If we go to War with Iran will that be bad for the US Stock Market?

Wow I had to read this several times. Incredible info Thanks! I will not ask who you are...being this a public anonymous internet board...but your complete and succint commentary on the high points is much appreciated. Someday I will be able to formulate my own commentary like this, but I am merely a student in the markets and a retail living room trader for now. I am reading a lot and trying to remember at my brains age of 47 years.

I must look at my charts now for a weaker dollar "imaginary line" and compare it to the historical weighted averages on the daily weekly and monthly.

Now if I only knew the date when we fire the first missle from the carriers we are preparing...It is inevitable that this day is near when you have thousands of Iranians in the streets chanting death to America...This hatred of the Western world goes back to the Reagan days...I sometimes wonder how God ever blessed them with their natural resource that makes the modern world go round.

The fact is.... Oil, the United States Dollar and the Agriculture of the USA feed the world and war with Iran will effect our markets more than the Iraq war did. The Global economy that is developing brings to light the inequalities rather clearly and if we can make it through the growing pains, the prophecies in the Bible will come to pass. A one world economy is the future.

Sometimes I imagine George Bush sitting with his advisors with information that we never could have making decisions like its a chess game. He took the first move and got into Iraq...Korea is not a concern and never has been...China is a longer term concern as they compete for Oil...You cannot take a generation of people brought up in war and "change" them immediatley...it takes 50 years...some folks do not know what peace is...its just a word...

Michael B.

 

I suspect that there might be an initial reaction down, then up, briefly. However, once past those reflex moves, I would not be surprised to see a big move down.

Taking Iran's oil off the market would place the oil market in a position that demand suddenly outstrips supply and $100 a barrel might just be a blip on the charts as the price streaks north. If $78/barrel oil equaled 3-3.50/gal gas, what would $100 or $125/barrel oil equal? $4.00, $5.00, more than that? Could the US or the world's economy withstand a dramatic increase in the price of oil?

I do not have a lot of confidence in the economy right now as it is. A war with Iran could very well be the proverbial straw that broke the camels back (pun intended). The government did not understand how the Iraqi's would react and probably have less of an idea on how the Iranians would. That would mean another quagmire in the Middle East. Sorry to get a bit off topic.

Just based on what I think would happen to the price of crude, recession seems likely and a depression possible. Neither of which would be good for the market.

Just my opinion...I could be wrong...

 

I have been getting a few complaints that I am a hypocrite and actually abusing my authority as a moderator. I have been accused of sneaking in politics and religion into this thread while posting warnings against this. I have been accused of using ET as a forum for my agenda.

Folks let me explain something. My life is my God, My Wife and Trading. ET is my home. If I have offended you then I sincerely apologize.

Those of you that know me know my background and do not misunderstand me. I believe there is one god and one faith in this world. I will respect the conduct of rules here that I am one of the moderators over and desist posting more that can be misunderstood as contributions to the violation of the rules here.

We have a real good thread going here and believe me I know there are tens of thousands of guests and lurkers asking themselves the very questions that this thread is posing. I posted it for that reason as I only want the best for ET as a provider of information.

World events and rumors can affect our markets that we are traders in, and somebody needs to ask the stupid questions.

So far this thread has rewarded me with much to chew on and I thank the contributors.

Thank you again.

Michael B.

 

No one can predict the future.

I do not use scenarios or fundamental analysis to guide my trading. I seek to know nothing and have no opinion.

If price increases then I buy. If price decreases then I sell. I risk 1 % of equity on each trade.

I sometimes make up stories that fit the behavior of prices. These are mere stories. I consider them entertainment.

 

Electric....come on man, you know what to do!

LONG Crude

LONG Bonds

SHORT SP 500

LONG GOLD

Dude, didnt you read Tudor Jones in MW?

Or was it Pit Bull book?


take care

 

Yes, Mr Moderator, my BS detector is on high mode with this thread. Sounds like a good topic for the "fair and balance" Fox News before the election.
As Montaigne said, "My life was full of misfortunes, most of them never happened."

 

I'll give answers after I think about it some.

TS

 

I have given this much though and this is going to be long . Apologizing right up front. I am going to break up my response into two parts since I am at my limit of characters per post.

TrendSailor’s Response PART I

The question implies a false altruism. Extracting out the invitation to expose political and socio-religious attitudes, the thread topic in its most general sense simplifies. It really down to "can YOU make money from the market in a major upset situation?" Frankly I have never seen anyone care whether or not the person who one bought or sold stock from made money on their end. This bisects the space by many million to only half the market makers - so that is progress here.

