SKEPTIC’S GUIDE TO INVESTING
Straight Talk for All, Nonsense for None
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Your Hosts - Meet Steve Davenport, CFA and Clem Miller, CFA as they discus the latest in news, markets and investments. They each bring over 25 years in the investment industry to their discussions. Steve brings a domestic stock and quantitative emphasis, Clem has a more fundamental and international perspective. They hope to bring experience, honesty and humility to these podcasts. There are a lot of acronyms and financial terms which confuse more than they help. There are many entertainers versus analysts promoting get rich quick ideas. Let’s cut through the nonsense with straight talk!
Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
SKEPTIC’S GUIDE TO INVESTING
Israel-Iran Standoff: What Investors Need to Know
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The complex dynamics of the Israel-Iran conflict have broad implications for global stability and investment strategies as Israel conducts preemptive strikes against Iran's alleged nuclear weapons program.
• Israel claims Iran is developing nuclear weapons despite Iran's insistence that its nuclear program is for civilian use
• Iran's enrichment of uranium to near weapons-grade levels contradicts their civilian energy claims
• Religious divisions between Shia groups (Hezbollah, Iranian government) and Sunni entities (Hamas, Gulf states) complicate regional dynamics
• Global powers like China and Russia maintain loose alliances with Iran while avoiding direct military confrontation
• Probability of US using bunker-busting bombs on Fordow plant estimated at 60%
• Iranian retaliation could involve cyber attacks rather than conventional military responses
• Investors should consider reducing exposure to transportation and automotive sectors if oil prices rise
• Defensive portfolio positioning with lower beta stocks, reasonable valuations, and gold allocation recommended
• Turning off sensationalist news helps maintain investment discipline in uncertain times
• Focus on quality and value investments for long-term success despite geopolitical tensions
Join us next time as we discuss Canada as a resource to the north and examine the role of news media in shaping public perception.
Straight Talk for All - Nonsense for None
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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
Hello everyone and welcome to Skeptic's Guide to Investing. I'm Steve Davenport and I'm here with Clem Miller and today we're going to talk about what's happening in the skies. And I'm talking about the skies over Iran and Israel because, as you've probably heard, there's activity going on where Israel is preemptively striking Iran because they believe they're getting too far advanced on their nuclear proliferation and their ability to put and develop nuclear arms. They say they're developing all this nuclear for consumer use.
Stephen Davenport:So this has been a long time coming. Israel has been saying and threatening they were going to do something, and now it's a question about will the US provide bunker busting bombs that will go to the underground facilities that are the nuclear headquarters for Iran? I guess, when I think about this, my wife and some other people have asked can you give me the five minute version of what this is all about and I think it's a nice way to kind of think about it because realistically, our lives are getting pretty complicated between all the Ukraine and Israel and Taiwan and all the different challenges with tariffs and everything else going on Clint, can you give me Iran, Israel five minutes and tell me what this is really about and where it's going to go?
Clement Miller:Sure, so in my mind, Iran, and in many people's minds Iran, is building, developing a nuclear weapons program, and it's been doing so for decades. And I think that it's clear that this is the case because, first of all, Iran is a country that has a lot of energy resources, so why do they also need nuclear energy resources? Secondly, they have have gone down the route of enrichment to higher levels of power for their uranium that take it up to near weapons grade, and also, at one point they were developing plutonium capability as well. So I think if you have a country that is just focused on on nuclear power, they don't need to do all that enrichment and uh and plutonium. They just don't need to do that. So in my mind, there's no doubt that they're pursuing a nuclear weapons program. Uh, perhaps they made a decision not to go all the way, but maybe only to 95%, you know, pending other developments in the Middle East, but in my mind there's no doubt that they're developing nuclear weapons. On the other hand, you know, as I was sort of implying, I think that it's not clear to me that they are right on the cusp of developing one of uh, of actually having the weapons themselves.
Clement Miller:Benjamin Netanyahu has been talking about how, talking for like 15 years, about how iran is weeks away from a nuclear weapon. So what makes it different today versus you know, 15 years ago is a key question, and I think what makes it different today versus you know, 15 years ago is a key question. And I think what makes it different is that Israel has had some success in suppressing some of Iran's allies in the Middle East. So, you know, taking action against Hezbollah, for example, taking action against Hamas, taking action to some degree against the Houthis. So I think this is I think this is, you know, Israel views this as an opportune time to attack Iran and try to get rid of that nuclear weapons capability or developing nuclear weapons capability.
