"We cannot advance without new experiments in living, but no wise man tries every day what he has proved wrong the day before." - James Truslow Adams American Statesman

We would like to state up front that we are viewing this situation from an observer's perspective. Hence we are not taking sides we are just looking at how things could develop based on the series of events that have, are and will most likely continue to unfold. In addition most wars and almost all confrontations are usually based on the opponent's perspective rather then hard cold facts. As usual one of the big components of war is psychology and if we can get some sort of insight into the mindset of the two players' one truly can come away with some pretty incredible information. This information can then be utilized to positions oneself strategically to best deal with the upcoming problems.

Those in charge in Iran are hell bent on seeking the destruction of Israel and things are now reaching such a stage that Israel might have no option but to attack.

One of Iran's most influential ruling cleric called Friday on the Muslim states to use nuclear weapon against Israel, assuring them that while such an attack would annihilate Israel, it would cost them "damages only".

"If a day comes when the world of Islam is duly equipped with the arms Israel has in possession, the strategy of colonialism would face a stalemate because application of an atomic bomb would not leave any thing in Israel but the same thing would just produce damages in the Muslim world", Ayatollah Ali Akbar Hashemi-Rafsanjani told the crowd at the traditional Friday prayers in Tehran Full Story

Rafsanjani is second only after the all powerful Ayatollah Ali Khamenehi and as such he wields considerable power. He has also admitted that several million Muslims could die in a nuclear war with Israel but states that would be a small price to pay to get rid of Israel forever.

Iran's own president Ahmadinejad is also openly calling for the destruction of Israel; it appears that almost everyone in power is ready to embark on a mission to destroy Israel at any cost. President Ahmadinejad openly mocks the US and now that Bush has suffered a massive blow with loses both in the House and Senate the rhetoric is simply going to increase. Bush is no longer in a position to start dropping bombs over Iran and increasingly it appears that he might need either Iran's or Syria's help to stabilize things in Iraq.

Israel cannot accept a nuclear armed Iran as it comes down to pure survival; they feel that if Iran has a nuclear bomb they will not hesitate to use it immediately. Israel also feels that the world is grossly underestimating Iran's progress and feels that they will be ready to produce nuclear weapons relatively soon as opposed to the west View of 7-10 years.

Iran does not currently have nuclear weapons, and would appear to be about two years away from acquiring nuclear weapons. By some time in 2006, however, Iran could be producting fissile material for atomic bombs using both uranium enriched at Natanz and plutonium produced at Arak. The Natanz facility might produce enough uranium for about five bombs every year, and the Arak facility might produced enough plutonium for as many as three bombs every year.

If Iran did acquire atomic bombs, it would put pressure on other countries in the region do the same. Many Arab countries believe it is unfair that Israel has nuclear weapons. If Arab countries, notably Saudi Arabia but also Egypt and possibly Syria, found themselves caught between a nuclear-armed Israel and a nuclear-armed Iran, it would greatly increase pressures to pursue their own nuclear options. This could result in a regional arms race in the Middle East which is likely to be quite destabilizing, given the number and intensity of conflicts and instabilities in the region. Full story

Before Ahmadinejad become president he was actively involved in recruiting individuals for martyrdom operations. In fact he still runs ads in the local newspapers seeking potentially new martyrs. He even went on record to recently state that Martyrdom was "the most divine Artmanship."

"Jaafari, a senior officer in the elite Islamic Revolutionary Guards Corps (IRGC), told a hard-line weekly close to Iran's ultra-conservative President-elect Mahmoud Ahmadinejad that the new 'Lovers of Martyrdom Garrison' (Gharargahe Asheghane Shahadat, in Persian) would recruit individuals willing to carry out suicide operations against Western targets.

"The full text of the original interview in Persian can be seen on the weekly's website at http://www.partosokhan.ir/283/page08.pdf." According to Iran Focus the interview is titled "Commander of Lovers of Martyrdom Garrison: Let America and Israel know, each of our suicide volunteers equals a nuclear bomb".

Jaafari told the weekly Parto-Sokhan, "The Lovers of Martyrdom Garrison has been activated and we will form a Martyrdom-seeking Division for each province in the country, organised in brigades, battalions and companies to defend Islam."

