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Weekly Memorandum 1/6/2020

The first full trading week of 2020 is upon us. Needless to say, 2020 has started off with a bang, as President Trump ordered and successfully completed the assassination of a top Iranian general.

Crude oil surged on the news, as Iran is home to one of the largest oil reserves in the entire world. Gold and silver have also done very well in light of recent geopolitical events. But readers of the Mercator Letter know that we have been bullish on these commodities for a few months now.

One area of particular note in the short-term is that interest rates have been falling while oil prices have been rising. Normally, there is an inverse correlation between these two asset classes, as rising crude oil prices tend to increase inflationary pressures, which in turn leads to higher interest rates (bonds go down when rates go up, and vice-versa). Therefore, we expect one of these trends to "break" soon.

Equities also fell on the news of the assassination, but if we see inflationary pressures pick up in light of potential war, we should see stocks benefit.

In the meantime, hopefully this situation with Iran will blow over. Historically, Iran has always seemed to find a way to war with the strongest western powers, be it the Persians against the Greeks, or the Parthians against the Romans. Unfortunately for the west, Iran has always seemed to have our number in terms of causing trouble. History doesn't always repeat, but it sure can rhyme.

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