Chief Investment Strategist, The Freeport Society
Well, we’re at war.
Is it “war with Iran’s nuclear program,” as Vice President Vance said over the weekend?
Or is it the beginning of something bigger?
President Trump says regime change might be in the cards.
As he put it on Truth Social…
[I]f the current Iranian regime is unable to MAKE IRAN GREAT AGAIN, why wouldn’t there be a regime change??? MIGA!!!
And there’s been no end of speculation about escalation in the mainstream press.
But as we’ll look at today, the real risk isn’t of America getting bogged down in a messy war in Iran.
It’s what the reaction to the war says about the lynchpin asset of the global financial system… and something we’re all exposed to as investors.
First, it’s important you understand why I’m not too worried about Trump escalating in Iran.
Big Bombs Make for Good TV
Trump is a showman.
He knows there needs to be a final action sequence in the script. What better way to deliver than dozens of high-tech bunker busters falling from America’s most sophisticated warplane, the stealth enabled B-2 Spirit bomber?
That doesn’t mean he wants to send Americans over to Iran as an invasion force.
Besides, he’s an “America First” president. It would be off brand, to say the least, if he got bogged down in the messy attempt to nation build in the Middle East.
It’s also telling that there were no casualties at the bombing sites in Iran. Or in Iran’s retaliatory strikes.
It’s possible that the Iranians evacuated the sites ahead of time because they were obvious targets. But it does make you wonder if they were tipped off ahead of time. We’ll probably never know.
What we do know is that exploding bombs make for great TV. U.S. marines coming home in body bags does not.
The most likely outcome here is that Trump makes some sort of loud, public deal with the Iranian regime and moves on.
For their part, the tens of thousands of Iranians who make up the regime want to stay alive. They know the best way to do that is to let Trump bank the win and walk away.
So let’s look at the effect this could have on the markets.
Bug in Search of Windshield
I doubt the war will register much in the stock market.
I made this point when Israeli bombs first started falling in Iran. With precious few exceptions, the markets tend to shrug off turmoil in the Middle East.
Morgan Stanley broke out the numbers over the weekend.
When something like this happens in the region, stocks experience some extra turbulence. But one month later, the average gain for the S&P 500 is 2%. After three months, it’s 3%. After a year, the index is up, on average, 9%.
What I’m concerned about is the risk to the bond market.
As I’ve been warning you, the U.S. bond market is the proverbial bug in search of a windshield.
Uncle Sam is $37 trillion in debt and is adding $2 trillion to the tally every year. That’s hardly what you’d call “risk free.” As a result, the bond vigilantes have awakened from their long slumber and are starting to push back.
You’d normally expect investors to be rushing to the safety of the U.S. dollar and U.S. Treasury bonds after the U.S. sends bombers to the Middle East.
But the 30-year T-bond has barely budged since this conflict started. And yields rose initially, meaning bond prices fell.
And money isn’t rushing into the U.S. dollar more broadly, either, as you’d expect.
The U.S. Dollar Index tracks the exchange-value of the dollar against a basket of trading partner currencies.
It’s been sliding lower all year with no noticeable improvement since the hostilities broke out.
It’s why I’ve made it my mission this year to get as many readers as possible to wake up and take steps to protect themselves.
That means buying “anti-dollar” hedges in addition to your other investments.
Safe Haven, No More
You can’t completely get rid of your dollar risk.
You likely get paid in dollars. And your major expenses are in dollars. So, you need to hold dollars no matter what.
But there are plenty of ways to hedge these risks – particularly for your long-term savings.
Start with gold and Bitcoin.
Unlike the U.S. dollar, governments can’t inflate away their value. That’s why, as the dollar has been falling, they’ve been rising.
I added gold and Bitcoin to the Freeport Investor portfolio in December 2023 for this exact purpose.
I had no idea at the time that we’d be at war in the Middle East a year and a half later. But I’m not blind. I could see that years of insane budget deficits and extreme Federal Reserve quantitative easing had created the conditions for a dollar crisis.
And here we are.
Since then, gold is up 67%. Bitcoin is up 143%.
Despite those runups, it’s not too late to buy in.
The dollar used to be a safe haven in times of crisis. It’s not anymore. Big-money investors are looking elsewhere for safety. So should you.
To life, liberty, and the pursuit of wealth,
Charles Sizemore
Chief Investment Strategist, The Freeport Society