It’s been an interesting 2018 so far. There are many themes emerging, all of them fascinating.
Last week I was on Core Finance London giving my views on the world. As always it’s tough to get across in 8 minutes your entire view so I figured that I’d expand on it here.
It was titled “Now is the winter of our discontent…” which many of my readers, far better educated than I, will know is a phrase from Shakespeare’s play ‘Richard III’.
I started with it because a) we have had a long winter this year (which we’ve all been fed-up of) but also on another level there has been a winter-of-discontent over the last 16-18 months since Trump got elected. I’m no real fan of the man, but as a Trader I like to look at trends and track-record, and his has been pretty eventful over the last 12 months or so. Lets take a look:
Saudi Arabian soft coup – the new Crown Prince MBS has come in and cleaned house, in effectively a soft coup. Whilst Trump cant really take any shine for that – I am sure MBS will have not acted without clearance from Trump. Trump and the Saudis go way back.
1- North Korea – we have seen the beginnings of reconciliation on the Korean Peninsula, and a de-escalation of the nuclear threat. Who would have guessed that 18 months ago?
2- raq – in recent parliamentary elections we have seen Moqtada Sadr’s party win. Now he is anti-US, but more importantly (for this piece) he’s also anti-Iranian. For years the Iranian influence has destabilised Iraq – this is another example of Iranian influence being rolled back in the ME.
3- Trump walks away from Iran Nuclear Deal – in the last two weeks Trump declared that he was pulling the plug on Obama’s Nuclear deal with Iran.
4- Israel – after the Trump announcement, along with Israel’s Netayahu’s public disclosure of Iran’s continuation of their secret nuclear weapons progress in Iran and Syria we saw the IDF attacking targets in Syria. (And probably trialling their new F-35 Lightning jets)
So it has been an extraordinary 12 months or so. Personally I think Trump was right to pull out of the Iran nuclear deal. Furthermore I believe that when the truth emerges about what went down as part of that deal we will see a domestic backlash in the US & Europe (and perhaps around the world) towards certain people, administrations and organisations that were complicit in it. There we may see a summer of discontent as well….
There has already been an MSM/Usual Suspects backlash against Trump for pulling out on the deal. But you have to wonder why they’re agonising about it so much. The one who shouts the loudest normally has the most to hide?
Which bring me onto what got me interested in this line of inquiry.. It was a tweet from one of the mullah’s senior advisors, in the top left of the slide below.
To me that was fascinating – and just confirms my earlier belief that the Iran deal was a dirty deal and that there’s clearly been more going on there than meets the eye. If the Iranians are planning to release the names of people and organisations that received money from the deal then that starts to make the actions of some other people a bit dubious. Who was it that benefitted financially from the Iran deal – as always, follow the money.
I found it interesting that in the week before Trump announced his decision he had visits from President Macron, Chancellor Merkel and Foreign Secretary Boris Johnson all apparently to pressure Trump to stick with the deal. When he did not bow to their pressure their immediate response was to rally together and make statements about how they would continue to underpin the deal. Why? In a word: money. As part of the Iran deal certain sanctions were lifted. German now does $4bn of business with Iran. France & the UK also have business interests. In total the EU now does approx. $25bn of business with Iran. They don’t want to (or are unable to) give that up should Trump re-impose sanctions on Iran, and organisations doing business in Iran.
However will they really jeopardise the $755bn of business that they do with the US for $25bn of business with Iran? I cant see it happening. The EU will huff and puff, and as usual, do nothing.
So lets bring this back to trading – it happens ever-so rarely but occasionally I experience a moment of clarity about a trade. a situation or a possible outcome. I had one such recently after the Trump deal. Namely that if there was going to be revelations of impropriety from western politicians and organisation regarding the Iran deal then perhaps we’ll see it start to taint Deutsche Bank. DO i have some wonderful insight or fantastic fundamental knowledge that would allow me to make such a call. No, I cant say I have. It would just appear to me that DB. have had a great run of being on the wrong side of the market, the theme, or the law – so why would this be any different?
I had a nice dose of confirmation bias when a few days later Steve Eisman of The Big Short fame came out and said to short DB. (He also said to short Crypto currencies but that’s a different theme for a different day.) I think his view was more fundamental based rather than geo-political fall-out however I’m happy to be on the same side as him.
I see that since I was on TV that DB has dropped another Euro and is presently trading around E12.71. If you look at the latest chart – its makes for sobering viewing.
The other company I named was French Petroleum company Total – after the initial sanctions were lifted by Obama Total were the company that raced into help with Iranian oil & gas production. They have enjoyed this success the last few years. However with the change in landscape what do it hold in store for them?
So the weekly chart there doesn’t look too bad does it? Price has rallied back up to recent resistance around the E54 price. However is that because all Oil& Gas companies are riding the back of the resurgent Oil price? Interestingly a few hours after my TV piece Total made this declaration:
So what do I think will happen?
Iran – in the same way that North Korea has been offered a route back into polite global society I suspect the same will happen for Iran – especially if, as we are seeing the demonstrations and strike by the ordinary people of Iran will continue to increase. (You can follow @HeshmatAlavi on twitter for fascinating insight into Iran.) I think the mullahs must be worried. If there is change of leadership in Iran then we may see that have a knock on effect to all the countries/organisations that Iran currently supports (Hizbollah, Hamas, Syria, Iraq, Lebanon, Palestinian state, Yemen, and probably others)
Israel – will Trump leave Israel for last, and then help make changes there that allow a broader peace to be achieved in that region? Discuss.
Russia, Turkey & Syria – what will happen here? I believe that an accommodation will happen with Russia in Syria. The war will end and Assad will be either protected (by Russia) or pushed out the door. I suspect that Erdogan will be seen for what he is – namely a blowhard, and that Turkey will be given an opportunity to right itself, or face pressure from US & Russia.
Oil Price – Oil has been a great trade this year as price from down in the mid-50’s towards 70-80 USD. I believe a good part of that has been down to resurgent demand from emerging markets. However part of that is also because of the threat of war in the Middle East due to recent tensions in Syria, Palestine & Iran. Also the threat of renewed sanctions against Iran What if there was a change of sentiment in the Middle-East? What if Iran did change it’s tack and came in from the cold. What if we had peace (of a sort)rather than the threat of war. What impact would that have on the Oil price. Personally I think it would depress it on a longer term basis. Peace is not good for Oil Prices (generally.)
Blowback – I think the blowback from the details of the Iran Deal will have repercussions in the West – which you are yet to truly understand or see. That may have huge implications on foreign and domestic policy in the US & Europe. Furthermore may lead to domestic unrest in parts of the West.
China – There has been tensions about a trade war with China (which I have worried myself about in the past.) However the latest comments from US Treasury Secretary Mnuchin at the weekend was that the Trade War/ Sanctions were “on hold” – what if Trump managed to negotiate a good trade deal that allowed peace on the Korean peninsula, whilst tempering China’s anxieties about it, and helping improve trade between the two countries? Is that possible?
US Indices – based on the comments above we saw a little positive bump in US Indices this week as possibilities of a trade war lessened. Its of interest to me that the Russell has been hitting all tie new highs whilst the Dow, S&P and NASDAQ all lag. What can we make of that?
So sorry I have rambled on here, as per normal I hear my regular reader say, but the end-point is that whilst I may not be a real of Trump the reality is that he’s helping to shift and re-shape parts of the world that would have been inconceivable less that 18months ago. I feel that if he can bring Iran in from the cold with a change of leadership then he will have earned that Peace prize. Whatever you may think of him as a person, his track-record is starting to be built. And as a trader we know that track-record is king. And if we have a peace in Middle-East & Korea, what opportunities will that open up for people, capital and markets? It could be the start of a truly fascinating period in the world. Or am I just deluding myself with sappy, wishful thinking? I’m more than happy to hear my readers alternate view on the world.
As mentioned above its been confirmed that the Israeli AF have been using their brand-new F-35’s for recent strikes. (I’ll bet that the US and other F-35 allies have been keen to see how their new toy worked.)