A number of little things about the war seem strange to me, in addition to the BIG one that there appears to me to be no clear rationale for it.

What I find odd:

–Secretary Hegseth is reported to have explained recently that Straits of Hormuz are actually open for traffic–except for the incovenience that Iran is attempting to destroy any ships making the attempt

–Mr. Hegseth has apparently also explained that the US is running out of anti-drone munitions because former President Biden used a lot in defense of Ukraine against Russian attack. This lack apparently comes as a surprise. The oddity I find here is that the first thing any combat commandcr does when taking over a new unit is to inventory the supplies and equipment, to make sure that what’s supposed to be there–like, say, personnel carriers or rifles or ammunition–actually is. Either no one bothered to do what any captain/first sergeant worth his salt would when the Trump administration took over, or maybe no one connected the dots to conclude that anti-drone rockets might be needed, since Iran, a big war drone manufacturer (and supplier to Russia), might actually use drones itself

–the belated search for minesweeping ships–the US Navy apparently has none–to clear the Straits of Hormuz of mines Iran has placed there. implying this came as a surprise to US war planners.

The stock market implications of all this are indirect, I think: they have an effect on the USA brand.

a hypothetical celebrity death match…

…pitting Trump vs. Hegseth, reality TV star vs. television news host, with the less cognitively gifted winning.

I would find this one extremely hard to call.

If press reports are accurate, and I tend to think they are, the US and Israel made a surprise attack on Iran with the objective of killing that country’s long-time leader. The hoped for result was regime change, with the new people more favorably disposed to both attackers. ,,,a plan straight out of the Vladimir Lenin’s 1902 playbook, “What Is To Be Done”. It seems the opposite has happened, with the new leader (understandably) more anti-US.

Apparently also left out of whatever planning was done was the possibility that Iran would initiate the kind of drone warfare we’ve seen in Ukraine, even though Russian drones come from Iran (the US apparently has limited anti-drone rocket supplies) or that it would lay mines that would close the Straits of Hormuz, a key waterway for the transport not only for oil (20% of the world’s supply passes through it) but also for natural gas and a lot of other stuff (the US Navy has no minesweepers, and didn’t think to ask allies who have them beforehand).

One result of the attack so far, although this can’t possibly have been a front-row objective, is that the US is no longer the worst-performing stock market in the world, as it has been since the Trump inauguration. Over the past month, the S&P 500 is down by around 5% …but the EAFE index of non-US stocks is off by almost 10%.

The reason is relatively simple, I think. Europe and Japan form the core of EAFE. Both areas are heavily dependent on imported fossil fuels. So they are being hit both by higher prices since the attack began and lack of availability of oil and gas. The US, with large domestic supplies of both, is not being hurt as badly by this…and I think the premium US stocks have traditionally received as being part of the land of the free and the home of the brave has long since been eroded by ICE. So the striking lack of forethought by the deathmatch opponents probably hasn’t had too much of an effect.

For you and me, I think the key will be deciding when to shift portfolio weightings into now-battered EAFE names.

Starting with a footnote: publicly traded companies in the US are required to disclose the regional breakout of their sales. My experience is that this mandate is honored more in the letter than the spirit, as far as detailed compliance goes. The reason? ,,,industry competitors can read 10ks as well as you and I can, and companies are loathe to reveal sensitive information about the sweet spots for sales and earnings growth.

A reasonable guess, or at least the one I use, is that multinationals are 50/50 inside and outside the US.

The two main Trump economic initiatives, as I see them:

–whether intentionally or not, to lower the world value of the currency, meaning foreign creditors will be repaid in dollars that are worth less than anticipated

–replace taxes on income with taxes on consumption (i.e., tariffs), thereby shifting the burden of paying for the federal government away from the ultra-wealthy to ordinary citizens.

The result of these two would presumably be to make everyone poorer, but with ordinary people hurt the most. Shrinking the domestic workforce through ICE, also a key goal, only makes the situation worse.

looking at stocks:

–last year, the most important key to investing success was to own companies with costs in $US and revenues elsewhere. I think this continues to be the case, although the very large gains to be had 12 months ago are probably behind us

–we’re beginning to see negative surprises among consumer stocks. As I see it, these stem from two sources. The first is trading down to less expensive items, which has been happening pretty much since the inauguration. A stock example would be:

supermarkets to Walmart

Walmart to high-end dollar stores

high-end to low-end dollar stores

low-end to off-the-radar stores

stores to raising vegetables or poultry in the back year.

