IT IS ALL ABOUT BRINKMANSHIP

Perhaps today’s biggest question is whether or not Iran is a rational actor.  To date the regime’s actions do not match their words.  While I will not opine about the killing of Soleimani, the rhetoric from some in the US as well as in Iran is intense.

Some are ardently writing last week’s events are equivalent to the 1914 assassination of Arch Duke Ferdinand.  I believe Iran will continue the proverbial proxy war with perhaps threatening oil shipments in the narrow straight between Saudi Arabia and Yemen.  Iranian proxies hold the islands in this straight thus limiting any response time.  Accordingly US warships generally avoid this area.

Perhaps the only certainty to write is if there is a demonstrated attempt to curtail shipping in this vital but less talked about area, the US will respond accordingly.

Changing topics, was Soleimani’s killing really a warning to North Korea’s Kim?  I find it interesting Kim’s rhetoric has all but disappeared.

Foreign policy is fascinating, where true motives are often disguised.  The two truest axioms of foreign policy are to support the least bad actor and the use of brinkmanship.  Brinkmanship is all art and no science for at some juncture actions do have to support words other than it loses its effectiveness.

As all know, the cornerstone of American foreign policy is never to avow first use of nuclear weapons, a cornerstone that Candidate Trump violated during the second 2016 presidential debate, the first candidate in history to do so.  Contrary to popular opinion it was this threat as to why the Cuban missile and the Berlin blockade ended in the manner that they did.

While I am not suggesting a nuclear conflagration is remotely at hand, I am only writing that at some juncture words have to become reality to ensure the future effectiveness of words.

Commenting about yesterday’s market action, led by the mega size technologies, equities ended about 0.30% higher after opening about 1% lower.

Last night the foreign markets were up.  London was up 0.17%, Paris up 0.39% and Frankfurt up 0.91% .  China was up 0.69%, Japan up 1.60% and Hang Sang up 0.34%.

The Dow should open nervously flat under the possible guise that Iran is all bluster.  The 10-year is up 4/32 to yield 1.80%.

 

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