The Conflict’s Windfall: Are U.S. Corporations Winning?

Good Morning Ladies and Gentlemen

”Right or wrong are not a matter of personal opinion!”

also attributed to Dennis Prager

We (humans) engage in a constant manipulation of our emotional balance, which is a typical aspect of human behaviour. In today’s world, we also utilise social media to facilitate this process, making it particularly intriguing because many companies capitalise on this tendency, reaping substantial profits. Consider the plethora of angry posts and videos that ignite feelings of outrage, fear, despair, and hopelessness. For social media companies, this is highly advantageous; within today’s digital outrage economy, anger acts as a catalyst for increased engagement, and greater engagement translates into greater financial gain.

Last Week’s «Stefan’s Weekly»

The quote from last week, “How quickly arrives suddenly?” has gained considerable significance in light of the recent military actions involving Israel and the United States against Iran. This occurrence illustrates that the concept of ‘suddenly’ can manifest with startling rapidity. It serves as a vital reminder of the unpredictable nature of geopolitical (and other) events and the necessity of remaining alert to the potential for abrupt developments in international (and other) relations.

Inflation

Last week, I noted that if WTI crude reached USD 70, it could contribute to higher inflation. Even without higher oil prices, we anticipated that the U.S. inflation rate would likely rise by more than 0.2% per month in the months ahead. To be candid, with WTI now exceeding USD 70, it is perhaps unnecessary to state that I would be surprised if inflation does not increase in the near future.

However

However, I have my doubts that Iran is truly capable of disrupting the region’s energy infrastructure for an extended period. Of course, if gas and oil prices remain at their current levels or rise further, inflation would rise significantly. Yet, I believe that neither the United States nor Iran is motivated to have this conflict drag on. The current U.S. administration is concerned about the midterm elections, while Iran and its allies are too constrained to conduct sustained military counterstrikes or effectively block the Strait of Hormuz for long, and I imagine Iran wishes to resume oil sales at some point.

Substantial Cost of War

One of my readers inquired why the U.S. financial markets have not experienced a more substantial decline, particularly given the United States‘ involvement in the war and the substantial costs that will inevitably be borne by the American public. This is an excellent question!

Market Perception and the Conflict’s Windfall

It almost seems reasonable to assume that the prevailing market perspective views the American corporate world as the primary beneficiary in the conflict between the U.S., Israel and Iran. If the financial community held a different opinion, we would likely see a more significant drop in the valuation of U.S. equities, wouldn’t we?

Which Means?

Well, Ladies and Gentlemen, it is important to recognise that most of the financial burden associated with this war is primarily borne by the public, in this case, the American people, while the corresponding potential financial profits are predominantly accrued by some members of the corporate sector. This scenario exemplifies an asymmetric risk-reward structure, in which one party assumes disproportionate risk while the other concentrates the rewards, but that is a different story.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li. Many thanks, indeed!

I wish you an excellent start to the day and weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li