Why The Market Melted Up Despite The Carnage In Gaza

News
why the market melted up despite the carnage in gaza

Gaza Shows The World Is Less Risky Than We Thought

A couple of weeks ago, we suggested risk-averse investors consider our Hedged Portfolio Method in the event the Israel-Hamas war spreads (War Clouds Call For Bulletproof Investing). 

That turned out to be a good suggestion, as our aggressive hedged portfolios continued to outperform the market during this week's melt-up...

Hedged portfolio created by Portfolio Armor on May 4th, tracked as of Friday's close.

But at the risk of talking down our book, we have to admit that concerns about the Israel-Hamas war spreading now appear overblown. Not only that, but the war in Gaza might expedite an end to the war in the Ukraine. Let's consider why. 

The "Axis Of Resistance" Doesn't Want The Smoke

Israel's response to Hamas's massacres on October 7th has excited observers on both the far right and the far left with the prospect of an "Axis Of Resistance" (Iran, Hamas, and Hezbollah, plus other parties, depending on the pundit) taking advantage of Israel getting bogged down in Gaza to destroy the Jewish State. Here's Pepe Escobar, for example ("Iran-Russia Set A Western Trap In Palestine"):

Iran is able to block the Strait of Hormuz in a flash. For starters, that would be some sort of poetic justice retribution for Israel aiming to gobble up, illegally, all the multibillion-dollar natural gas discovered offshore Gaza: this is, incidentally, one of the absolutely key reasons for the ethnic cleansing of Palestine.

Yet the real deal will be to bring down the Wall Street-engineered $618 trillion derivative structure, as confirmed for years by analysts at Goldman Sachs and JP Morgan, as well as independent Persian Gulf energy traders. [...]

Ali Fadavi, IRGC’s deputy commander-in-chief, cut to the chase: “We have technologies in the military field that no one knows about, and the Americans will know about them when we use them.”

Cue to Iranian hypersonic Fattah missiles – cousins to the Khinzal and the DF-27 – traveling at Mach 15, and able to reach any target in Israel in 400 seconds.

And yet, Iran has made no attempt to block the Strait of Hormuz, and has launched no missiles at Israel, and crude oil prices languish around $80 per barrel. 

Or take Kevin Barrett ("Gaza: Where Is Hezbollah?"):

As the world waits for Seyyed Hassan Nasrallah’s critically important speech tomorrow, Challenger whistleblower Richard Cook forwarded this message from the Axis of Resistance with the preface:

Check out this incredibly important statement by a leader of the Resistance Axis.

As I read commentaries by Western authors it is staggering to consider the general level of ignorance of those who believe that all the West needs to do is convene a “coalition” of the great powers, revive the “two-state solution,” or prevail on Israel to go-slow and take-it-easy in order to root out the Hamas “terrorists” and “win the war.” None of these commentators ever thinks to go directly to the Palestinians on the ground or to other members of the Resistance and listen to what they are saying. These people have the Anglo-American-Zionist empire directly in their sights and are not afraid.

It turns out the leader of the Axis of Resistance was afraid to give his big speech in person. 

While it's true that a neocon war on Iran would be costly for the U.S. and Israel, it would be disastrous for Iran, and the Iranians know that. So they, and the rest of the Axis of Resistance, will likely content themselves with bluster and some Hezbollah skirmishes on Israel's northern border, while Hamas continues to get reduced in Gaza. Despite their tough talk, they don't appear willing to take serious risks on behalf of the Palestinians of Gaza. 

This past week suggested that Israel can invade Gaza and bomb the hell out of it, and its major adversaries like Iran won't join the fight. 

The War In Gaza Weakens Ukraine

Fears of the Russia-Ukraine War sparking World War III were based on the prospect that Ukrainian forces might threaten to take Crimea, and Russia, unable to defend Crimea conventionally, might resort to nuclear weapons. So anything that weakens Ukraine and increases the chances of Russia winning lowers the prospect of World War III. The Israel-Hamas war does that, in a few ways: 

  • Every piece of ammunition the U.S. sends to Israel is one it can't send to Ukraine. 
  • The Israeli military is now running adds in Ukraine recruiting soldiers. Every Ukrainian soldier who goes to Israel is one fewer that Zelensky can throw against Russia.
  • The Israel-Hamas war has knocked the Ukraine war off of the front page, which makes it harder for Zelensky to successfully beg for more aid. Also, given the high civilian casualties in Gaza, Israel makes Russia look restrained, which hurts Zelensky's attempts to demonize Russia to gain more sympathy and aid. 
  • Western officials and media groups appear to have lost interest in the Ukraine War and are now saying the Ukrainians can't win and should negotiate.

So, to sum up: if scenes of devastation in Gaza haven't sparked regional war yet, they probably won't. And the Israel-Hamas war has likely shortened the Ukraine war.

Another reason for markets to rally into the end of the year. If you're worried they won't, you can use our website to hedge, or you can tail us on some of our bearish trades in our trading Substack/occasional email list, which you can subscribe to below. 

 

If You Want To Stay In Touch

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on Twitter here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).

Authored by Portfolio Armor via ZeroHedge November 4th 2023

  2. MixedTimes.com
  3. News
  4. Why The Market Melted Up Despite The Carnage In Gaza