Clement Miller:Now the problem let me just take one more minute, steve. The problem is that you can't destroy Iran's nuclear weapons capability without having an ability to destroy the capability that's buried deep underground, and Israel just doesn't have the weapons for that. So they have to turn to the US in order to bomb that facility. Otherwise, iran can still be months away, so to speak, from a nuclear weapon, and in fact, they'd have even more incentive to develop one, given that they've recently been attacked incentive to develop one, given that they've recently been attacked.
Clement Miller:So Netanyahu is putting a lot of pressure on Trump in order to have Trump enter the war, at least to the extent of using a B-2 bomber to drop that. You know, bomber busting, bunker busting, bomb on the Fordow complex that's buried deep under the mountains. And then the very last thing I would say, steve, is that is that Netanyahu has actually ramped up his rhetoric, not just about taking out the nuclear capability, but he's also talking about regime change in Iran. And that's what's really dangerous for the United States, because if the United States gets involved in trying to do regime change, we're going to be dragged into an Iraq or Afghanistan situation which could persist for years and years and years. David Schoenfeld, yeah, that's what I.
Stephen Davenport:I was just going to say that if we could define those words for people out there. I mean, the Houthis are a group of Shia rebels who are fighting in Yemen. Hamas, as we know, was fighting in Israel as a terrorist group in Palestine and Hezbollah is I was trying to look up is Hezbollah Shia as well?
Clement Miller:Hezbollah is Shia, hamas is Sunni. Okay, but they're you know, they're aligned with Iran. Hezbollah is Shia and is a group in southern Lebanon Right.
Stephen Davenport:I was trying to picture this. It's not just countries and it's not just what's happening in the nuclear program today. These are religious groups who are motivated by religion, not by country, and they feel that this is bringing back the area that's sacred to them.
Clement Miller:And when we talk about sacred ground, we're usually talking about Jerusalem, and we're talking about jerusalem being important to christians, important to jews and important to um muslims as well yeah, but and it's not just a um, it's not just an iran versus israel thing uh, the sunni countries, the sunni-led governments in the Middle East, namely the Gulf states and Iraq, you know Saudi, jordan, not Iraq sorry, iraq is led by Shia majority, but Jordan is Sunni, saudi is Sunni. Kuwait, uae, qatar, oman those countries all have strained relationships with Iran as well and so there's a complexity there in in those countries will be potentially under attack and that could have collateral damage for people and property and infrastructure in Saudi Arabia, kuwait, iraq, qatar, etc.
Stephen Davenport:Yes, I think that when I think about this, we think about Israel as the center, but in reality oil is at the center as well. Right, some people like to characterize this as one group is persecuting another group and we need to stop the persecution. Others take a more economic view and say it's all about the oil and it's all about controlling the oil and controlling the flow of money and resources to the Middle East. Saudi Arabia, the largest producer, therefore probably the most powerful. They have an opinion about who is going to succeed, and they were getting very close to a peace deal with Israel and some people felt that's why we had the October events. They were trying to disrupt that peace deal from happening because if it happened, it could mean that Israel and the countries would settle down and there would be a cooperation that had never existed in the Middle East.
Stephen Davenport:And the people who obviously want change, they're not all for that cooperation thing. So I think there's two dimensions at least. First is country, second is religion, third is oil. Second is religion, third is oil. And then we've got the big three or the other world powers, who all depend upon energy to some degree and have a secondary interest in this fight and I don't know right now. Russia, I think, has enough going on with the Ukraine, but you know Russia has been supported by some drones from Iran. I think that they also have had relations in the past and their competitors in selling oil on the black market, but it feels like I would say that China and Russia are both behind Iran. Is that a safe assumption?
Clement Miller:Well, I mean, there's been, you know, some trade that's occurred among Russia, China and Iran, because they're all sort of in that axis. I don't want to call it axis of evil, but it's.
Stephen Davenport:Axis of not nice they're all allies.