The only time honest people care about the market at large in an altruistic sense is if instability threatens their own portfolios or they envision a post-event government action that operates against your net worth; perhaps to bail out those others that lost major net worth in a global calamity subsidize (e.g. through a war time economic impact tax for example). Forget for the moment that there are a minority of short players in the market that will have profited by a negative sentiment event. The natural cultural bias tends toward optimism and making money in the traditional way on increases in earnings in the upward direction with traditional buy-and-hold investing. The minority perspective however gives immediate hints that non-traditional investing can profit in times of calamity.

In a sense most people are culturally programmed to equate the passage of time with income or expansion of net worth. But in practice many prove the opposite. Since we are mortal and time is scarce we pay a premium for time. So for humans time literally is money and the cultural tendencies are well founded. But we also tend to forget that life is always in a delicate tension of good times and bad times. Someone is always (relatively) profiting from either side of this natural and often random dynamic. Think about it for a moment. A "market" by definition means someone buys when someone sells and vice versa. Not everyone is winning (nor loosing) nor is that “good”. Clearly one side of a deal may not have been to the optimal benefit of the other party. But consider the example of a person selling in the context of a personal or global catastrophe who is attempting to mitigate losing positions. Such are "relieved" that "someone" was fool enough to buy their stock in the panic. This is true even though the sale may have resulted in a major net loss – perhaps the large part of their net worth. It is only later in the comforts and peace of mind of being out of complete mortal danger of losing everything that regret, fear and greed emerges as a balancing mechanism that seeks equilibrium and normalization. Thus sentiment usually changes shortly afterwards as a "dead cat" bounce and net losers imagine the money they could have kept. That is when buyer and seller remorse again reenter the markets to get back some of the discounted value or to capitalize on other's perceived fears. This is the rationalization and normalization period of time. This pattern always exists during large changes in unexpected sentiment. Even when it is expected and planned for (e.g. with an insurance/hedge) there are emotions that move to swing sentiment wildly back and forth. By the way this is an options traders bread and butter and we have another hint on how it might be good; for someone.

The truth is there is NO empathy or altruism in the market. The market is nothing more than an arena to vet sentiment and to convert o0r migrate relative "value" or "risk" from one (thing) to another. Value and risk migration are lossy however (minimally there is a commission). We who routinely play in the market all live to make money surfing the CHANGES and ripples of sentiment and ebbing and flowing perceived value and trend accelerations relative to other alternatives. Perception is important here since everything is an illusion of value and risk. Both depend on each individual person's context and sensitivity to change. There is no absolute reality in a one on one relationship. This fact is what profit salespersons. Even the perceived value in an underlying currency is an illusion. What then is value? It's an intangible that is relative to the person who gives up or exchanges it to enable themselves to direct their course toward personal objectives. It’s really at its core both a personal judgment and a peer judgment; both can change their minds in a fickle moment.

Back to trends and market events. If we get mild directional wind from a series of positive economic events (e.g. earnings) and only reasonable negative news we have a basis for trend riding. But don't forget we can ride both up and down (and sideways). If we get a fireside sale in India stocks caused by a terrorists attack some will rush in to buy on the change in sentiment to get a bargain. A validated pattern emerges here. Such bargain shoppers are optimistically looking down the road for better times at a time when the herd is pessimistic. Many of those that are “long” will perceive a dire threat to their net worth and current needs and sell for huge losses on initial bad news. Not everyone carries hedge insurance and many investors tend toward financial cowardice in these kinds of things. Initial news is usually over stated. Everything in the market is a risk-reward assessment; of course some are foolish and just bet on random things (but that’s a rabid optimist not a realist but luck sometimes works). Note that the steeper the rise or drop the better the degree of profit or loss but it’s a lower frequency occasion than netting lots of smaller changes. This is why I like the "surfer" analogy. The bigger the wave the more thrill (but the riskier and more dangerous the slip). Risk-reward is clearly an important factor; no one can recover from a total wipeout – especially if one has no reserves and bets big early on. That does not mean that you can’t have more fun riding smaller waves more often.

But I am also sensing the thread starter is really wrestling with more of a moral dilemma than anything else. And funny enough I think we need to get into some of this to answer this topic question. Certain religious philosophy often misconstrue that it is amoral or evil to make money on opportunities that may have been occasioned by the misfortune of others. This is a very common issue for people of elevated moral or religious standards that are in the market. I am such a person also and have resolved it for myself. Each must assess it for themselves however. Going down this path I'll pay token respect to the original question about war and Iran in an attempt to provoke some thinking along moral lines as well as along some related concepts - financial survival (and keeping the superior culture and species alive if nothing else).

