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Profiting From The Fog Of War

By now the whole world knows about ISIS. This seemingly invincible army of several 1000 marauding across Iraq tweeting and preparing glossy annual reports. They have been linked to every world power and have now replaced their brand new Toyotas with even newer Humvees. My first impression would be if they are tweeting and communicating and using brand new Toyotas, then surely we should know a lot more about them, then we let on.

The Middle East has always been the toughest region for analysts and journalists. Middle Easterners love drama and exaggeration. They will blame everything on some power or another and conspiracy theories are part of regular day to day reporting. Furthermore, to a Middle Easterner everything happens for a reason. The great powers have meddled in the region for so long most people see some grand imperialist plan behind every event.

I don't find it surprising that even the seasoned journalists are buying into these wild conspiracy theories. They sound good, sell papers and are great copy and paste material from regional websites. As a trader you can't trade on irrationality but you can profit from it, if you look through the fog of war you will see trading opportunities in every market.

The oil companies, aid agencies, and anyone that has to take rational decisions seem to be playing things down a bit. I am glad that the markets did not go into full panic mode. Ironically it is in times of crisis that the markets revert to looking at true fundamentals of the economy.

Iraq is clearly a failed state. It has been for decades. Iraq is currently Baghdad and the few well guarded oil facilities in the South. The much talked about refinery in Baghdad was predominantly for domestic use and a pretty inefficient plant, at that. Iraqi oil has been plagued by so many mishaps and has been on and off the market for so long that the Kurds seem to think they own most of it anyway.

The predominantly Shia Iraqi government and army pretty much allowed the Sunnis and Kurds to manage their own domains. They did not fight ISIS, because there was nothing to fight for. This a feudal, tribal failed state. As far as the Shia are concerned that is Sunni land anyway. If the Sunnis attack Najaf or Kerbala, things will change.

The questions that should be asked are, not so much who is behind ISIS but who will attempt to gain from this bizarre phenomenon and the latest twist in another failed Middle Eastern project. For the list is long and getting longer by the day, but I am sure the journos are already copy and pasting the latest conspiracy theory.

From a trading perspective the noise and trading opportunities are widely amplified by geopolitical activity like this. We saw that in Ukraine, as well. The initial movement tends to be quite rapid, particularly with the algos going bananas looking at ISIS Twitter feeds about world domination.

However hedge funds and regulators are far smarter then they used to be and a nod here and a few encouraging words normally sends the market in the direction it was going anyway or stabilizes it.

It is hard to believe, just last week everyone was complaining about a lack of volatility.