Two things I’m thinking about today…
1) We left off yesterday with the idea that oil could spike to US$100 a barrel.
That looks downright dumb today after the oil price fell in overnight trade.
Over at the White House, Donald Trump is one minute hinting at regime change in Iran then declaring the war is over and peace is at hand
I’m not so sure about that.
I remember George W Bush declaring ‘Mission Accomplished’ when it came to Iraq in the second Gulf war. That was in 2003. The war was still going in 2011.
History shows that Iraq became a failed state, instead of a flourishing democracy. The whole weapons of mass destruction line was BS too.
The Iranians aren’t stupid.
They can see that the US destroyed Iraq after removing Saddam Hussein.
They destroyed Libya after removing Gaddafi. Syria is a wasteland.
Iran could justifiably see itself as next in line for the same treatment. You might as well go down swinging.
Call me a cynic as well, but I doubt Trump he has any deep understanding of Middle East politics, history or any grasp of military strategy either.
He’s a trust fund baby that became a TV star – hardly General Eisenhower or George Washington.
Then again, neither am I.
But I still don’t see any evidence that the conflict between Israel and Iran will be resolved anytime soon.
All we have are empty words from politicians and God knows what propaganda is spouted from either side.
I forget who said it originally, but the first casualty of war is truth.
Who knows what to believe? Not me.
All I know is that it puts a permanent supply risk over the oil market. Iran could hit targets anywhere, anytime, in response to the America bombing.
They call this “blowback”.
We can expect the oil price to gyrate up and down wildly as this situation cycles between aggression and de-escalation.
Iran’s response may not even be direct.
Iranian strategists will have seen bond yields surge back in April when Trump’s tariffs were announced. The market worried about American debt.
Iran can play the long game.
It can slowly help bleed American treasure by sucking it into expensive military responses and/or war spending through its network of groups like the Houthis attacking ships in the red sea.
The US has already blown trillions in the quagmires of Iraq and Afghanistan.
We can go back even further. In 1960 most Americans hadn’t even heard of Vietnam.
By the end of the war in 1975, nearly 60,000 US citizens were dead and so were millions of Vietnamese.
As it happens, my father fought in Vietnam.
The Australian taxpayer is still paying for his housing, health treatment and income fifty years after the war ended.
2) Meanwhile, here in Australia, it’s business as usual for the ASX.
It’s not so good for the retailer Adairs ($ADH). This got smashed 20% yesterday after giving its trading update.
It’s fair to say the market didn’t see that coming.
What did ADH say?
They’re discounting heavily to sell stock.It’s impacting their gross margins. One of their divisions, Focus on Furniture, is going backwards.
This is an example of when you think about using a stock to ride a bigger idea or theme.
In this case, it would be the consumer recovery via lower interest rates, a recovering housing market and growing incomes. ADH would fit the bill in this scenario.
You may be right about the bigger picture, but get the stock wrong.
I made this mistake going for a non bank in 2023 when I saw reasons for the financial sector to recover.
The non bank did nothing. CBA, by contrast, is up nearly 100%.
That reminds me…
I’ve bought and sold ADH in my service Small Cap Systems in the past as a momentum trade.
However, I’ve never seen that much to get excited about it for a longer term “investment”.
It’s not to say it’s a bad business or brand. It’s a fine retailer. I’d be happy to shop there.
But if I’m going to back anything in something as risky as the share market, it needs a bigger business/growth market for me to bother. I’ll probably never go with Myer ($MYR) for the same reason now.
Fund managers often throw out these types of ideas because they’re relatively “safe” to make in a public sphere. They often hold 30-60 stocks too, and one like ADH could be a tiny 1-2% allocation.
Personally, I’d rather go bigger on something that I have higher conviction in.
That’s the luxury, and the risk, of being a self directed investor.
Best wishes,
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Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
PS. Again, I don’t believe the Iran/Israel conflict will be resolved. In fact, I can see a scenario where US troops go into Iran. Again, oil is highly likely to threaten US$100 at some point in the next 12 months. Here’s a way to play it via Jim Rickards.
Murray’s Chart of the Day –
US Dollar Index
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| Source: Tradingview |
What a difference a day makes..
Yesterday, after the US strike on Iran, Brent crude oil opened above US$80.00. In the Chart of the Day yesterday, I said I needed to wait until the end of the month before shifting from a bearish view on oil.
One day later and oil is trading at US$69.70. a 13% fall in one day!
Hopefully that shows you why I wait until the monthly charts have confirmed a change in view. Jumping the gun can be costly.
With the war between Israel and Iran looking like it may be ending soon, the safe haven bid in markets is evaporating. Gold, silver, and oil are all falling.
The US dollar is also seeing selling pressure and remains in long-term downtrend without much technical support below.
The US Dollar Index [TVC:DXY] is trading at 98.22, just above the low of the whole sell-off at 97.60.
I reckon another test of 97.60 will fail and we could see the US Dollar Index heading to my target between 92.50-95.50.
Regards,
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Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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