The main point is continuing to consume but finding lower-price outlets.

The second is postponing purchases–like getting another year out of an old car, or sewing up a hole in a jacket rather than getting a new one.

A very old Wall Street cliche is that in bad times consumers shift from large purchases to smaller pick-me-ups that make one feel better.

Recent consumer company reporting suggests to me that even this last is tailing off. If so, it could be signaling another down leg for the domestic economy that will appear in official statistics in a month or tow.

I was in the Army from 1968-72. That’s a long enough time ago that perhaps my experience back then is no longer relevant. But I did a lot of different things, though, including winning a year-long, all-expenses-paid trip to tropical Asia, where I was a platoon leader and later on a battalion intelligence officer. In civilian life, I was an equity portfolio manager. But I also spent well over a decade managing a group of securities analysts and running a small mutual fund and pension fund complex. I mention this mostly because it strikes me as odd that I might have both more military and general management experience than the current Secretary of Defense.

From reading about the US attack on Iran, I get the impression that the administration did very little actual planning or analysis before committing troops. I don’t believe that the analysis cupboard was bare in the Defense Department, though. I presume that the White House either didn’t ask for intelligence or ignored what it didn’t like. After seeing years of conflict in the Ukraine, it can’t come as a surprise to anyone that the weaker party would use lots of low-cost drones. I am surprised a bit that we’re already running out of rockets to intercept Iranian drones, as well as that the US intercepts cost 80x what the Iranian attack drones do.

It shouldn’t be a shock, although it appears to have been one to the White House, that Iran would try to close the Straits of Hormuz. Or that the intelligence we used was so old/inaccurate that we blew up and killed a school full of children, thinking it was a military installation.

Courageous troops, but a clown car of high-up leaders.

Weirdly, Republicans are blaming Biden, who left office 14 months ago, for the US strategic oil reserve being empty today. Maybe he also left the front door of the White House unlocked back then or didn’t empty the garbage …or maybe he didn’t put the current registration sticker on a White House license plate. Yes, his fault back then, but…

The more relevant question is why the reserve has remained unfilled for the 14 months since, or why no one thought to refill it as much as possible once the White House decided to attack Iran.

From an investment standpoint, I find it hard to become interested in oil and gas stocks. There are, for me, just too many unknowns. For a long while, I’ve been thinking that US-based valu-ish consumer companies with well-established brand names would be natural takeover targets, given the weak dollar preferences of the administration that have made them much cheaper in foreign currency terms. The big issue that has arisen since, however, is that the US is not only the land of the free and the home of the brave heroes of WWII. We’re now the land of white nationalism and of ICE imprisonments, deportations and killings. no one knows whether we’re at the low point, either. So I suspect that we’re back to the winning formula from last year: tech, domestic companies with costs in $US and revenues elsewhere, and to non-US firms.

The keys to equity market success in any given year are almost always easy to see after the fact. Figuring things out in real time, however, is another matter.

Last year was arguably an exception. The Trump administration had, and still has, I think, two main goals:

–the political/cultural objective of stemming immigration from elsewhere in the Americas and removing immigrants who are already here. Because GDP growth comes from having more workers and from productivity gains (better education/better machinery) shrinking the workforce reduces the potential GDP growth. Dumbing down the education system has the same effect, I think, although with a much greater time lag.

–1970s-style economic stimulation by lowering the short-term interest rate. As we saw back then (and as Trump, the real estate investo,r lived through) this tends to create inflation that reduces the real value of fixed-rate debt instruments. Foreign central banks, holders of immense amounts of US government debt, understand this very clearly. Their immediate reaction was to hedge their dollar exposure, causing a substantial decline in the world value of the US dollar.

So, the key to success in 2025 was pretty simple: arrange an equity portfolio so that costs for constituent companies were in dollars and revenues in foreign currency.

2026 won’t be so easy, I think.

This is partly because at some point the market pendulum will swing from focusing on concept to emphasizing valuation. My sense is that this is already happening now–that the lowest-PE stocks are having a day in the sun, without much regard for the base currency for costs vs that for revenues.

A second is the reputational damage being done to the US brand by what appears to me to be the use of military violence simply for the sake of violence. Critics argue that this is being done to shift attention away from the administration’s refusal to follow Congressional direction to release the Epstein files–and the subtext of Trump’s possible involvement. But, whatever the rationale, I think the reputational black eye this is creating has foreign multinationals hesitating to acquire US brand names and distribution networks.