643: USA-Iran, Brexit and Uncertainties for Property Investors
US-Iran Collision Course: The USA seems to be on a collision course towards a military confrontation with Iran. Ever since John Bolton persuaded Donald Trump to pull the plug on the Iran nuclear deal – the train left the station heading towards conflict. Let’s explain the different angles to this and how this might affect property investors.
40 Year History: Ever since the Iranian revolution in 1980, Iran has been a thorn in the side of the USA – its values, culture, religion and way of operating is totally at odds with he USA. In the middle there is Israel and the powerful Jewish influence within Washington and particularly NE USA. Iran has openly said it would like to destroy Israel. The USA has always supported Israel against the threats and aggression. Meanwhile decades of wars in The Lebanon, Syria and Iraq with varying degrees of US influence have sown the seeds of discontent and resentment within Iran – both the religious leadership, the elected politicians and the general public.
No 1 Regional Player and Nuclear Power: Part of the background is Iran’s objective to become the number one important regional player in the Middle East. They want to get ahead of their enemy Saudi Arabia who they distrust hugely. Saudi Arabia are also vying the top spot - with control over OPEC and by far the largest oil production and reserves within the Middle East. To achieve this objective Iran wanted to fabricate nuclear weapons – in part so no-one could threaten them – and likely they could threaten others including Israel. Lets be crystal clear – in the current environment in USA and Israel led by Trump and Netanyahu respectively– there is almost zero change these countries will allow Iran to develop a functioning nuclear weapon capability – because that could spell disaster for Israel – and also Saudi Arabia. Now that Iran has re-started nuclear enrichment – its only a matter of time before they have enough to make a nuclear weapon. The orange line was crossed when on 23 June they breached the nuclear agreement with the EU. If the USA and Israel think they are close to developing then announcing they have a viable nuclear weapon – its highly likely the USA likely in conjunction with Israel will take out these facilities regardless of where they are located – all hell will break loose. So Iran is playing a game of chicken and egg – they are ratchetting up the military pressure all the time whilst the USA rachets up the financial pressure with oil export and other sanctions. War could break out at any time – possibly by mistake, false flag or someone else starting it with Iran being blamed. Its difficult to believe that if Iran continues to enrich its Uranium – say 12 months from being able to make a nuclear weapon – the USA/Israel are going to sit back and watch this happen.
Proxy Wars: Meanwhile we have Iran funding a proxy war in Yemen – with missiles occasionally raining in on Saudi Arabia – a civilian airport was bombed end June for example. A cruise missile was also fired at Saudi. The three oil tanker attacks and the downing of a US airliner sized drone were other things that its difficult to imagine anyone else being behind these actions. If just one US life is lost, then Trump will likely politically feel he has to retaliate militarily. Lets just hope the two sides get behind the negotiating table – but it does not seem likely – since both sides seem to hate each other with a vengeance.
Slower GDP and High Risks: For the property investors, all this is likely to lead to a slower economic GDP growth and higher oil prices – with an impact on inflation. Its been ten years since the last recession but it looks increasingly likely another one is just around the corner. Its possible with the US Presidential elections in 2020 – Trump will want to put off going to war until after he’s re-elected into power – if he is. Meanwhile the Iranians may calculate that if Trump loses, the US policy will reverse and they will have the crippling sanctions lifted – they could wait it. Or they may decide to up their pressure on Trump in the hope he trips up over his Middle East policy and this affects his ability to get back for another term. Whatever it is – the 2020 Presidential elections seem relevant.
Nationalist Powers: Regrettably the world seems to be being run by some pretty seriously hard line leaders – Trump, Putin, Kim Jong-Un, Crown Prince Mohammed Salmon, Netanyahu. They make Teressa May look very moderate. The EU and UK are losing their influence as the US goes it alone. They regularly pick trade wars with China, Mexico and others – with their America First policy that seems popular with around half the Americans.
UK Leadership: Closer to home, it looks likely Boris Johnson will shortly be elected the new Tory Leader and Prime Minister – another populist right figure. He joins the more extremist Italians in having a more radical leadership.
EU Presidential Elections a Joke: The EU appointment of the new EU Leader on 3 June was a joke - no-one that was elected was actually appointed - instead it was an "inside job" - a stitch up by the Germans and French – a reminder of how this crony elite appoints itself – in a totally undemocratic manner. Then they start passing laws and telling all the EU member states what to do. This is the key reason why 52% of voters – voted Leave in June 2017. Nothing to do with immigration, more to do with the UK population wanting to elect their own leadership democratically then decide what to do – it’s called a democracy.
