Is an attack on Iran imminent? Following the announcement by Tehran that it is successfully enriching uranium, this question will be debated even more vigorously. I don’t believe the probability of military action is high it appears that Iran’s leadership doesn’t either. To begin with, an effective strike against Iran would logistically be extremely difficult. Retired US Air Force General Sam Gardiner, who’s recently been on the speaking circuit in Europe, articulates some interesting facts. He identifies 24 facilities that may be related to nuclear weapons production, some of which are below 50 feet of reinforced concrete. An attack, he feels, would have to comprise 400 individual target points, of which nearly a fifth would have to involve penetrating weapons. In addition to air operations, ground support would be required as well. Still, despite the general’s doubts that such an operation would not work, he believes Washington will soon be left with no other option. A reality for energy markets: whether a strike is in the cards or not, the intensity of the current showdown with Iran is likely to rise.
China signed agreements which will allow it to buy $100 billion of uranium from Australia. The exports target power generation and will start within four years. China, which plans to quadruple its nuclear energy production by the year 2020, is not alone in going more aggressively nuclear. In the rest of the world, 24 reactors are under construction and another 41 more have been approved. The governments of India, France and Britain have all articulated greater commitments to their nuclear energy industries and I suspect the rest of Europe and the US will eventually follow. Current supplies are not sufficient to support the major increase in demand that are unfolding. Until they are, the uranium price is likely to keep rising.
With short-term US yields comfortably above 5%, should you buy bonds? Using part of your cash position to buy two or three year high quality corporate issues (currently around 5.3%!) is probably not a bad idea. But I suggest you wait before you make major commitments or buy longer maturities. Why? I believe several factors will continue to work against the bond market: deficits continue to rise, it’ll be some time before the Fed will lower interest rates, and capital flows will favor stocks over bonds. Then there is the issue of foreign investors. A whopping 57% of the US Treasury bond market is now owned by foreigners, with Japan being by far the most substantial buyer. This worries me a lot, because Japan’s economy is recovering and its stock market steadily advancing. The domestic economy will look increasingly attractive to the Japanese—or put differently, US bonds and the US dollar will lose their appeal. China, another major buyer of US Treasury obligations, is now aggressively promoting domestic spending so that its economy is less dependent on exports. This, too, will in time hurt the demand for US bonds.
Peter Cavelti’s background as a financial analyst and author spans 35 years and four continents. His grasp of global issues is extraordinary and his comments and books have been published internationally. He was president of Canada’s Guardian Trust and subsequently owned his own firm, which managed some of the best-performing natural resource mutual funds. Peter firmly believes that only an integrated understanding of geopolitical, demographic and economic events can lead to successful investing, and that is what his web service Perspectives is about. If you feel keeping on top of relevant global events takes too much time, Perspectives is for you. Whether it’s investment advice or political analysis, Peter offers his insights in concise and easy-to-read form. Best of all, Perspectives is free. Visit www.cavelti.com and sign up today!