Will the Bellicose Surprise Hurt Our Money?

During my days in the U.S. Army, one of my commanding officers used to say, “Poke the bear, get eaten.”

That phrase came to mind last week when I heard the news that that Iran’s Maj. Gen. Qassim Suleimani, leader of the powerful Quds Force of the Islamic Revolutionary Guard Corps, was killed by missiles fired from an American MQ-9 Reaper drone.

I say that, because after more than a year of aggressive military acts without any significant American response (attacking U.S. drones, interfering with oil tankers in the Strait of Hormuz, orchestrating the attack on the Saudi Aramco facility and the attack on the U.S. embassy in Iraq), Iran and Suleimani finally got eaten by the bear.

It was also fitting because Suleimani was the architect of nearly every significant operation by Iranian intelligence and military forces over the past two decades. And his death was, in my view, a major victory for rational humankind. It also represents a significant (although by no means devastating) blow to Iran’s terror machine.

Of course, financial markets reacted swiftly to the news. I checked the futures market late Thursday night when the news broke, and predictably, Dow futures had plunged some 400 points. That risk-off move also included a surge in oil prices and a flight-to-safety move in gold. Yet for equities, the market’s response turned out to be fantastically muted, as stocks were down modestly (just 0.70% in the S&P 500) by the time that Friday’s closing bell sounded.

Of course, the situation heated up late Tuesday night, as Iran retaliated by launching more than a dozen missiles at military bases in Northern Iraq that housed U.S. soldiers. But apparently, there were no casualties due to the missile attack.

Still, the Iranian move represents an obvious escalation of the situation. When I checked the futures late last night, global equity markets had dropped in response while gold and oil rallied accordingly.

This morning, however, things took a much-less-heated turn as President Trump addressed the nation, saying, “Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world.” The president also clearly signaled that there would be no further U.S. military strikes against Iran (at least for now).

The result was a very nice move higher in stocks immediately following President Trump’s remarks, so it appears that Wall Street just let out a bullish sigh of relief at the apparent de-escalation of tensions in the region.

Now, as I told subscribers of my Intelligence Report and Successful Investing newsletters on Friday, the worst-case scenario for markets that we need to watch for would be a regional war between Iran and the United States and its key allies in the region: Saudi Arabia and Israel. While this would be a big negative for the world and for markets, it is a realistic worst-case scenario that could come from this Suleimani action.

Fortunately, the tensions now appear to be subsiding. However, I am not going to take this latest flare up in bellicose geopolitical tensions off my list of concerns that can hurt our money in 2020.

The reason why is because even though this market is certainly in outstanding condition right now, it also is priced near perfection. What that means is that any material negative development, and especially a surprise negative such as a full-blown regional war with Iran, could cause a sharp “risk-off” move by traders that could send stocks sharply lower.

Having said that, I want you to keep in mind that markets entered 2020 in very good condition when compared to where they were in January 2019. Recall that back then, the Federal Reserve was hiking interest rates, the trade war between the United States and China was getting very hot and hordes of pundits were predicting a recession.

Today, we are coming off a fantastic year of all-time highs for the major indices, with the benchmark S&P 500 logging a gain of some 29% in 2019. Moreover, the Fed cut rates three times in 2019, and Fed Chairman Jerome Powell has made it clear that the central bank isn’t planning on hiking rates again in 2020.

Finally, we have a “phase one” trade deal in place between the United States and China, and even though I am skeptical about the actual details of the deal (we haven’t even seen them yet), I think the mere fact that we have an agreement between the two sides has taken a lot of that risk premium off the table for investors.

As we enter 2020, there are far more positive tailwinds at our backs than headwinds in our face — and that likely means more upside ahead for the major indices and the stocks and exchange-traded funds (ETFs) that my subscribers are profiting from in Intelligence Report and Successful Investing.

So, as the year unfolds, I suspect we’ll continue watching our money grow.

********************************************************************

Bringing Excitement and Passion to the Dismal Science

When asked to think about the prototype professor of economics, most people are likely to conjure up the image of a staid gentleman in a bowtie buried in statistics.

Well, those people haven’t met Sean Flynn.

In the 2020 inaugural episode of the Way of the Renaissance Man podcast, you’ll hear my fascinating, fun and humorous discussion with the eminently vibrant Scripps College economics professor.

Sean is the author of the best-selling book, “Economics for Dummies,” and he’s the co-author of the world’s best-selling economics textbook.

Topics covered in this discussion include Sean’s personal history as an economist, how he was chosen to write “Economics for Dummies,” our mutual love of martial arts and his groundbreaking work in the field of free-market health care reform.

Plus, you’ll learn all about Sean’s new book, “The Cure That Works,” which advocates for enhanced price transparency in health care, consistent pricing for every consumer, an insurance system designed so that individuals can actually pay their deductibles and real competition among health care providers.

After listening to this episode, I suspect you’ll have a much different view of an economics professor.

*********************************************************************

On Peace Through Strength

“I have never advocated war except as a means of peace.”

–Ulysses S. Grant

The 18^th President of the United States knew quite a bit about war, having led the Union Army in the bloodiest conflict in American history, the Civil War. And though General Grant was as an expert war fighter, he always knew that the endgame for any war was a return to the absence of armed conflict. Let’s hope Grant’s wisdom prevails in 2020.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods