We have been getting a flood of notes, thoughts, and comments from our Geopolitical Intelligence Group and just released a SITREP on the latest Iranian strike on Israel. We will also be hosting a webinar tomorrow at 2pm ET on the potential for escalation in the region featuring General (Ret.) Mastin Robeson, please see link to register.

In the meantime, this is my take from the gist of the analysis:

• Iran’s proxies Hamas and Hezbollah have been hit hard and are on the run, and other proxies are certainly concerned if not scared about what Israel may have in store for them.
• Those proxies are likely watching Iran’s response and are not likely to be impressed. The “deal” (we presume) that you make as a proxy is that you get weapons and support to fight for your cause, but you have the “comfort” that something far bigger and stronger than you “has your back.” There have to be a lot of doubts running through the minds of every proxy right now, between what has been done to Hezbollah in less than 2 weeks, and another largely failed retaliatory attack by Iran. The initial failed attack could have been done “on purpose” (though I don’t think it was intended to fail as epically as it did), but a second failed attack “on purpose” doesn’t seem plausible.

October 7^th was an “existential” moment for Israel. The intelligence system, held in incredibly high regard for its effectiveness, failed. The walls failed. Israel was under direct attack in a way not considered realistic. That went right to the psyche of the nation and is a main reason why Israel believed that they first needed to eradicate Hamas as a fighting force, and then chose to pursue their attacks against Hezbollah (who had been shooting at them since shortly after the initial attack by Hamas).

If you see it this way, which is how I see it from a military perspective, then you seem to have your enemies on the run. Their “protector” failed to “protect.” Netanyahu said some things recently that could be construed as hinting at regime change in Iran. Why would you stop now?

There will likely be more escalation from Israel as they have the opportunity to set their enemies back even further.

I think oil (even after today’s gains) remains the best way to protect your portfolio against more attacks (WTI is around $70 which has been the low end of our range). Even if we get escalation to de-escalate (which I think is still the path), there is a chance that oil production or transport infrastructure could be damaged in the next round of attacks, which would leave oil prices higher even after any sort of de-escalation.

Equities remain susceptible, especially at current valuations, considering the “risk” that the economy isn’t so weak, and the market has to price in fewer rate cuts (seems odd to call that a “risk,” but that is the world we live in).

Treasuries just won’t work that well. Maybe some flight to safety, but this tends to be short-lived as two things seem to stop the rally:

• Further escalation is likely to cause oil prices to rise, not helping bonds.
• The amount of money countries will need to spend on weapons and defense is going to continue to ratchet higher, creating bigger deficits and more supply of bonds.

What we don’t know, is what Russia or North Korea will do next?

China, having gone down the stimulus path, has too much on their plate (getting their economy to turn the corner) to do much to stir the pot at the moment.

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