Iran goes nuclear

With Iran upping the ante on nuclear weapons, all bets are off on equities--maybe this is the event that triggers end-of-year selling, as mutual fund managers lock in profits to pad their bonuses. With the likelihood of Congress accelerating the repeal of the Bush tax cuts in 2010 instead of waiting for 2011, investors may do the same profit-taking as well, choosing to pay capital gains taxes of 15% instead of 28%.

In other words, the expected annual Santa Claus rally may end up an ugly rout instead. I don't know--I don't have a crystal ball on the stock market overall, and I would posit most people don't either--on the timing or direction. Some may get the direction right--but go broke waiting for the reversal. And very few people can time the markets in the first place.

If Ahmadinejad's regime continues to flout sanctions and conflict breaks out in Iran, Pakistan, and/or India, the shock to oil and eventually gold will make last year's run up seem tame in comparison. Equities worldwide will plummet, as Russia and China have many trade ties with Iran. Wall Street does not appreciate uncertainty.

Any dire consequences will be bullish on oil and gold, even if the initial shock may tank all assets, except the rush to safety toward the USDollar and US Treasuries. Longer-term, this flight to safety will prove wrong-headed, because another military conflict means the Fed has to print even more dollars, debasing the currency further.

Iran is a major oil producer, so any shocks to supply will also drive up the price of oil and precious metals. Let's hope Iran is barking and not biting.