Israel-Hamas: Invasion Imminent
Discussion
The IDF has conducted pre-invasion prep operations two days in a row now, and just today it put out extensive evidence of Hamas’s HQ set-up beneath a hospital and its hoarding of fuel (see video below). Most importantly, at minute 9:07 the IDF said:
“When medical facilities are used for terror purposes, they are liable to lose their protection from attack in accordance with international law.”
As I’ve discussed extensively here and on Xwitter, consensus remains very offsides on this issue as it continues to accumulate equity bags below the SPX 200dma. Confirming this, on The Macro Show this morning Hedgeye CEO Keith McCullough said that in client conversations the majority of the feedback regarding Hedgeye’s bullish position on Energy is that Israel has yet to “roll through Gaza.” Incredible.
McCullough went on to say that Hedgeye’s own due diligence on the war shows that up to six fronts could open up.
My thinking has begun to evolve a bit on Israel-Hamas a result of the invasion’s delay allowing the US and Israel to get into better position for an escalation. I think there is a good chance that once consensus more appropriately prices the chance of multi-front war that a good buying opportunity in equities will emerge from a fully oversold condition (defined as circa 5% of NYSE stocks trading above their 50dma). This would be the more typical “buy the cannons, sell the trumpets” type of play, as a better-prepared US/Israel would more quickly end the conflict without a dramatic escalation.
As far as gold, as I said in the original write-up the set-up for gold is highly asymmetric as a result of not just war hedging but also the runaway US fiscal deficit keeping inflation high and sticky. I expect gold to move vertically on the formal launch of an invasion as consensus scrambles to hedge against a broader escalation, but then consolidate a bit once the market realizes the US and Israel have contained the conflict to a large extent. Gold should then continue to move higher on broader economic concerns, but I will play it by ear. For now, the key is to get through the formal launch of the invasion and see how cross-asset market signals react.