With Israel threatening to take out Iran’s nuclear facilities, investors seeking opportunity from headline risk may wish to consider going long oil via Direxion Russell 1000 Energy Bullish 3X ETF (ERX) and short the S & P 500 with ProShares UltraPro Short S&P 500 ETF (SPXU). Mideast tension is normally good for a pop in oil prices and an Israeli led attack on Iran would most certainly create a blow out.
The political risk of Israel sending jets screaming into the cradle of civilization with U.S. made bunker-buster bombs would most certainly have U.S. Homeland Security seeing red, and the usual suspects crawling out their caves world-wide seeking revenge.
Retaliation against Israeli or U.S. assets would most likely occur immediately. This would send U.S. stocks into the doldrums.
The 1973 OPEC Oil Embargo which lasted from October of 1973 until March of 1974 was a calculated response from Arab nations expressing their dissatisfaction with perceived U.S. intervention into Mideast affairs as the U.S. began arms shipments to Israel. Oil prices skyrocketed.
The Dow Jones lost nearly half its value over a two year Bear Market that followed starting in January of ’73.
Strangely enough, Israel’s most recent overt threat to take out Iran’s nuclear facilities has a Cry-Wolf feel to it, as if Israel is feeling left out of the current international dialogue since the EU Economic Crisis has taken center stage. Not all Israelis support such an aggressive stance towards Iran.
On the other-hand, Israeli hardliners may be setting up a political trap for Obama in order to call his bluff on the true nature of his feelings towards U.S.-Israel relations prior to the 2012 U.S. Presidential election, a move which could be a political windfall for the GOP if Obama fails the test.
In the meantime, investors may wish to prepare for all possibilities. Only time will tell.
