Shock and Awe II

Did you hear it? The press reported the first shot fired in the Iran conflict on Monday. And no, it was not a weapon of mass destruction. It was a weapon of mass financial destruction. For all of his simple ways, no one can say that President Bush is not an intelligent man.

He is faced with a country that hates the U.S., hates Israel, and hates being told what to do. Of course all countries hate being told what to do, but that is another story for another day.

Iran is not only developing nuclear energy facilities but they are getting ready to open the world's first non-dollar denominated oil bourse. A place where the countries of the world can buy and sell oil priced in Euros or Gold Dinars or whatever. Forget the idea that Iran is developing nuclear weapons. They may be or they may not be. That accusation is just a ploy to garner world support for military action against Iran.

But before the bombs start falling, Bush launched his own attack. The major Swiss banks announced that they would no longer do business with Iran. This announcement comes from the same banks that willingly accepted Nazi gold after World War II. They have never met money that they didn't like. Now in a sudden rush of conscience, they decide that Iran's money is somehow dirty. Chances are they got a call from George.

Iran, last week, announced that they were moving their money out of European banks to avoid having their funds frozen. Now they are being told no thanks by the Swiss. This creates a bigger problem than you may think. What do you do with a check that no bank will accept? How do you eat or pay your bills if you have no money (just a check)? A check is only good if someone will accept it and give you cash in return. Iran is going to find that increasingly difficult.

So, what next? Well, if Iran feels like we are backing them into a corner, they may retaliate in some way. Probably a bit more conventional than a financial retaliation. Of course any kind of retaliation is just what Bush wants because it then gives him the justification for a full-scale invasion. He does not even have to wait for a U.N. resolution. If you question that scenario, do a little research on World War II. You will find that the Roosevelt administration slapped huge tariffs on Japan that many historians believe forced Japan to attack the U.S. We backed them into a corner and the only way out was to fight. As you may recall, after the atrocities of World War I, Americans were in no mood to get involved in another war, but the attack on Pearl Harbor changed that.

Economically, this scenario is one of the tipping points we mentioned earlier. There is no doubt that any kind of military action in Iran will cause the price of oil to shoot higher. Higher oil means higher gasoline, which means trouble for American commuters, airlines, and freight handlers. A good energy mutual fund would be a good addition to anyones portfolio. The fund in our portfolio is up 158% since October of 2000.

As mentioned in previous posts, our Risk Adjusted Asset Management System (RAAMS) indicates that we are in a period of high market risk and therefore we are invested in defensive funds to take advantage of any adverse move.

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