Clement Miller:They're all allies Iran, russia and China and you might be able to throw North Korea into that but that doesn't mean that they're all completely strategically aligned. If Iran is attacked, russia is not going to come to its aid, china is not going to come to its aid. So it's not a complete alliance like a NATO type alliance where there's a commitment to at least on paper, a commitment to come to each other's aid.
Stephen Davenport:I don't know the numbers exactly, but I know that Iran supplies China and Russia supplies China with oil.
Clement Miller:Do you?
Stephen Davenport:know how much like is is. It feels to me like China would be just a little more interested in Iran, because with the problems with Russia and Ukraine, if you take Iran out of the, the one thing I found interesting with Israel is they have not destroyed the oil producing facilities, they're only destroying nuclear. And I wonder first of all, does that go on forever? And the minute you do that to the oil facilities, does that suddenly make China's ears go up and go oh wait, a minute.
Clement Miller:Yeah.
Stephen Davenport:You can do what you want for nuclear, but we're using that oil and you're making our country you know more at risk.
Clement Miller:I think they had some attacks on oil facilities, but not in an overly devastating way, because I think the Israelis are mindful of that. They, you know, they don't want to have too many enemies on this. You know, right now, I think you know, you've got a lot of countries that are willing to look the other way with regard to Israel's attack on Iran.
Stephen Davenport:Yeah, I guess the point is um will they look the other way if we provide the bunker busting bomb, and what do you think? The probability is that we do go ahead and provide the resources to get rid of this federal facility.
Clement Miller:Well, I. So I think that there's about a 60% chance that we'll drop a bomb on a bunker-busting bomb, on Fardo. 60% chance, now, why do I say only 60% when there's a huge ton of pressure from the Israelis on Trump to try to do that? So why do I say only 60 percent? Because, first of all, his, his MAGA coalition is split between those who are willing to do that and those who are not willing to do that. So it's split. So that's first of all. Second of all, I don't think there's complete certainty as to whether that bunker busting bomb would actually work, uh, in terms of destroying that facility. It may be a failure.
Stephen Davenport:that's what I was wondering is that somebody told me that they've already been doing this so long that they're they're diversified and that they're not all in one facility and that even if it were successful, it might not the key elements can be moved. And I think another item that I found interesting is that they don't think they can deliver a nuclear weapon via a missile, because you have to have a certain amount of stability on the uranium that they haven't achieved to put it in a nuclear head. But they do have the ability to put it in a nuclear head, but they do have the ability to put it in a suitcase bomb. So that's what I. I don't worry about delivering it via missile, because it doesn't sound like they have that capability. I worry about the capability they most likely have, which is putting it in some type of a vehicle or some type of a box and delivering it to some population head. That would shake up the world, that's what I worry about.
Clement Miller:Well, yeah, I mean, and a variation of what you're saying, is the so-called dirty bomb. If you remember that from the whole, you know right after 9-11. Yeah, the idea of putting radiological material into a conventional explosive. So it's not a fission bomb or a fusion bomb, it's actually just, you know, spreading radiation through a conventional explosive and that was a concern back when after 9-11. And you know, certainly the technology is there and it's fairly easy to to do that.
Stephen Davenport:Yeah, I mean, I think that you know. When people say they're worried on the news, I like to ask them specifically as investors, we're trying to figure out what specifically is going to be affected. And when people say terror will reign, you know Iran says terror will reign in the US if they get involved in us. Well, tell me exactly what kind of terror are we talking here? Is it that we're going to have people trying to fly planes into buildings again? Is it that we're going to try to have people use nuclear weapons against us? Is it that we're going to have internal terrorist groups in the United States who are going to I mean, I no.
Clement Miller:Well, I think the easiest thing for Iran to do in order to be disruptive to the US is cyber attacks, and they have a very sophisticated cyber attack capability and no doubt they've been trying to hone it in order to, you know, in order to make this happen.
Stephen Davenport:Yeah, I think it's strange. You know, two weeks ago we were worried about protests in LA. Now we're worried about potentially, you know, all of these countries becoming engaged in a long term conflict. It feels like all of the talk tough Trump didn't really deliver when he said nobody would do that because they'd be too afraid of my reaction. They wouldn't have invaded Ukraine if I was president.
