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Money, Power & Nukes

|Includes:BHI, HAL, Transocean Ltd. (RIG), WFT

As this winter has unfolded and the Greek saga has momentarily moved stage left, I have begun to sober up & realign my priorities.

I, along with the rest of the market, have put more importance on single words that have come out of Angela Merkel's mouth this past year than we have the numerous reports, warnings and signs from international agencies, governments and allies about the serious nuclear threat posed by Iran.

I feel like about three weeks ago I pulled my head out of the Adriatic sands, began to recount on the last year and realized that I only had a hazy rememberance of the multiple revolutions that had taken place in the Middle East over the past year.

While on vacation in South Carolina during late January, I slowly came to realize that I had the same level of understanding and remeberance regarding the Green Revolutions in the Middle East as I have of late night trips to Wendy's during sophmore year of college - I don't remember who was involved or why it happened; and I only know it happened because I woke up with chicken nuggets in my bed - or in this case with the headlines thrown in my face throughout the summer and fall in the elevator at work.

Now I am obviously discounting my understanding a bit for dramatic effect, but honestly, I think the market has massively underappreciated the historic political and economic effect these revolutions have had in the area and on the global diplomatic stage.

With the frustrating feeling of not knowing everything fresh in my mind, I, to the frustration of my ever under-appreciated family, dove back into my research, this time focused not on the words of a freely elected leader of Germany, but instead on those of erractic power-hungry leaders in the Middle East.

As I have come up for air, I have found myself unable to avert discussing Middle Eastern politics with everyone from my 2 year-old nephew to my dentist. It's all I think about because I am excitedly frightened.

In my mind I have painted a picture of what I think may unfold and it looks something like this:

Ahmadinejad has a terrible situation on his hands. Despite his best efforts to develop nuclear weapons (which have been abated through the extension of deadlines and lack of serious sanctions until recently) and effectively gain leverage on the West, he has been unable to lock it up. In the mean time the global recession has cratered on the Iranian economy, his economic policies & political strategies have failed and all of this has taken place at time during which social media has proven to be a very effective mobilization tool for young educated citizens (see Stop Joseph Kony video for an example of the power of social media in organizing and mobilizing movements)

Last week when Netanyahu visited Obama, it was fresh on the heels of economic sanctions on Iran which effectively created hyper-inflation overnight by cutting off the supply of Dollars. During the meetings I suspect Obama agreed to supply the necessary bunker busters and in-air refueling jets to Israel if Netanyahu & Jerusalem allowed the most recent non-violent efforts of the international community (currency warfare through sanctions) to unfold and have a political effect. It is Obama's hope that stoking inflation in Iran and worsening the economic environment will allow for the Green Revolution to rise again, and if not gain power, atleast allow for a more moderate President to defeat Ahmadinejad in the May elections and avoid a full-scale conflict.

But in light of the recent revolutions in the Middle East and the violent, illogical efforts of unpopular leaders to retain power, it doesn't seem likely that Ahmadinejad will simply drift off into the Persian sunset in May.

I believe Ahmadinejad will continue to antagonize the West, as he did again Monday in Tehran , attempting to re-direct the frustrations of his people & the Ayatollah on external enemies (Israek & US) and as a result the market will only become more anxious.

As I write this from Texas, the hair on the back of my neck is standing up at the thought of another full-scale armed conflict in the Middle East, this time involving Israel & presumably everyone else.

It is this exact standing hair risk that has made me reallocate my focus this year and specifically target the sector I believe will see the most volatility as a result of the global political flamethrowing and potential conflict: energy. I believe other investors will have this same hairs stand up when they fully grasp the delicacy of the situation and that will drive the energy sector to outperform into this summer.

The big boys in the Gulf of Mexico are still undervalued as a result of the Macondo spill and that is where I have been parking my money. With the Gulf of Mexico legal issues rescinding and the 'hair raising' risk premium associated with Iran persisting - I believe RIG, HAL, WFT & BHI are poised to crush it during the summer of 2012. Picture 2008 with no Sarah Palin.

Anyway, I'll be back rambling when I come up for air again soon. Until then; I'm praying for Iranians in my generation and praying for an American President who will actually play point gaurd, not sit on the bench trying to wave at his mom in the stands.

Disclosure: I am long RIG, HAL, WFT, BHI.

Stocks: RIG, HAL, WFT, BHI