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%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.