Video Update - And This is Why I Keep Saying "React, Don't Predict"

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Welcome to the Real Income Report update for the week of June 23, 2025.

So much for everybody knowing exactly what would happen in the markets ahead of time.

The conventional wisdom held that if the U.S. got more involved in Iran, we would see a crash and oil would spike to $100.

That did not happen. Oil actually settled back down as we chat this morning, down 47 cents. Natural gas is off slightly. Brent is down 43 cents.

Nothing dramatic. Stocks are up modestly. The dollar was strong earlier but has backed off and is only up slightly on the day.

None of this matches what anybody predicted would happen once the U.S. bombed Iran.

I have seen this movie before. We all think we know exactly how markets will respond to an announcement, report, or event, and markets do exactly the opposite.

This is why I have preached forever: react, do not predict.

Had the market crashed 15%, 20%, or 25% this morning, I would have been telling you to buy aggressively. You would need to load up on REITs in your portfolio during such insanity. That scenario would have meant a spike in bonds, giving us better entry points on our fixed income alternative assets. We would have been buying heavily. With oil at $120, we might have considered taking profits on royalty trusts and non-operator oil and gas interests because prices would have spiked tremendously.

But that did not happen.

Does this mean the market is correct that Iran will not respond, that everything will remain calm and muted with no negative developments? Absolutely not.

The dumbest thing you will ever hear is "the market is always right." The market is a schizophrenic business partner, as Ben Graham observed.

Some days he falls into a blue funk depression. You could tell him that Microsoft just paid a 300% premium for every U.S. company, making everyone gazillionaires, and he would still be depressed and want to sell stocks.

Other days, despite terrible economic reports and the president announcing he is taking a three-week spiritual surfing journey to Bora Bora while Amazon and Microsoft file bankruptcy, this guy gets excited about the future and wants to buy everything.

The market does not always get things right. Markets tend to be accurate in the middle ranges but often wrong at turning points. The stock market has multiple personalities.

Is it right today? I do not know, and neither does anyone else, because nobody in the U.S. knows exactly what Iran will do.

They have options. They could bomb one of our bases, which would invite nasty responses and force the president's hand. They could close the Strait of Hormuz, which creates a wider range of potential responses.

If I were Iran, I would close the Strait because that chokes off everyone globally and puts pressure on the US and Israel to find a solution quickly.

I have no idea if they will do that or not.

I do not think anyone in the U.S. knows how Iran will respond. They have been bombastic and aggressive and clearly dislike the United States, but I am uncertain whether they want a broader conflict with us.

Russia and China will likely make it clear that while they will write memos and give speeches, they are not sending troops. This is not a dance they want to join.

What will the responses be and how will markets react? We do not know.

Markets have not reached a point where we think this is egregious enough to add hedges. We have done that before. I am a huge fan of black swan hedging. Many ETFs and leveraged ETFs allow you to construct low-cost option strategies that provide massive hedges for pennies on the dollar.

We do not feel that need currently, but if we reach that point, we will act.

I am watching high-yield credit spreads with no concerning developments. The market remains firmly in an uptrend. I am moderately concerned about bonds being in a downtrend, but we will see how that develops.

Oil remains fairly muted and certainly within a range that will not cause severe discomfort.

Keep in mind that severe disruption, such as closing the strait, would have a positive impact on oil prices. I do not know if they will take that step, but if they do, or if something else interferes with oil flow, or if Israel bombs oil fields (which they have not done yet), and we get that type of crude oil disruption, we have positions ready.

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