The Iran War vs. Your Portfolio

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What a crazy weekend. I spent it absorbed in the war with Iran.

And we have much to discuss this week.

Today we’re going to examine several investment implications of this renewed conflict.

Specifically, we will look at:

• UAE and Gulf States
• Gold and silver
• Oil
• U.S. markets
• China

Here we go…

UAE + Gulf States Wobbly

Last year, as part of our emerging markets theme, I wrote a piece about investing in the United Arab Emirates (UAE). The ticker symbol of the ETF is also UAE.

Somewhat surprisingly, the UAE turned out to be one of Iran’s top targets when it lashed out after the U.S. and Israel attacked.

Iran launched hundreds of drones and perhaps a dozen ballistic missiles at the UAE. Targets hit include:

• U.S. military bases
• Dubai International Airport
• Burj Al Arab 5-star Hotel
• And more…

The bulk of drones and missiles were intercepted or missed, but some got through.

The UAE ETF opened down about 5% today and I sold my position. The country thrived due to its popularity as a tax haven with excellent security for ex-pats from around the world.

Now that their security situation is less certain, I’m not as bullish on the country. If you own it, I’d exit this position with a roughly 28% gain since our writeup.

Gold and Silver Sober

Early this morning, gold and silver were both up significantly pre-market. But both metals have cooled off since. Gold is still up around 0.5% while silver is down $5 to $89.

Perhaps the market sees an early end to the Iran war. Or the dollar’s strength as a “flight to safety” asset is weighing on precious metals.

Either way, I’m not concerned. The underlying fundamentals driving gold and silver higher remain in place. The debt crisis creeps closer every day, and now war is spreading once again.

This remains a world where owning precious metals is key.

Oil Shines

This is perhaps the most obvious beneficiary of a renewed Iran war. Oil is up about 6% as of 2:00 pm ET.

I expect a risk premium to remain in oil prices for some time to come. And if the situation worsens, watch for oil to spike even higher.

My favorite Brazilian oil major, Petrobras (PBR and PBR.A), moved up about 2.8% today.

If anything, this strengthens Petrobras’ position significantly. Operating almost entirely in South America, they are well-isolated from the Middle Eastern chaos.

Brazil remains a nice place to hide out in cheap equities with big yields. Petrobras chief among them.

Broad U.S. Markets

Both the S&P 500 and Nasdaq are essentially flat as of 2:00pm ET.

This is a bit surprising. I had expected a decent selloff.

The market appears to be pricing in a quick resolution to the conflict in Iran. Hopefully we get one.

But there’s also a chance this war drags on longer than expected. It could even spread beyond Iran into Iraq and other Middle East countries.

If Iran ramps up strikes on oil infrastructure in Saudi Arabia and beyond, that could also lead to broad market disruptions. But as Jim Rickards mentioned in his excellent analysis this morning, this primarily affects China. And Europe to a lesser extent.

Fortunately the U.S. is almost entirely energy-independent. Europe and China are in more worrying positions.

China: Risk Up

Speaking of China, I’m increasingly concerned about the outlook for the country’s stock market.

Besides the fact that China was the primary buyer of Iranian oil, rumors are flying that China has provided military assistance to Iran. This could give the Trump administration justification to punish Chinese companies listed here in the U.S.

The Trump admin has threatened to de-list Chinese stocks from American exchanges before, and this could lend credence to that argument. The last time Trump threatened Chinese companies with listings in America, I sold more than half of my China exposure and switched into gold and silver miners. That was a good decision.

Now I will look to further reduce Chinese equities this week.

Warfare Analysis Coming Soon

Back in December I wrote a letter titled Modern Warfare: Lessons From Ukraine. It was one of the highest-rated articles of the year, so I will follow it up with a part 2 this week covering Iran.

The Iran/Israel/U.S. conflict is a much different beast compared to Ukraine, and there are many angles to be explored.

Understanding modern warfare is, unfortunately, increasingly important for understanding geopolitics. And in today’s world, we need to follow these developments to be informed investors.

Look for that soon.

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