First an admonishment. If you want to focus on the relatively low immediate possibility of an Iran war at the distraction of thousands of other opportunities in the market to make money you will miss the other morally positive (and negative) things going on that will happen before (and if) that other were to happen. Chasing storm clouds distracts from seeing (and enjoying) the sunny days.

If there is no moral issue with making money should there should a moral issue with making money on good events or bad events or the fortunes or misfortunes of others? We all love a party and most would prefer for everyone to be winners. But that is not how life operates and sometimes there are funerals at the same time others party. Misfortune and luck are not necessarily dancing in pairs and in step. In fact consider that a capitalistic society requires a dichotomy of needs and wants and abilities to create the differences and motivations to advance itself. I won't get into where that ultimately leads though.

As a plug for those that are morally minded I see no moral dilemma in helping a fearful brother quiet his mind by buying what he thinks is a dangerous or risky security at a time when he needs the capital and is afraid his stock is going lower. In an ironic manner you'd be doing him a favor to take that risky and highly discounted stock off his hands; and he should be thankful. But if you really felt for your “brother” then you'd let him buy it back from you at the same price a day or two later when the stock bounced back from a panic sell off & he wants it back. At least give him the option (hint). haha - not going to happen is it? So I think we can say that there is no morality in the stock market even among normally high moral individuals. Selling stock is a very impersonal event.

[out of character space – Please see continuation in part II]

TS

 

[TrendSailor’s Response Part II]

But to ease a moral conscience we note that no one has a perfect God's eye vision to know the context of the other trader on the other side of the deal. Morally we can opportunistically and honestly point at our human limitation to find an easy excuse to remove morality from trading. After all who are we to play God and sinfully presume perfect knowledge? Yeah, maybe then we should not play in things we can’t understand and remove all chance for harm? But if my brother profits from my mistake is that charity and is that good? From this circular path of reasoning we risk the same insanity we see coming from portions of the middle east among those with bent & twisted theological view.

As much as some try to find victims in every encounter (liberal thinking) it’s just impossible to know who the victim or loser is in the market; at least on a personal basis. Often times we ourselves are the “victims” if such a word has relevance. Are we the “victim” or really a fool if we knew the risks and our own limitations (and imperfections) and tempted fortune? Vanity has its price. What may however be a moral issue is actually heavily betting against your neighbor in a way that one seeks to profit by his misfortune. Some of us DO have a transitory problem with betting on gold for example and hoping the currency will crash to the severe ruin of the majority. No doubt here however, in that scenario lead (as in bullets) trumps gold and the concept of ownership can change at the whim of your greater numbered neighbors. Who "wins" in that deal and scenario? Will that gold buy a good burial or a better after life? Religion is in here after all it seems and this ultimately is a religious war (and question).

But I widely digress on the moral aspects of this question and only wanted to provoke thinking and to consider if there is a hidden agenda here as well. There are consequences to all things – some moral and some permanent. Again, the core non-political and fundamental general issue is 'can you make money in a massively down market’ ? The answer of course is yes - just as much as you can profit in an up market. This is all assuming a limited warring conflict where the markets are not closed or disrupted by war. Clearly in that opposite case (e.g. attack on trade centers, electronic failure, etc.) war would be universally bad since it would prevent physical trading and deny access to one’s “wealth”. But from the theological perspective of Iran this would be “good” (for them and us). Thus the core conflict is seen to be a profound and utterly orthogonal perspective on the very semantic of “good” and “evil”. Both can’t be right and one or both must yield (but compromise is as evil as capitulation for both) or both must die if they can not be segregated. Note also the logical possibility that both could be wrong as well. But these realities are too sobering for most to face head on so we unconsciously chose pacification through indecision and ignore the conflict and essentially chose through inaction to accept the consequence that indifference leads us to.

The issue here is how much does one bet/hedge for the one large low sigma down event given the foreseeable prospects? This comes down to personal style. Some play for one big home run. Others play for a lot of smaller singles and doubles. I'd personally not focus on the Iran thing as a single issue or opportunity or concern. The money is to be made on the prevailing trends and changing ripples in the market as world events naturally unfold. Ride the waves (both ups and downs) and have a stake in various opportunities. Nothing is worse than not being in the market when there is opportunity or being on the wrong side of it when a trend changes suddenly. Sometimes if one is smart one can even make a ton of money when there are no trends or any market motion by selling time (e.g. credit spread options).