Labour in Turmoil: News on 4 June that the Labour vote has slipped to just 18% - with Liberal Democrats on 20% means that Labour’s strategy of sitting on the fence with Brexit has completely back-fired – along with big rumblings of the anti-sematic aspects of the party – with the Labour leadership still being in denial. the young voters are particularly conscious and weary of this it seems. This brings us onto the possibility that Boris Johnson – if he gets in to power – will immediately call a snap election. But it’s a high risk strategy since the Brexit party has 23% of the vote. The Tories would need to focus on destroying the Brexit party voters, and also destroying the centralist Liberal Democratic voters – whilst also doing this to Labour. Any one of the four parties – with Green’s the fifth – could take serious votes from the Tories leading to a messy hung parliament or the Tories being booted out altogether - particularly as the Liberal Democrats, SNP and Labour would join forces. Boris Johnson’s mentality is of a risk taker – and it would not be surprizing if he goes for the big win – using populist messages - like he did with Brexit. All will unfold between end July and October – when he will try to push a "No Deal" option through but he’s highly likely to fail. It really is very difficult to predict what will happen. Its likely to be a pivotal period in the UK political history what is about to come up. Its still conceivable that Jeremy Corbyn could become Prime Minister by end 2019, but for now – the Tories must be pleased the Labour party are self-imploding around their leader and not a more capable one. And the days of Teresa May are behind them with the hope that either Hunt or Johnson can do better.
Commodities: If all of the above worries you – and frankly it should – then if the proverbial “**it hits the fan” – the best investments are likely to be:
Gold – currently $1400/ounce
Sliver – currently $15/ounce
Oil – currently $55-$62/bbl
Gold and silver mining company stocks
Oil company stocks
Possibly Bitcoin – through we don’t know much about crypto-currencies
Good Old Fashioned Investments: It’s worth pointing out all the above investments are considered “old fashioned” – and are currently “out of fashion”. The trend investment at this time are high-tech (social media, apps), renewable-clean energy, currencies and anything green or vegan. But if things start to implode, all of a sudden gold and silver will shine as a safe haven along with oil that is needed to keep the economy going. Everyone would forget about electric cars-clean energy and climate change, just like they did in the crash of 2009-2011 – at least for a while.
Silver Incredibly Cheap: It’s also worth pointing out there are 7 billion people on planet Earth, but only 0.5 billion Troy ounces of silver. Silver is used to manufacture Smart phones, medical equipment, general electronics and also as a store of wealth. That means for every 14 people, there is a meagre 1 Troy ounce of silver. One Troy ounce costs £22, so each person’s value of silver is a tiny £1.50's worth. That’s ridiculously cheap! Silver is the only thing on this planet we can think of that costs less in 2019 than it did in 1980 – in fact, its three times cheaper at $15 compared to a peak of $55/ounce in 1980 – despite the dollar money supply being about 15 times bigger. Silver is the bargain of the century. You need to own some sliver – even if its only a few coins! You can buy a whole town’s worth of silver – that’s for a population of say 10,000 – for a meagre £16,000. Its hard to imagine that one day – silver prices wont skyrocket and explode upwards.
Recession Hedge: If the UK slips into a deep recession off the back of Brexit No Deal and/or a US/Iran war, then Sterling will drop sharply, money printing will re-commence on a grand scale as inflation rises for imported goods. That’s why a good hedge is gold nominally purchased in dollars – and sold in dollars. Remember gold and silver go up in price if inflation hits or a recession its - or both hit.
Property Investment: Buying property is certainly not the thing you should be doing in such times of uncertainty – since if interest rates rise sharply to defend the Sterling currency decline, then property prices will slide and property owner will get financially stressed – possibly leading to forced sales and prices crashing. Be careful in the next 12 months in particular – whilst the UK leaves the EU. It's still possible a Non Deal could happen and this would lead to some form of recession, possibly severe. Longer term, property remains a super bet – it’s a tangible asset that one can rent out and it generally keeps its value – or rises with general inflation. But a crash is always possible – and if there is one, it would likely start towards the end of 2019 as panic starts to set in from the US/Iran situation and/or a Brexit No Deal – or Labour getting into power.
Red Tape, Higher Taxes: For UK based property investors, there is quite a lot to be glum about at this time, particularly with the draconian tax changes, new regulations coming in threat of Section 21 ending, Brexit, the US-Iran situation and trade wars. Its worth though at least keeping a monitoring brief on London since if the Tories stay in power, Brexit ends and there is no big recession – London prices could start to rise sharply after 3 years in the doldrums and particularly in the big development areas along the Crossrail line:
Acton, Ealing, Paddington, Bond St, Tottenham Court Rd, Liverpool St, Stratford, Forest Gate
Then further afield Maidenhead, Reading, Slough, Abbey Wood, Shenfield, West Drayton
For the low prices places that could rapidly see gentrification – Hanwell, Hays and Harlington, Southall and West Drayton in West London are likely to see dramatic changes quickly.
The precise opening times for the different sections of lines are quite confusing and not particularly transparent – but if you are patient and look to by after Brexit but just before the stations-line opens with a Tory government, we think you will have timed it well.
We hope you have found this Special Report helpful as context to your property investments and other investments. If you have any queries, please contact us on firstname.lastname@example.org