IRRESPONSIBLE NOT TO PROTECT
"Hope for the best, but Plan for the worst” - My Mother
I am reminded of this mantra of late given the war breaking out in the Middle East.
And it is a war, not a conflict. Iran declared war on Israel in response to Israel's attack on Iran last Thursday.
Having said that, I do not have an edge in knowing what path this war will take anymore than I know when the next earthquake will hit, but I have sorted them into probabilities of outcomes: Truce, Troops or True Regime Change.
I don't even have high confidence on the weighting of each. Is it 20% chance of True Regime Change with 30% Truce with 50% Troops - the latter implying US further engages/gets dragged in even deeper. Given the first two scenarios are great for markets compared to the alternative, I will continue to "Hope for the best, but Plan for the worst."
Geopolitical Shocks are just that. Earth-moving shocks, like an earthquake. They can cause severe destruction or be felt just in the distance. Planning now for a flare-up after the market came roaring back since news of the escalation last week seems paranoid, and yet, I feel strongly it is irresponsible not to protect. And I don't just mean the market reversals of ~5% on news of an attack (Russia/Ukraine, Hamas/Israel...), but the bigger type of correction that can start on the prospects of a regional war, durable disruption to energy markets and global backdrop that makes everyone feel unsafe.
"In war, truth is the first casualty." - Aeschylus
Markets bounce on hopeful news last night that:
Iran signals it wants to de-escalate with Israel - WSJ citing sources
and
Iran's military and political leadership are prepared to give up on uranium enrichment to preserve the regime - also WSJ
Both of these articles are by a source that is suspect at best.
How about this instead:
SUNDAY: 24 US tanker aircraft head eastward from the United States to Europe, an unusually large number.
and
10:53 AM ET TODAY: Iran tells all residents of Tel Aviv, Israel to evacuate as soon as possible.
and
12:20 PM ET TODAY: AL-JAZEERA JOURNALIST REFUTES WSJ CLAIMS ABOUT IRANIAN SIGNALS TO HALT HOSTILITIES, ASSERTS NO MESSAGES WERE TRANSMITTED.
and
12:45 PM ET TODAY: ISRAELI PRIME MINISTER NETANYAHU TO ABC: WE DON'T RULE OUT ASSASSINATING KHAMENEI - ALHADATH
and
1:17 PM ET: Chinese media has begun broadcasting live from Tel Aviv, signaling that something big and unusual will happen tonight.
We are talking LIVE CAMS for the China Global Television Network. Why now??
Simply put: "TRUCE, TROOPS or TRUE REGIME CHANGE - PLACE YOUR BETS" - me.
