In the past 72 hours, traffic on social media was through the roof, especially on X, but another thing was off the charts: the amount of nonsense being spread left and right with the sole purpose of farming engagement. Am I an expert on Iran? No, I am not, and I won’t pretend to be one. What’s the point with so many “experts” out there? Am I an expert on war? I spent 3 years in a military school long ago. I may know a thing or two, but I am far from being an “expert.” In all fairness, I am closer to being stupid than being an expert according to the modern social and mainstream media yardstick. For example, how could I possibly not realize that Iran’s announcement they are now shutting the Strait of Hormuz shouldn’t impact oil prices that much because it’s not a canal, doesn’t have a gate, and if ships don’t mind the risk of being struck by a rocket or two, nothing is stopping them from making a run through it?
How could I possibly expect that in such uncertain times, traders would have shifted to “risk off” assets and buy gold and silver instead of stocks? As a matter of fact, as you can see in this chart, both gold and silver prices fell after the US markets’ opening, with the latter, again, being slammed through the floor because of out-of-control price manipulation we are so used to now. On the other side, and counterintuitively, US stocks jumped.
To be fair, I wasn’t the only “stupid” one here, but I shared the honor with the journalists and editors of the Financial Times.
When things become so messy, the best, yet “stupid,” approach more often than not turns out to be keeping things simple. First of all, avoid “trading” in and out of positions, unless you are one of those who would be comfortable jumping into a sea infested by white sharks and expecting to swim faster than them. Secondly, let’s take a look at the few pieces of information that cannot be left open to social and mainstream media “experts” interpretation:
- The original plan of the US government to swiftly take out Iran’s Khamenei and all other members of the Iranian government, triggering a popular uprising that would have ejected the current regime from power and installed one “friendlier” with the US, failed. If this weren’t the case, every confrontation would have ended by Sunday night, 6 pm EST, by the time GLOBEX futures trading resumed.
- Saudi Arabia, the UAE, and other countries in the Middle East’s expectation of not being involved in the conflict simply because they would not have allowed the US to carry out strikes on Iran using their airspace turned out to be wrong.
- Iran’s counteroffensive capabilities and readiness have been significantly underestimated. Why? Just consider the fact that it took Iran only one cheap drone to take out in a few hours a high-tech long-range US radar installation worth $1 billion in Qatar (“US radar in Qatar destroyed in Iranian counterattack“) or that all major bases hosting sensitive US military and allied forces have been systematically hit with unexpected effectiveness.
After considering all these elements, I assume we all agree that this operation is not going to be a swift success like the one carried out against Maduro in Venezuela one month ago. I also believe it is fair to assume that, considering the recent developments and President Trump’s latest remarks about their expectation of a four to five-week campaign, this second recent conflict against Iran is going to last longer than the 12 days of 2025 when the skirmishing was fairly contained between Iran and Israel.
Can we now say that things aren’t going as planned? Yes, we can. If this is the case, then why are stocks, oil, and precious metals behaving as if “nothing is going to happen”? For sure, traders have become accustomed to believing that, no matter what event can be a cause of concern or volatility to markets, their back is covered. As a matter of fact, not buying the dip in stocks, taking cover in risk-off assets, or buying protection have been consistently strategies that did not pay off and ultimately impacted portfolio performance. There is no need to care about fundamentals or to correctly predict the evolution of geopolitical events; markets are now in a league of their own where “everything is always awesome.” Here is when I believe my stupid strategy for wartime investing can be useful:
- Wars are expensive. The longer this new conflict carries on, the bigger the impact on the US deficit and on the one of its allies. This means more government debt than what is already estimated is going to be needed. As a result, global central banks’ money printing will have to accelerate for it to remain sustainable. Does this mean rates will go up? Come on, don’t be silly. Rates are not allowed to go up. In case you noticed, a modern version of YCC called the “Treasuries buyback programme” has been in place for many years now. Furthermore, if you think that Kevin Warsh is going to do anything but cut FED rates as Donald Trump wishes, it might be time to stop living under a rock. Just avoid government bonds because, for many years, they will be the worst investment to have as protection against monetary inflation.
