The Coming War With Iran

Or The Single Most Impactful Event on Your Portfolio This Decade

While I am going back soon to stock-focused reports, this report is simply too urgently needed to keep postponing it.

As I am writing, rumors for an Israeli large-scale attack on Lebanon are mounting, following the unprecedented explosion of thousands of pagers in an attempt to decapitate Hezbollah, or at least, “terrorize the terrorists”.

And apparently, also plenty of other devices spread throughout the country far beyond Hezbollah militants, and among civilians.

This follows 12 months of war in Gaza that reduced pretty much the whole area to rubble and killed most likely what is estimated to be hundreds of thousands of civilians.

It has severely damaged Israel's international standing. Not helping is the abysmal optics of regular genocidal rhetoric by government leaders or parliament debates about the right or wrong of raping prisoners.

Slow Escalations

Since the attack by Hamas on 7th October 2023, Israel has been in the midst of a grueling war that was expected by many to either stop sooner or escalate into a full-blown regional conflict.

Instead, a few curious things happened.

The first is that Israel seems to be trapped in a death spiral of escalations against civilians, while also never truly achieving military victory against Hamas, a much smaller force.

The second is that despite extremely strong rhetoric and regular very demonstrative threats, Iran and its allies, especially Syria and the Lebanese Hezbollah, have done very little so far.

An exception is Yemen, which against most expectations (except if you followed me back then), has for all practical purposes defeated the US Navy and managed to keep the Red Sea closed. For that matter, poor and distant Yemen has caused as much or more damage to Israel than Hezbollah so far.

This led to this strange situation:

• Most Israeli supporters are dismayed by the poor performance of what propaganda described as “the best army in the world”, seeing it unable to defeat Hamas in any durable fashion.

• Most anti-Israel commentators are dismayed by the “weakness” of Iran and the lack of escalation, even after the direct assassination on Iranian soil of the Hamas leader.

This is a strange war where both sides are talking big threats but seem to do their best to avoid escalation. Israel because it needs to “finish” with Gaza first, and Iran because it clearly considers itself not ready.

So there is more to this than meets the eye. And getting it right will clarify why investors should build a portfolio with a base case of a much wider Middle East war happening soon.

(as a preamble, I must emphasize that I assume both pro and anti-Israel people are among my readers, please stay civil in the comments. For my part, I will as always focus on accurate as possible forecasts)

The Israeli Position