The beach ball analogy I wrote about last post was spot on. The market has exploded to the upside just like I suspected would happen and to hit new highs. Once again for the umpteenth time the market did what it always does which is make fools of as many people as possible. I'm not sure if anyone reads these posts but if you're a long time reader and you're still not a believer in the motto of this blog you are in denial and you are probably a dogmatic investor which has only served to hurt you.
Ok, so what's happened since my last post? Well, we've seen continued talks/hopes to put an end to the war, but it's still ongoing. It's difficult to tell, but it seems there are different factions in Iran fighting for power. We've seen the US put more pressure on Iran by creating a blockade. Trump has been under tremendous pressure from all sides including that of this own supporters many of which have turned on him. I'm not a fan of Trump at all. He's a serial liar/gross exaggerator, narcissistic, and not to mention criminal. But, he's resilient and heavy handed, the latter trait can be a good or bad thing. When it comes to dealing with authoritarian or criminal enterprises, it's a good thing because things like diplomacy, leniency, a show of "good faith" don't work as these things are the opposite of how these people operate - they achieved and held their position through force, brutality, manipulation, and deception and as such ,you have to fight force with force. When you use "diplomacy" to negotiate with such people they will just take advantage and stick it to you which Iran has done repeatedly over the past several years. Iran is an evil empire. When you brainwash kids with the slogan "death to America, death to Israel" how can you just sit there idlily forever? I'm not sure if this was the right time to strike Iran, but when is the right time? When they have built up their miliary might and influence to the point where action is all but forced to be taken? By then it could be too late or more more difficult/consequential to deal with. When Nazi Germany first started wrecking havoc in Europe, the allied forces used "diplomacy" to appease them. Only when it was so painfully obvious that they had to use force did they act. Imagine if they would have used force sooner? How much damage and loss of lives could have been spared? And if Hitler didn't make the fatal mistake of turning on Russia he could have very well been successful. The easy/diplomatic way to handle Iran was just to put sanctions on them and monitor them. That didn't work. They still found ways to smuggle goods in and out. So what do you do? You just sit there and let them accumulate/build up their military capacity? A nation led by fanatics that have openly admitted to want to destroy the Western way of life?
Whether or not it was the right time to strike Iran, now that they have, the US/Israel need to finish the job despite the political pressure. The media is trying really hard to make it look like Iran is somehow winning this war which is a joke. Yes, they are clearly being defiant and creating some havoc, but to suggest they are winning given the damage they have sustained economically and militarily is a joke. Meanwhile, despite oil prices rising sharply, they aren't at a level that would be considered catastrophic. Gasoline prices in the US are currently a bit higher than what they averaged from the high gas price era of 2011-2014 which at that time didn't sink the economy. When you adjust for inflation, the gas price would need to be at about $4.60 today to be what they averaged in real terms back then. When you take into account today's vehicles are 15-20% more fuel efficient, you would need to see gas prices at $5.30+ today to match that high gas price era which didn't sink the economy anyways.
Let's get back to the market here. The fact that we have hit new all time highs should be a loud and clear signal that this Iran war is ultimately not going to matter as far as the stock market/economy is concerned longer term. The market is saying that somehow, someway the economy will be resilient, whether that be via re-routing of cargo ships, an end to the conflict soon or whatever. If reading that last sentence makes you hot under the collar, you need to let go of your dogma and/or you hatred of Trump, Israel or whatever else is making you biased. You're not listening to the message of the market. Could this rally end up being the mother of all head fakes? Of course it can, but it's unlikely because by now, the market has has more than enough time to digest/price in the Iran war situation and it's telling you that it doesn't believe it will derail the economy, just like how it correctly saw through the tariff drama of last year. Does that means there can't be any flare ups/headline risks that create more volatility? Of course not, but it would likely end up being noise....this is what the message of the market suggests! Don't shoot the massager!
Having said all this, the market hit extreme ST overbought conditions recently, put/call ratios have collapsed, NAAIM is at 94% exposure, AAII bulls have popped to 46% while bears dropped to 34% which is almost the inverse of what it was a few weeks ago. This suggests the wall of worry needs some re-building and the market is vulnerable to a pullback/ consolidation phase. But, I very much doubt the average investor out there is feeling truly complacent about the market over the next few months given the war and continued blocking of Hormuz. I know this must be true, because I certainty feel uncomfortable/skittish about things. And here's another thing....the longer you wait for confirmation that the war is over or that thing's aren't going to be as bad a you feared, the higher the market is going to be. You will have to pay up for certainty....and probably not too far away from he next market scare to hit!
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