- What about corporate bonds? Dear lord, no. Why? The additional yield you will need to protect your portfolio against purchasing power devaluation right now will require you to be exposed to such a probability of seeing your investment being wiped out that it will be nonsensical to even think about it. Unless you haven’t noticed, the GFC 2.0 already started last year when pension funds and insurance companies saw their “safe” investments in First Brands and Tricolor loans being wiped out overnight. From there, the troubles in “private credit” started to spread to Blue Owl first and now to even larger players like Blackstone: “Blackstone’s Flagship Private Credit Fund Hit by Record Redemptions.” Mark my words, the damage to the financial system the Private Credit space will cause will be greater by many orders of magnitude than the one subprime caused in 2008. This will inevitably impact all the corporate credit space, with spreads still at unbelievably low levels, widening significantly in the future.
- After these first two points, it should not be surprising anymore to see central banks diversifying their monetary reserves away from government bonds, especially US treasuries. Eventually, bailing out the upcoming GFC 2.0 will be expensive beyond anyone’s imagination, but rest assured, at least one more large government-sponsored bailout will be coming in our lifetime because no politician in the government at the time things blow up is going to be willing to stomach letting the modern and distorted financial system implode. This means there will be another biblical amount of debt issued in the future, all of it, of course, monetized by the major central banks via QE or whatever they are going to call it at that time. As a consequence, gold’s bid will remain and continue to strengthen, eventually bringing the amount of monetary reserves held in gold back to the relative levels we last saw in the 1980s.
- Monetary inflation is the common denominator of all I described so far, right? This means that any commodity with an inelastic supply and structural scarcity will eventually see its nominal price increase over time. In a historic period when consumer credit is so abundant, almost infinite, with more and more people spending beyond their means and no government willing to discourage that otherwise GDPs will collapse, demand for commodities used for items that nobody can live without like cars, mobile phones, the latest fancy domestic appliances and so on, will inevitably remain strong in the long term. I am talking about copper, aluminum, zinc, and, of course, silver. While these are different among themselves, in one way or another, scarcity is increasing either because of a scarcity of the commodity itself or because even when the commodity is abundant, it is becoming more and more expensive to produce it. The case of aluminum production in Europe, now collapsed almost to zero because of unsustainable energy prices, is perhaps the best example of this second case: “Europe’s Aluminum Production Collapse Sparks Crisis for Key Industries.” In a nutshell, with a world becoming more and more “electronic,” the demand for anything to manufacture electronic goods and infrastructure will remain strong in the long term.
- Oil and energy stocks are the obvious wild card in the current situation. On this front, we know for sure that neither the US nor China likes high oil and energy prices. Europe, or any other country without much energy resources in its territory, of course, would like lower oil prices, but what these countries think or want does not matter, in case you have not noticed. Once upon a time, similar escalations in the Middle East would have sent oil prices through the roof very quickly. Why isn’t this happening anymore? Because traders learned that it is profitable not to bet against either the US or China’s wishes. However, they became a little bit too comfortable to the point that they don’t bother anymore to hedge for the risk of their assumptions being wrong. In a market where things can move unbelievably fast because of high-frequency trading, the losses an investor would face for being wrong at the wrong time without any hedging in place become potentially huge simply because there won’t be enough time to react to any sudden turn of events. Now, put yourself in Iran’s shoes. What is the Achilles’ heel of the US administration? Clearly, not spending a ton of money to pursue military campaigns across the globe. The Achilles’ heel is public consensus. Stocks will not be allowed to crash anytime soon, no matter how much it costs, but keeping a tight grip on oil prices is much more difficult if people start to worry they might not be able to fill their car tanks next time they go to the gas station. The most important battle right now is being fought with narratives, not rockets. The Strait of Hormuz is already closed; what matters now is whether the public will be afraid or not that this will cause a shortage of oil. Not surprisingly, the US administration and its allies keep reassuring that such a shortage won’t occur, but objectively, the longer the conflict drags along, the less effective these reassurances will be to people, and especially traders. All you need on this front is a spark strong enough to turn the general market sentiment upside down. What are the chances for this to occur? Hard to say, but one thing I can stupidly say with confidence is that in the same way Iran’s military strength was underestimated, traders are currently underestimating this risk, mostly due to behavioral biases.
SYNNAX PROMO
Get exclusive intelligence on stocks you can’t find anywhere else – insights that could give you a serious edge. Claim your free Synnax trial month now:https://synnax.app/PROMO/JUSTDARIO