As for me I do it all. But to further remark I have to take the bait of the original question and expose some[\i] of my own personal sentiment on the underlying geopolitical situation. I expect the Iranians to succeed in doing the thing they really want - increase volatility and anxiety to drive oil prices higher to their own (short term) economic benefit. But high risk-reward large bets eventually self destruct and go bust. I could frankly care less if they blow themselves to hell and want to call hell “paradise”. There are never any guarantees in life and THAT is why we have markets – to mitigate risk and balance needs. But everyone suffers when complete societies go bust and we are extorted form our own self interest to pick up the peaces or pay up front to help them get on their feet (and also further their global objectives which are contrary to us). In the old days they called this simply an “enemy”. However note that from an Iranian's perspective they are "bad" for the US stock market and therefore they are "good" in the context of their own identity struggle and their own fabricated belief system. I personally could care less what labels are put on the behavior (even when it’s certifiably childish). Financially speaking I am personally inclined to sell them short and hope they go straight to hell (their paradise?) and get what they deserve financially, socially and otherwise. Hell whether real or invented is nothing more than a huge perpetual penalty box that segregates and isolates the miscreants from the normal souls. The higher they raise the stakes and threaten the peace the more they isolate themselves from the rest of the globe and the closer they move toward a self elected hell. I certainly will have no moral difficulty or dilemma in profiting by the downfall of a committed enemy. And if its hell they want I might even push from behind and help further their cause in that direction. In all honesty though everyone, including Iranians, could profit more if they just grew up and started cooperating with the rest of humanity. But its not about just money…

But to finally answer your question - going to war with Iran will be "bad" for some and "good" for others. There is nothing new or special or different here. This is the nature of markets. Some win and some lose. If high volume is seen as good then yes it is definitely good to go to war with Iran sine that volatility and churn will results in massive re shifting and trading volume. Some might even call it healthy and necessary for efficiency. But for those irrationally and theologically inclined (or intellectually befuddled) to think of “bad” as "good" it kind of clouds the whole question. By the way, has anyone ever figure out what they are going do in paradise when all the virgins are spoiled before they are half way through eternity? My concern here is that this system of belief will in practice tend toward incestuous paradisial behavior. And that could very well lead to another round of the Divine’s discovery of various inequities among the newly admitted “enlightened” ones (note: Judaism and Christianity predated Islam by 1000’s of years and 600 years respectively). That would certainly result in the expulsions of the newcomers from paradise. This would of course lead to another theological struggle between heaven and earth and re-start the whole good vs. evil thing up again with a different devil. Nothing like setting all of Creation back and resetting humanity to try it all over again. I wish God would just come down and tell everyone to get along or he is going to send everyone to hell. Wait – if we can believe the Christians accounts I think he did that already with his message about loving each other.

In closing I note that the only thing that changes in war are the stakes and the currency involved. But I don't think a pound of flesh is fungible with oil nor does it lend itself to efficient markets. Perhaps if it’s guaranteed to be someone else's flesh I’d be less particular on this latter point.

TS

 

TS,

I am sure your post is helpful to many.

I can understand that I have confused the issue with the posts I have made. My attempt to pre-emptivley post whats on some peoples mind was to maintain control of this thread. These sorts of threads spiral out of control and will end up in the lounge area or be completely closed or eliminated.

I do not have a moral problem with profiting in trading from good or bad. Earlier in my life I battled with that, but I have been given liberty to trade and do not have any strife with it. Your most excellent post has probably helped many, TS.

I am a retail spot Forex trader and I am trading a longer term system and I am posting the results here in another thread. Being that it is long term, my exits and or reversals might lag. I have put on daily, weekly and monthly charts with various ma's. This history goes back a long way and I have tried to identify why these averages change....what was happening then...its rather a daunting project and I am glad I am only watching four instruments.

I also trade a short term system with few entries and I have stopped publishing in that thread. I also trade a third system that I have never discussed. Each systems is an effort to diversify my Currency trading.

I have opened up an Equities account for some investments. Funny this is not an investing site. But I need to be able to pull money out of my Currency exposure as I bank profits, as I am fully diversified with my systems there. I am planning on going the dividend route and building my positions for my retirement.

The trouble I am having is two problems....Can I use the longer term averages that are beginning to show some signs of turning as the trigger point to change my bias in direction and the size of my targets on my currency trades (I can go long and short there, but I rank my bias according to the infrequent long term direction changes) ?

And the second problem is...am I entering into Equities at a bad time, forcing me to average down as the market falls for an extended time? I will not be going short any stocks or Daytrading them as far as I know now.

Michael B.