Bombs Are Expensive

Bombing the Middle East, if you’re a US president, seems to be a mandate baked into the Oath of Office.

“I, [state your name], do solemnly affirm that I will faithfully execute the Office of President of the United States, and will to the best of my ability bomb the hell out of some Middle Eastern nation with a vowel in its name…”

Every US president since my high school days—that goes back to Ronald “Iran-Contra” Reagan—has unleashed missiles, bombs, and bullets somewhere in the Middle East: Syria, Lebanon, Iran, Iraq, Kuwait, Afghanistan, Pakistan, Yemen. Yada yada yada.

Thus it is that we, the United States of Industrious Military, have yet again embarked on a new episode of America’s Middle East Adventurism—the Iran Edition. This time, Donald Trump plays the lead, carrying on a storied tradition of turning rubble into more rubble.

In yesterday’s dispatch, I pontificated on what this latest swashbuckling—if not slightly illegal—foray into Iranian nation destruction/building might mean for the oil market. Obviously, it means good things for oil in a bad way for consumers.

But, hey, if you have exposure to the energy sector as I do, and as I’ve recommended to Global Intel subscribers, then “Boom! goes the cruise missile” is muy bueno for some part of the investment portfolio.

Today, however, we’re moving on to what might happen tomorrow… and where the opportunity for tomorrow lies today. Confusing, yes, but you’ll soon understand.

Wars, as you know, are damn expensive.

All that business of blowing things up blows up the American budget, as well.

Which really means it blows up America’s already overblown debt.

The Gulf War back in 1991… that one cost the American taxpayer $61 billion at the time.

The Iraq War which started back in 2003 and remains ongoing today in terms of paying the bills for counterterrorism and regional stability, has hit Uncle Sam’s expense count with receipts that surpass $2 trillion so far.

Afghanistan—a war that was supposed to be tidy and quick against a backward and undeveloped nation and its ragtag militia, but which lasted 20 years before America gave up—dinged us for more than $2.3 trillion.

If today’s Iranian Adventure Tour turns into yet another slog through the Middle East with American boots on the ground—Secretary of Playing War, Pete Hegseth, says he won’t rule that out—then you can bet that America will find itself on the hook for another price tag in the hundreds of billions, maybe trillions of dollars.

Which is where the meat of our dispatch really begins.

When the US starts spending wildly on wars and nation-building, it needs the help of the Federal Reserve. Wars are inflationary because of all the money the government throws around to buy guns, ammo, and Dirt Devils to vacuum up all that sand in soldiers’ tents.

Trump says the war will last another four or five weeks, tops.

Maybe. Or maybe “the war will be over by Christmas”, as they prophesized in the summer of 1914…

If this particular war with Iran morphs into something bigger and more prolonged than a month-long Middle East soiree, then chances are strong that oil prices remain elevated, and that’s inflationary on Mom and Pop Taxpayer all across America.

Elevated oil prices would drive up the cost of gasoline, and it would raise costs for many of the inputs that go into all sorts of tchotchkes Americans buy every day, from food (transport costs from the farm) to imported electronics (shipping costs from abroad) to clothing, cosmetics, and auto parts (all of which rely on petroleum components).

Enter the Fed…

Amid inflation, and with the US packing on war-debt, the Fed would be inclined to cut interest rates. Yes, inflation would seem to necessitate raising interest rates, but when the country has nearly $39 trillion in debt, raising rates has the perversely painful effect of forcing a heavily indebted nation into borrowing ever more to pay off those higher interest rate costs.

Falling rates, in fact, were part of every Middle East sojourn the US military has taken since 1991. No reason this time would be any different. Sammy’s pockets are bare, so he’s gotta borrow to build Tomahawk cruise missiles and other munitions.

And that steers us right to our opportunity today that promises to see much higher prices tomorrow if America finds herself in another protracted war folly.

That opportunity: Bitcoin.

I know, I know—bitcoin is stupidly volatile. And at $68k and change as I write this, it’s down nearly 50% from its record highs last year near $125,000.

Why in the world, El Jefe, would you recommend bitcoin at this moment? Isn’t that like catching a falling knife?

A respectable sentiment. But there’s a good argument for bitcoin in a world where Trump’s Persian Conquest turns into yet another sand-soaked, American misadventure in warring.

See, bitcoin thrives on free money… on liquidity sloshing through the market. And nothing says sloshy liquidity like the Federal Reserve dropping interest rates to support a government at war.

As I noted a few paragraphs back, the Fed has historically stepped up with cheap financing when America goes all “gung-ho.”

War aside, we already know that Trump wants/is demanding lower interest rates from his newly nominated Fed chairman, Kevin Warsh.

We know that Midterms are fast approaching, and that Team Trump will be uber-eager to do something that gooses an economy that is clearly weak in the knees. Lower interest rates—soon!—might help just enough that he can tell voters how fabulous he is at managing the economy.

Lower interest rates help those efforts as much as they help fund bang-bang in the sand.

So, aside from oil, bitcoin could be the bigger winner as the current president pursues that near-Constitutional mandate to interfere in the Middle East.

I’d be “stacking sats,” as the crypto-bros say in referencing the 100 million satoshis that constitute the fractional units of each bitcoin. As I’ve noted in previous dispatches, just set up a dollar-cost-averaging plan at Coinbase or whatever crypto exchange you use, and invest weekly some amount you’re comfy with.

Bitcoin goes much higher no matter what. But a grinding Middle Eastern war, along with Trump’s lust for lower interest rates, starts that move higher sooner.