Stephen Davenport:Well, it feels like you know you didn't frighten Israel enough, that they didn't want to act, and you're not frightening anybody now because Iran is acting and Iran is making threats against us, against us. So it feels like that. You know, I don't know what type of president is really going to succeed in this instance. I think about you, know Carter and Sadat, and I think about other people and how they've tried to resolve these problems, and it just seems to come down to you need to have people on both sides who want to work, and Netanyahu is not somebody who really wants to work towards peace, because I think his voters and his followers believe a military solution is the answer.
Clement Miller:His narrow coalition depends on the support of extremists and war hawks, and that's the only way he stays in power, because the majority of the Israeli population does not support Netanyahu.
Stephen Davenport:I agree.
Stephen Davenport:It's a strange thing when his main partner is a religious group that doesn't believe in war and allows their members to not fight.
Stephen Davenport:So, basically, the rest of the country is fighting the war that Netanyahu wants them to fight, and the group that is voting for this war is a group that personally believes that they shouldn't participate in war, as a group that personally believes that they shouldn't participate in war.
Stephen Davenport:So I don't know how religious gymnastics work, but I can see that this is twisting into quite a circle. But this is about investments. So what do you think you need to do now, glenn, that this has happened, before it becomes more inflamed, to do to your portfolios to try to make sure that one you know, I hate to say benefit from war and higher energy prices, but I think it's about hedging your exposure to a part of the economy that you might not like from an environmental standpoint. But I mean, do you buy more nat gas because you think oil is going to be harder to get and therefore people are going to transfer some of those utilities to nat gas, away from coal, and not use oil anymore? What do you think happens to our portfolios because of this if it gets worse?
Clement Miller:So, first of all, on the energy front, what we're talking about here is potentially higher oil prices, which really isn't so relevant for the power sector but is much more relevant for the auto sector and for transportation in general, and so I think the best thing to do right now is to sort of shy away from auto stocks, shy away from transportation stocks. So I think that's a smart move. Stocks so I think I think that's a smart move. I think that it's questionable whether energy stocks benefit or not, because energy stocks you know a lot of energy companies, you know they they make their money on the margins right Between refined product prices and crude oil prices, and so if crude oil prices go up, then their margins might shrink. Also, it's a very complicated thing to analyze because there's actually different kinds of oil, different weights of oil, and so different companies, energy companies, use different weights of oil from different sources. So it's actually a very difficult thing to analyze that.
Clement Miller:I think that what we're seeing recently, over the last few months, ever since the tariffs delays were put in place or we could call them the taco delays right Ever since taco has happened, we've seen some benefits to the tech sector. So I think we've. I think we're seeing some, you know some recovery there and I think that's a good place to be, uh, in those stocks, uh, and you know sort of the return of the AI theme to some degree, um, but also I think that it's important to have, um, most of your portfolio be somewhat defensive in nature. So lower beta, uh, you know the things I've talked about in the past on this. You know lower beta, lower peg ratios, lower short interest, because you know the short sellers are identifying where the risks are, and and also I think it's important to have a lot of gold in your portfolio, to have a lot of gold in your portfolio.
Stephen Davenport:So well, I think those are all good thoughts. My summary for investors would be be comfortable with what you own. I think that there's going to be a lot of news and a lot of headlines, and we're going to do a piece on news coming up. News is it really changing or is it really relevant? And I think that when we look at things, we want to turn the TV off, and I know that as a person that loves information and loves to use data to try to make better decisions.
Stephen Davenport:There is a point at which we have to realize that some of the extreme comments coming out of Fox and other networks are really not there to help you as an investor or help you as an individual. They're there to cause strife and they're there to cause angst and they're there to cause an increase in ratings. So the biggest thing I can say for people to do is find a way to step back and be patient. Patient investors, investors of quality, investors of value, are going to be rewarded. So stay the course and don't get too distracted by what's happening on the news. Anything else to end with Bob Nope, that's it All right everybody. Thank you for listening and we really appreciate your support and we want to remind you please share any comments, likes and let us know what you think. Our next episode is going to be on Canada a resource to the north. Clem just got back from a long journey and we're looking forward to talking about that and the news media. So thank you for listening and have a great day.
