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Is your portfolio ready for war?


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Mohamed El-Erian mentioned on CNBC recently that you have to prepare for what is likely to happen instead of preparing for what you are hoping to happen.

 

IMO, we are very likely to see war with North Korea and/or with Iran in the next 5 years. It is definitely not something that I want, but these two piece of news cement my fear.

 

http://www.cnn.com/2009/WORLD/asiapcf/06/13/un.north.korea/index.html

 

http://www.cnn.com/2009/WORLD/meast/06/13/iran.election/index.html

 

What history has taught us is that men fight on a regular basis and that dialogue has a very poor record with countries lead by such leadership. IMO, North Korea will be the first event. The odds of the old man there changing his stance are extremely unlikely and if you compare with the Iraq situation, we should be already at war with them. These guys launch ballistic missiles on a regular basis, have nukes and continually threaten their neighboors! The key is understanding how China and Russia will react. I hope that they will stand with Western nations, Japan and South Korea as the U.N. vote indicates, but when things truly heat up it is a tough call.

 

I was also hoping that Iranians would elect a more moderate president. It seemed like the youth wanted change and a better relationship with the world, but the overall population didn't. So the rhetoric will continue and Israel is likely to remain ready for war. A very dangerous situation which could deteriorate at any time, especially if something occurs with North Korea.

 

To protect yourself, it seems to me that one needs to deliberately keep some cash on hand over the next 5 years despite the temptation to be fully invested at times. Some gold and silver may not hurt either. Another option is to be less agressive with your fair value forecast: you wait for insane prices to buy and sell for something like a P/E of 10 at best. It just seems to me that these events which are becoming more and more probable are adding to the current case of staying defensive or being cautious. Very unlikely that the secular bear market which began in 2000 is now over.

 

It may sound like I am trying to "profit" from such devasting events and it does not feel right. At the same time, I feel like being fully invested with hopes that valuations will return to bull market levels and that everything will be peaceful is totally naive. I also know that Buffett has mentioned that all the dramatic events post World War II did not make a dent in the principles taught by Benjamin Graham. However, unless prices already discount such events should you not wait until they do? Kind of like what he has done when he bought stocks in South Korea.

 

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You could also invest in defense stocks like Fairholme's been doing.  Bruce says, and I generally agree, that no president is going to want the US to get attacked on their watch.  Add to that the power of the military industrial congressional complex and it's probably not a bad place to have some money.

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Guest Broxburnboy

 

The fear of war with Iran and North Korea go back to the aggresive rhetoric of the Bush/Cheney neocon days and their enthusiasm for war as an excuse to subsidize the military/oil/private contracting industries.

 

The fact is that Iran has been attacked by Israel in the past and is constantly on the receiving end of American sabre rattling. No wonder they want nuclear weapons..Israel and the US have them and have threatened to use them.

Obama seems to be smart enough to realize that there is common ground for a negotiated settlement... Iranian security for non proliferation trade off. Your fears of an aggresive nuclear Iran are simply the result of politicians pushing the fear button for their own ends.

 

North Korea is China's puppet and her problem.. has been since the Korean War divided the Korean penninsula. The US has no role here other than posturing as defender of South Korea and Japan. There is no way the US could start a war with N Korea without destabilizing the whole region and involving China, much to the regret of the neocons. If China wanted to ruin the US, all it has to do is dump their foreign reserves of US bucks.

 

The real terrorists these days are the central banks, and the armed, angry, hostile former neocons.

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Guest kawikaho

There will be no war with Iran.  I know lots of Persian people, and they are capitalistic, overtly materialistic, definitely not war mongers.  I know Koreans, cause I'm a Korean, and I would say I wouldn't be surprised if North Korea pulls out an ICBM and launches it with an active warhead.  But, Koreans mostly posture.  I wouldn't bet that they would do it.

 

This guy confirms my beliefs of Persians:

 

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I'm not the expert on politics and I don't claim to be.  With that said, I spent a month in Shiraz and Tehran two months ago (March 16th to April 16th) for the first time in 18 years.  The situation overall is bad, my father makes an annual trip for 3-4 months, yoy according to him there was 30-40% inflation.  The younger generations (representing close to 60-70% of the overall population) is in a really sad state.  I think it helps to actually read some of the history here, revolutions are not out of the realm in Iran and old people die (eventually), so at some point the likelihood of a major change is in order. 

 

And yes, they are overtly materialistic, which is why I probably wouldn't import a wife.  However, my US citizenship (increasing intrinsic value every year) is my hedge on my approaching 25-sunspot.  I don't think Persians are as capitalistic as they are made out to be, most are full of it and can BS really well.  I remember telling people over there about the Madoff situation and they weren't shocked, because most regard every religious leader and successful businessman within the country as a Madoff-type.  For example, there was a story about a guy who sold the right for 300 units for an apartment, but really he had sold 1500, so 5 people for everyone of those units. 

 

Currently, in Shiraz there is a "World Trade Center" being built, there is one already in Tehran.  The one in Shiraz has been in progress for 3 or 4 years.  Funny thing is, apparently some group came in originally with the idea, took out a massive loan, worked on it for a year, and since then hasn't made any progress, apparently he funneled the loan...many more story's like...

 

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  • 3 years later...

Just to be contrary, I'm reading a book that's talking about some investors in the 1940s-1960s, and they're talking about how companies were flush with cash from the war effort that it set off an M&A streak.  The companies fattened up on increased demand from war supplies etc.  So war can be very profitable and doesn't always lead to a crash.

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What book is that?

 

BTW, I wasn't implying that a war would drop prices, but could displace things. There is always money to be made some where. And I have been thinking this is an interesting thought exercise.

 

As examples:

 

If we went to war with Iran though, I probably wouldn't want to be long a company that exclusively sells persian rugs (not that there is one that I know of).

 

If war does or doesn't happen, I am fascinated by things like LGL, IEHC, MPAD, SODI and the like. In some capacity, they are small, making money, trade at a discount to book, have hidden assets, etc.

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Guest wellmont

the us stock market is at an all time high. that should tell you what it feels about the "threat" of NK to USA or to anybody for that matter.

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