad has caused Saudi leaders to fear what has been labeled the Shia crescent that leads from Tehran to Beirut. Syria is a majority Sunni nation governed by a Shia minority, the Alawites. The destabilization of Iraq with a large Iranian presence is causing even greater unease for the House of Saud. The question remains: Where Are The Russians? If the Saudis and Russians have indeed entered into some compact, when will Putin exert his influence and push to find a resolution to placate the Saudis.

Washington may restore sanctions but it is the Russians that will control the outcome of Trump’s recent action. As for all the noise about international law and agreements I would advise looking at U.N. Resolution 1701, which led to cessation of hostilities between  Israel and Hezbollah. It calls for Hezbollah to be disarmed. International law is a philosophical construct that is often violated by the stronger party.

In response to the cries of many pundits I would offer up Stalin’s  response to the Catholic Church involvement in European politics: “The Pope? How many divisions does he have?” There are many voices concerning the Iranian issue but for me the Russians are of major importance. The issue is not defense stocks but the role of the Kremlin as it has enormous influence with the key players. Will Putin push for Russian relief from a set of sanctions that has caused hardship for the Russian economy?

Do not base investment decisions on the headlines. This is a very complicated situation and needs patience coupled with in-depth analysis. The European signatories will appeal to Moscow in an effort to find a resolution that all P5+1 can accept. The Saudis will also be looking to Putin as he has a strong hand to play and Riyadh has shown its willingness to cooperate with Moscow.

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12 Responses to “Notes From Underground: Come On Wall Street Don’t Be Slow, This Is War a Go-Go-Go”

  1. peter Says:

    Do not base investment decisions on headlines is sound advice.

    Your headline has nice alliteration but no meaning.

    The issue is not bombs to be exploded but bombs to be retired and remediated based on expired shelf life. Replaced and re-inventoried.

    The greater the hype in Trump’s headline, the larger the message is that all of this is BS. Next, sanctions on Antarctica.

    All world powers now behave like petulant children. All of them need a trip to the woodshed and a tiny taste of grandpa’s belt. Or grandma’s wooden spoon.

    The smartest decision is to behave contrary to unceasing propaganda from every source. Use your common sense. It tells you which way the wind is blowing. Survival on a family basis is the only thing that matters. Stay out of debt and stay out of trouble. 16 tons and what do you get? Another day older and deeper in debt.

    Do your kids a favor – no credit cards. Want a cell phone – get a job and pay for it yourself. Cash. Month to month. day by day. hour by hour.

    Your kid did not contact you in the last 6 hours. No problem. If he is in trouble, he will ask the police sergeant to use the officer’s cell phone to call home.

  2. silverbug2155 Says:

    When speaking of Gold its best that you distinguish your comments on investment as being physical or a (loosing proposition)paper trade. As paper is the biggest joke on the planet. When physical has always been a wise choice when Govts ability to lead and manage are in question.

    • yraharris Says:

      Silverburg–Gold is like sexual pleasure –pursue whatever but beware of undesired ancillary effects–I trade futures and gold miners but I have forty years experience and have direct access to the markets and pricing mechanism

  3. David Richards (@djwrichards) Says:

    I don’t understand the endless complexities and intricacies of these issues. I suspect the Trump Admin doesn’t either. Worse, they may think they do. Or even worse, it’s ideological without intelligence.

  4. rld Says:

    It is interesting that Bibi N. just visited Putin. Putin in charge of Russia for a fourth term? – he is a major player – if not the most important.

  5. Kevin McCarthy Says:

    Yra, you write: “Washington may restore sanctions but it is the Russians that will control the outcome of Trump’s recent action.”
    It seems to me that you can go further and say, it is hard to image how Trump’s action does not enhance Russia’s position in the Middle East, including but not limited to buttressing the price of oil as the global synchronized growth narrative fades…. just “catching mice”.

    • yraharris Says:

      Kevin—oh master i have come to learn –grasshopper.For all my readers this is a man who understands Russia far better them most.We were grad students together and he wrote a paper predicting the break-up of the Soviet empire —and that was in 1976/77 —it was a master piece and we always wondered how the CIA missed it—thank you sensei

  6. Chicken Says:

    Yra, good job. IMO, the winds of change are gusting and the swamp leeches are none too pleased?.

  7. Arthur Says:

    Jus a reminder about Davos.

    http://www.bbc.com/capital/story/20170117-want-to-change-the-world-dont-look-to-davos

    • yraharris Says:

      Arthur–my mantra remains—as the cops did at UC-Davis—pepper spray davos and bring tears to those who meet to plan against the world –Adam Smith said it 250 years ago

    • yraharris Says:

      chicken—we are aware that governments will not tolerate competition during times of stress—that is definitely a proven fact of political science

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