The 'Iran Hit Dip' Gives Us a Taste of Crisis
One of those mornings... U.S.-Iran tensions escalate to a new high... The 'Iran hit dip' gives us a taste of crisis... The charts and minds of investors... Plenty of unanswered questions... What you can do to prepare for a Middle East crisis right now...
It was one of those mornings, wasn't it?
I (Corey McLaughlin) opened my Twitter feed this morning to find World War III and Geraldo Rivera trending...
Oh boy. What now?
The headline news broke overnight... A U.S. airstrike killed Iran's top military leader.
The details... A U.S. drone reportedly fired missiles at a vehicle carrying Iranian Maj. Gen. Qassem Soleimani, the head of the country's Quds special forces unit.
The overnight strike killed Soleimani and at least six others... And it left a mangled mess of burning debris in the darkness on a street near Iraq's Baghdad International Airport.
Over the last decade, Soleimani was extremely visible in the resistance to U.S. efforts in the Middle East. He was considered responsible for the deaths of American troops in Iraq by proxy and had been blamed for an attack earlier this week on the U.S. embassy in Baghdad.
Soleimani was Iran's most recognizable battlefield commander and considered a "war hero"...
So yes, Soleimani's killing spiked a few emotions and worries this morning...
It escalated already-tight U.S.-Iran tensions. And online and in the media, the news led to the #WWIII hashtag and a heated debate between Rivera and Fox News morning show co-host Brian Kilmeade about the costs of war.
And in the biggest picture, the news served as a reminder that the geopolitical risks in the Middle East are never quite as far away as they might seem... and they're never-ending.
The futures markets plummeted before the major U.S. exchanges opened at 9:30 a.m. Eastern time. The "Iran hit dip" was literally a wake-up call for many investors across the country.
By 10 a.m., though, the tone was not as dire...
By the end of the first half-hour of trading, the TV and radio pundits were talking about how the response of U.S. stock prices wasn't all that bad...
The benchmark S&P 500 Index and Dow Jones Industrial Average were only down less than 1% by mid-morning... and around 0.6% by closing.
Those aren't exactly head-for-the-hills, end-of-the-bull-market numbers...
And by late afternoon, Trump said, "We took action last night to stop a war. We did not take action to start a war."
But still, marks were left on the charts and in the minds of investors in the form of short-term moves and emotional responses... The Chicago Board Options Exchange's Volatility Index ("VIX") – the market's so-called "fear gauge" – jumped 20% in premarket trading.
The various knee-jerk reactions to this morning's news tell us a few things...
Specifically, they show how the markets might react if a Middle East-related crisis is, in fact, the catalyst that leads to the end of this historic bull market.
Since the U.S.-China trade relations have cooled for the moment, that risk is now front and center again...
Tensions between the U.S. and Iran have been around for decades. They've escalated since 2018, when President Trump withdrew from Iran's 2015 nuclear deal with world powers and imposed crippling sanctions on the country.
Since then, the U.S. government blames Iran for attacks on tankers, shooting down a drone, and a September attack on Saudi Arabia's oil industry that temporarily cut the kingdom's production by half. And Iran has backed away from the agreements in its nuclear deal.
The latest attack on the U.S. embassy in Baghdad, reportedly by an Iran-backed, Soleimani-organized militia, was the latest provocation. And in response, Trump ordered the hit on the Iranian general.
After the news of Soleimani's death became public, oil prices shot up...
Given the uncertainty the actions raise in the entire region, futures for Brent crude oil – the global benchmark – jumped 4.3% to more than $69 per barrel today, its highest level since the September attack on the Saudi oil facilities.
Meanwhile, gold – the favorite "safe haven" and "chaos hedge" of many investors – was also up big to close the week. This afternoon, the precious metal's spot price surged to roughly $1,550 per ounce, its highest level since early September. It was up more than 1% today.
Defense stocks – like those of major contractors Northrup Grumman (NOC) and Lockheed Martin (LMT) – also benefited in early-morning trading. And airline stocks – such as American Airlines (AAL), United Airlines (UAL), and Delta Air Lines (DAL), whose bottom-lines are heavily influenced by oil prices – fell broadly.
Meanwhile, the world wondered about what comes next...
How big does this conflict become in the short term? Was the U.S. strike an "act of war"? What retaliation will come from Iran?
Because according to reports, it looks likely...
We've heard this type of rhetoric before, but Iranian President Hassan Rouhani called Soleimani's killing a "heinous crime" and vowed his country would "take revenge."
Chilling video has already circulated throughout the media of thousands of Iranians chanting "Death to America" during a Friday prayer ceremony in the Iranian capital of Tehran.
There's plenty of questions about what happens next between the countries and their respective allies. And we can't know for sure how these various world leaders will act.
But when it comes to your investments, we have an important answer...
We've just seen the latest blueprint for how stocks may react to an extended Middle East crisis. The time to prepare – and make sure your portfolio is not left exposed – is now.
At a minimum, a move like we saw in the futures market overnight should alert investors to check if they are overweight in certain areas of their portfolio at the expense of their preferred safe-haven or defensive allocations.
But that isn't all you should consider...
Stansberry NewsWire editor C. Scott Garliss, who was all over the news early this morning, explained the various potential impacts of a big Middle East crisis to us in a phone call earlier today...
