Hot War = Hot Inflation VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Will we get dragged into a second overseas adventure?
- Energy and inflation are inextricably linked…
- Ignore the price action in oil at your peril…
- The Age of Chaos continues…
- Our upcoming AI release will help you make the most of it…
Will the U.S. add a new front to its overseas adventures? Before we get to the Middle Eastern elephant in the room, some necessary context. On Feb. 24, 2022, the Russo-Ukrainian War began with Russia’s loudly signaled invasion into the country. (I remember reading about Russian forces building at the Ukraine border for months and buying up oil stocks like there was no tomorrow.) Very quickly, the Western world got involved. Russian energy imports to Europe all but stopped. Aggressive sanctions on the country, including kicking it off the global SWIFT payment system, were put in place. And in the years since, the U.S. has spent more than $80 billion on the Ukraine defense effort, with close to $200 billion earmarked in total. Two key, generation-defining economic events were borne out of this war. One was the massive disruption of the global energy trade, which saw oil prices surge 40% in the six days following the invasion. Natural gas performed even better, with spot prices rising 100% in the months to follow. 
The other, even bigger thing was the true kick start of the global de-dollarization trend. Russia is currently the third largest exporter of oil in the world and the second largest exporter of natural gas. When that oil supply got choked off, it caused ripple effects throughout the entire world – namely inflation. 2022 was also the year we saw the Consumer Price Index hit its highest annual change in many decades, at a 9.1% rise. Part of that inflation had to do with the Federal Reserve’s obscene money-printing campaign in the wake of COVID. But another reason for that inflation was the energy disruption. When energy supply chokes off and prices go up, it affects every other part of the global economy. Shipping gets more expensive. Heating and cooling utilities get more expensive. Storage gets more expensive. This impacts everything from the apples at the farmers market, to the semiconductor in the laptop sitting next to me, to the repairs to your HVAC, and countless other things. Costs go up when energy goes up… And that helps to slowly erodes the value of the dollar – the world reserve currency. And when this happens at the same time you kick a major world power off a global payments system, that global power – and its friends – will start to look elsewhere. | Recommended Link | | | | A mysterious financial figure – called “one of the most important money managers of our time” by national media – has issued a scathing economic warning. His controversial video exposes how an invisible force is rewriting the rules of wealth creation. The question everyone’s asking: What’s really going on right now? Click here to find out. |  | | Now the U.S. and the rest of the Western world face a new conflict… One of President Donald Trump’s key campaign promises was to end the war in Ukraine in unbelievably swift fashion. That has proved trickier than anticipated, with Russia’s demands proving untenable for Ukraine. Now, rather than end a war, we’re at risk of getting dragged into another. As we covered Monday, Israel launched a coordinated attack on Iran last week, where Israel targeted key senior Iranian military officials, nuclear scientists, enrichment sites, and air defenses. Details have since come out about this attack, revealing that it’s been in the works for quite some time – with Mossad agents infiltrating Iran and slowly importing drones and missiles and acquiring intelligence resources that were activated last week. The intent was to quickly and effectively disable both the capabilities of Iran’s nuclear program and its ballistic missile response to the attack. Israel anticipates more than 40% of Iran’s missile infrastructure has been wiped out, and the immediate counterattack was a fraction of what Israel anticipated. The U.S. has insisted that all of this is about preventing Iran from getting its hands on a nuclear weapon, with the fear that it would not hesitate to use it on Israel and other enemies. As I write, Trump is heaping on the pressure, with posts like this to Truth Social making it very clear what lengths he’s willing to go to foster a surrender: 
The good news is, Israel’s first offense and this added pressure has put Iran squarely on the back foot. Its ability to hold its own in a war was greatly diminished in short time. That could mean both parties will come to the table and agree on a deal. That would be the ideal outcome for many reasons. But from an investment perspective, it’s especially important given Iran’s place (figuratively and geographically) in the global energy trade. Iran is #7 on the list of oil-producing countries, and third on the list of natural gas producers. It alone doesn’t export nearly as much of either as Russia or the United States. The issue is the region it occupies. Any instability in Iran will disrupt the energy trade in surrounding key countries like Saudi Arabia, Iraq, Kuwait, Qatar, and the United Arab Emirates – causing another potential ripple effect out into the global economy… and more inflation. But the wild-card factor in all this goes back to what I said earlier – Iran’s friends. Since Russia was kicked off of SWIFT, a large-scale effort has been underway from some countries to de-dollarize and find a way off of the U.S.-dominant global payment rails. The dominant players are Russia, China, Brazil, and India, but Iran and other Middle Eastern countries that don’t ally with the U.S. are part of the story. Whether the U.S. formally enters a hot war with Iran, provides funding to Israel, or simply applies more sanctions on Iran, or even does the least likely thing and stays out of it completely… The trend toward de-dollarization will not slow down. For that, you’ll want to own non-sovereign, durable assets like gold and bitcoin, like we discussed on Monday… But you’ll also want to own companies involved in the global energy trade. Remember, the Energy sector was the only big winner in 2022: 
If you think this war will escalate – and it might – you want to own the best-of-breed energy companies. And TradeSmith can help you find them. I just set up a quick screen for Energy stocks in the Green Zone – our proprietary measure of market health – with a Quantum Score above 70. Jason Bodner, our resident growth expert, built the Quantum Score as a way to identify stocks with strong sales, earnings, and margin growth on the fundamental side, along with strong momentum and Big Money flows on the technical side. What comes back is a short, attractive list: 
(Disclosure, I own LEU and EQT.) This list is cool because it exposes a few lesser-known small- and mid-cap names that have had strong recent price performance. And some of these stocks are still cheaper than the broad market despite the momentum. I’ve also included each stock’s price-to-earnings ratio, market cap, and Predictive Alpha Prime projection above. The Prime projection on all of these is quite bullish, with Comstock Resources (CRK) in particular projected to rise 17.19% by July 17. That’s a higher-risk name to be sure, with the second highest Volatility Quotient (VQ) percentage of any stock on this list. But that potential volatility may make it a great options trade. And speaking of options trades… If you’ve been following along with us this year, you know that we’ve been pretty busy. To date, TradeSmith has launched five new strategies designed to help you trade what’s become an increasingly chaotic market environment. Seasonality, Snapback, Predictive Alpha Prime, Jeff Clark’s Convergence and Divergence scans… All of them help you find the short-term opportunities that matter. But now, if you see a stock idea you like there, we’re about to give you the opportunity to amplify its profit potential. The newest version of Predictive Alpha Options is set to release for current subscribers and our Platinum members starting on Thursday. When it does, they’ll be working with a more powerful AI algorithm packaged into an entirely new user experience. Part of that experience will involve finding the exact right “profit window” to trade that specific stock with your options play. TradeSmith CEO Keith Kaplan is getting ready to broadcast a free webinar all about it next week – so stay tuned. Invitations are soon to come. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily | 
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