The 3-Letter Event That Changes Everything
Six Big Consequences Even Before It Happens

When investors plan their financial future, they try to consider all the basics: The direction of the Dow, the strength of the economy, their personal goals.

But there’s one three-letter event they rarely think about. It’s not on the standard checklist that financial planners run through when they advise you about your portfolio. Nor is it something that economists include in their forecasting models. Yet it’s so big, it could turn every forecast and investment strategy upside down, or worse.

I’m referring to war.

Why is nearly everyone ignoring or minimizing the possibility?

Perhaps it’s some unholy mix of amnesia and fantasy. They see all the signs, but blindly assume that they’re false alarms.

Or maybe it’s a psychological defense mechanism. They’re so fearful of the consequences, their brains automatically block logical thinking.

But I need not tell you where the winds of war are blowing. You’ve seen them yourself in the headlines:

Russia: The takeover of Crimea and intervention in eastern Ukraine. Massive military buildups along the borders with Finland, Poland and the Baltics. War in Syria. Meddling in U.S. elections.

China: Declaration of the “nine-dash line” in the South China Sea that encroaches on the exclusive economic zones claimed by Brunei, Indonesia, Malaysia, the Philippines, Taiwan, and Vietnam. Construction of helipads, runways and hangars on seven separate reefs in the Spratly Islands. Military presence on eight of the Paracel Islands. All in defiance of international law.

North Korea: Five atomic bomb tests since 2006 with a total yield of 63 kilotons. Five ballistic missiles fired on March 6 and April 4 into the Sea of Japan. Multiple threats, including one made last week, that it will launch a nuclear attack on U.S. territory in immediate response to any “sign of aggression.”

United States: Six rounds of economic sanctions imposed on Russia by the U.S. and its allies. Missile attack on Russia’s number one ally in the Middle East, destroying Russian-made aircraft. Deployment to the Korean Peninsula of Carrier Strike Group 1, including aircraft carrier Carl Vinson capable of carrying 90 aircraft, along with a fleet of destroyers.

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Among all of these escalating tensions, most strategists agree that the most worrisome stem from deteriorating relations between the U.S. and Russia, and last week’s visit to Moscow by Secretary of State Rex Tillerson, did virtually nothing to stem the slide.

But if you think they’ve gone downhill fast or that the prospects of war are too close for comfort, wait till you see what they’re saying in Russia.

Humor and Sarcasm Turn
To Venom and Warnings

Until recently, the focus of the Russian press and social media was to joke about reports from the U.S. that Putin hacked the American elections.

Even the Russian Ministry of Foreign Affairs joined in the humor campaign with this spoof voicemail: “You have reached the Russian embassy,” it announced to callers. “Your call is very important to us. To arrange a call from a Russian diplomat to your political opponents, press one. To use the services of Russian hackers, press two. To request election interference, press three and wait until the next election campaign. Please note that all calls are recorded for quality improvement and training purposes.”

Meanwhile, the hashtag #russiansdidit, attracting posts by anyone with new examples of what else could be blamed on the Russians, became very popular in Russia.

One user posted a photo of a toddler caught in the act of smearing his face, the wall and the dog with blue crayon, along with the words “Russians did it.”

Another submitted a well-known image of a sparsely attended Clinton rally with the headline “Russians hacked my crowd.”

And in a third, a woman stopped by a police officer for speeding, says “the Russians hacked my speedometer.”

Since last week, however, in the wake of the U.S. missile strike on a Syrian air base, the humor and sarcasm has turned to venom and stern warnings.

One widely read editorial in Russia put it this way: “The Russian government saw Trump as a businessman who would act in the interest of the U.S., instead of defending Democratic values across the world. Fighting ISIS is in the interest of the U.S., Trump promised to do so, and Russia was eager to help.

“However, Trump must also contend with the American establishment, which seems to be more important to Trump than a deal with Russia. The American power machine has tied Trump hand and foot and doesn’t let him keep his promises. The recent attacks on Syria are part of Trump’s deal with the American establishment.”

Russian Prime Minister Dmitri Medvedev echoed this sentiment, lamenting that it has taken only two-and-a-half months for the American power machine to break Trump’s personal vision and beliefs.

Another source says: “Russia was waiting with an open mind for Trump to make the first move. Now we know what his first move is: To attack our allies. Any hope for détente is out the window. From this point forward, the conflict will escalate all the way to World War III.”

The reaction in Russia about the Syrian government’s recent sarin gas attacks is even more strident. Moscow’s official position is to demand an international investigation. But unofficial sources go much further.

One quotes a 2013 Daily Mail article about “a secret U.S. plot” to engineer a false-flag gas attack in Syria and to use it as a pretext to attack Assad. It then lodges a protest against the British newspaper for deleting the article from its website. Others allege, without any evidence whatsoever, that, behind the scenes, the U.S. has been the primary supplier of chemical weapons to terrorists based in Syria and Iraq.

All these are signs that Russia’s powerful anti-American propaganda machine, temporarily on pause after Trump won the White House, is now back in overdrive. It poisons Russian public opinion, which, in turn, makes it far more difficult for Mr. Putin to bend back toward a reconciliation with the West, even if he wanted to.

Bottom line: Both Putin and Trump have boxed themselves into the same political corner. To ward off accusations of weakness or collusion with the other side, they are pressed to avoid precisely the kind of flexible, compromising posture that’s urgently needed to defuse the conflict. They look for ways to escalate their verbal attacks and to make a show of force in the world’s most hotly disputed trouble spots – not only in Syria, but also in Northeast Asia, Eastern Europe and beyond.

For investors, the implications are clear. Although it’s probably way too soon to predict a direct conflict between the U.S. and another major military power, it’s certainly not too soon to recognize the reality of:

1. Rising risk of war, just as Larry Edelson predicted in the months and years before he passed away.

2. Increased awareness of that risk, particularly among military strategists in the Pentagon, Moscow and Beijing.

3. Major new military expenditures already in the pipeline, with still more on the way, a strong positive for defense stocks.

4. Bigger federal budget deficits despite cutbacks in nondefense spending, an obvious negative for government bonds.

5. Continued flight capital flowing from overseas to U.S. markets.

6. Big money rushing into gold and gold shares.

Let’s just pray that it doesn’t go beyond these consequences. Needless to say, an actual war between major military powers would have far greater impacts.

Good luck and God bless!

Martin

P.S. My friend and colleague Larry Edelson established The Edelson Institute to help investors protect and grow their wealth. Here’s a video about Larry, the Institute, and the team behind his ongoing legacy. I hope you enjoy it. Click here to view the video.