First, as Scott noted, oil prices and supply are sensitive to most conflict in the area, and Middle Eastern unrest would most likely diminish the world's supply – driving up prices... That's because even if Iran doesn't directly attack the U.S., it could do so through American allies like Saudi Arabia, leaving that country's oil production of about 10 million barrels per day constantly as risk.
Second, if you haven't already gotten into traditional safe havens like gold or steady dividend-paying stocks, Scott believes you should consider doing it soon. It's critical for investors to act before we're in the final "Melt Up" territory... and before a crisis erupts. More from our call with Scott...
This is unlikely to be the last flare-up. The White House has given no indications that it's willing to walk away from its current Iran policy. If anything, it sounds like the White House is now more willing to double down.
And conversely, Tehran appears to be digging in even harder. So it's likely that the situation between the two sides will get worse before it gets better. At the earliest, I don't believe anything will change before the U.S. presidential election in November.
Third, Scott suggests that you keep an eye on cybersecurity stocks. If Iran were to retaliate – and odds are it will – it would likely consider a cyberattack as part of the strategy.
Many people believe Iran still wants to avoid a conventional head-to-head war with the U.S...
But Iran is among our geopolitical rivals (North Korea and China being others) that have spent a lot of time and energy developing ways to attack us remotely via the Internet. More from Scott...
That's the way they feel they can be the most devastating sometimes. And as tensions have flared between the two nations, Tehran has been suspected of trying to infiltrate U.S. defense networks as well as critical infrastructure.
In late June, the U.S. Department of Homeland Security said it had seen an increase in "malicious cyber activities" against the country by the Iranian regime and related actors. The National Security Agency followed up with a warning about potential Iranian cyberattacks.
"It's part of the world we live in," Scott says. He believes potential beneficiaries include Palo Alto Networks (PANW), CrowdStrike (CRWD), Proofpoint (PFPT), NortonLifeLock (NLOK), FireEye (FEYE), CyberArk Software (CYBR), and Fortinet (FTNT), among others.
(Related, if you want to know more about the best investable companies in this space, there's no better spot to learn more than our Stansberry Innovations Report advisory. If you're not already a subscriber, click here.)
Broadly speaking, we don't blame investors for worrying throughout the day...
Once again, today's market action has shown the resiliency a bull market can have to "bad news" like what happened overnight. But it also shows us that surprises can alter expectations in a minute.
We're not suggesting you go "all out" on stocks now... But in times like these – Happy New Year, huh? – it's a great reminder to consider how you want to handle the next market-rattling crisis the world throws our way.
Protect your assets before it happens.
New 52-week highs (as of 1/2/20): Alibaba (BABA), Berkshire Hathaway (BRK-B), CBRE Group (CBRE), WisdomTree Emerging Markets High Dividend Fund (DEM), DocuSign (DOCU), Equinox Gold (EQX), Facebook (FB), SPDR Euro STOXX 50 Fund (FEZ), Franco-Nevada (FNV), Alphabet (GOOGL), JD.com (JD), JPMorgan Chase (JPM), KraneShares CSI China Internet Fund (KWEB), Leagold Mining (LMCNF), Lockheed Martin (LMT), Lonza (LZAGY), Masco (MAS), Medtronic (MDT), Microsoft (MSFT), NetEase (NTES), Nvidia (NVDA), Novo Nordisk (NVO), Flutter Entertainment (PDYPY), Rockwell Automation (ROK), ProShares Ultra Technology Fund (ROM), Splunk (SPLK), ProShares Ultra S&P 500 Fund (SSO), TAL Education (TAL), ProShares Ultra Semiconductors Fund (USD), ProShares Ultra Financials Fund (UYG), Vanguard FTSE All-World ex-US Fund (VEU), and Vanguard S&P 500 Fund (VOO).
In today's mailbag, reaction to Mike Barrett's warning in yesterday's Digest about the Great Depression-like signs we're seeing today... As always, let us know what's on your mind at feedback@stansberryresearch.com.
"I happen to live in the hometown of Hoover's birth. The town where he and his wife are buried. I am also a farmer and everything you said about commodity production is 100% true. We had several boom years but have since been on a breakeven status. The agriculture sector is loading up on debt and a repeat of the 1980s is on the horizon in my opinion. Fortunately, I was raised by a depression era father and mother who viewed debt as the ultimate no-no. Having very little of it allowed me to survive the 80s and hopefully will allow me to survive what is coming next. I am also an Alliance member who has benefitted from the run-up in the price of stocks. I also hold physical gold as a hedge. My question today is what will stop the government from confiscating gold from the private citizen again like Roosevelt did in 1933? Are not numismatic coins safer from that threat? Keep up the good work." – Stansberry Alliance subscriber Brian E.
Mike Barrett comment: Brian, thanks for your kind words. I agree, numismatics are probably safer when it comes to potential government confiscation. It's hard to say to what degree this is a real threat...
The main reasons I own 1-ounce and fractional-ounce American Eagle coins are for their liquidity and portability. You simply don't get these two benefits – liquidity, in particular – to the same degree with numismatic coins like Morgan dollars.
All the best,
Corey McLaughlin
Baltimore, Maryland
January 3, 2020
P.S. Last call... Tonight at midnight Eastern time, we're pulling our latest offer to get in on Doc's Retirement Trader strategy offline. Click here for all the details.