"Jaafari, a senior officer in the elite Islamic Revolutionary Guards Corps stated that "The Imam [Khomeini] said years ago that Israel must be wiped off the face of the Earth, but so far practical steps have not been taken to achieve this. Our garrison must spot, recruit, organise and train martyrdom-seeking persons to be able to materialise this objective"

IRAN'S president, Mahmoud Ahmadinejad, says Israel is an alien implantation whose people should return to Europe or perhaps settle in Alaska Full story

"Thanks to people's wishes and God's will the trend for the existence of the Zionist regime is downwards and this is what God has promised and what all nations want," he said. "Just as the Soviet Union was wiped out and today does not exist, so will the Zionist regime soon be wiped out," he added. His words received warm applause from delegates at the Holocaust conference, who included ultra-Orthodox anti-Israel Jews and European and American writers who argue the Holocaust was either fabricated or exaggerated. Full Story

Iran states that they have now recruited over 40,000 individuals who are ready and willing to martyr themselves for the liberation of Islamic lands. There is not one week that goes by without some rhetoric flying out of Iran in regards to Israel or the US.

Now most of this could be viewed as simple rhetoric but the military chaps in Israel are also trigger happy and jumpy; this was clearly demonstrated in the ill planned and unnecessary invasion of Lebanon. The problem here is that the governments of both these nations hate each other; when emotions take over things get very dangerous. It is also rumoured that North Vietnam has supplied nuclear know how to the Iranians and that this could speed up things up even more.

Israel is also becoming more vocal in terms of what action it's willing to take against Iran; Olmert recently openly admitted that Israel possesses Nuclear weapons.

In a German television interview broadcast on Monday as he began his first official visit to Berlin, Olmert said: "Iran, openly, explicitly and publicly threatens to wipe Israel off the map. Can you say that this is the same level, when they are aspiring to have nuclear weapons, as America, France, Israel, Russia?"

The reticence is a major grievance for Arabs and Iran, which see a double standard in Western calls for Tehran to accept checks on a nuclear program that it says is for civilian use.

"It could be that Olmert wanted to hint at Israel's capability as part of the aggressive statements he has recently been making, with the goal of warning the West that if they don't take care of Iran, Israel will," wrote Yedioth analyst Ronen Bergman.

"We continue to pursue exactly the same policy," he said. "We will do our jobs and nobody should think for even a moment that in the light of all the developments we will remain idle."

Israel now has a problem; how does one deal with individuals that are not afraid of dying for a cause. Worse yet how does one deal with a government that not only appears to support this outlook but also openly promotes it. The military in Israel is terrified that if Iran gets hold of a nuclear weapon that it will be the end of Israel. No other nation other then perhaps the US is taking this threat as seriously and hence Israel feels that they are going to have to act alone and act fast. Even the US is no longer in a position to attack Iran; they are completely bogged down in Iraq.

The other problem it has is that its image has become heavily tarnished. Israel's once invincible army was unable to crush a bunch of guerrillas and actually ended up losing several battles with them. You can bet your bottom dollar that Iran was closely paying attention to these details. Iran is no Iraq and no Lebanon; they are heavily armed and a war with them will result in huge loses for Israel. Israel is still technically the stronger of the two when one takes into consideration its nuclear capacity but no one really knows how many new weapons the Iranians have acquired from both the Chinese and Russians. It appears that Israel is in between a hard place and a rock. If they do nothing and Iran gets hold of a nuclear weapon it could mean the end of Israel; if they attack then they are going to suffer massive loses. In the end President Olmerts generals must be thinking along the same lines but they also feel that if they wait too long things could go completely out of control. It now appears that the chances of Israel attacking Iran are over 75%. If this attack does transpire the world is going to be in for a massive oil shock and the fragile US market that is trying to deal with the collapse of the housing sector will truly tumble. Energy stocks, alternative Energy stocks, uranium stocks and almost the entire commodities sector will experience a big move up. This move up will not all take place at the same time; some sectors might actually fall with the markets while other sectors in the commodity markets rise.

Conclusion

Imagine 40,000 plus martyrs ready and willing to die controlled by a government whose views on martyrdom are extremely favourable and who has openly stated that they seek the destruction of Israel. If the US was presented with the same problem they would have hardly hesitated in trying to bomb the hell out of Iran. We think the Israeli government and militarily are increasingly feeling that their only option is to attack as soon as possible. This attack will not be easy in fact if it occurs it will get downright ugly and the energy markets will go ballistic. As it is things are already bad enough and if Israel attacks Iran its almost impossible to tell how bad things could get; without a doubt the situation will get extremely explosive and the whole region will be thrown into state of massive turmoil.

Foot note

Our Religious provocation Index has now traded past 900; we stated that if it traded past 900 before the end of the year that we should brace ourselves for a huge increase in violence all over the world especially in the Middle East. In November this index surged a full 30.5 points to put in a new all time high and break past the 900 mark. This does not necessarily mean that Israel will Attack Iran immediately; a huge civil war could break out in Iraq and cause massive instability to the entire region. A massive civil war would eventually draw in Turkey, possibly Syria and definitely the other Sunni countries which would seek to make sure that the Shiites do not gain too much power.

Note to the violence has increased by a factor of over 200% in Afghanistan. One of our associates headed back with his cousin looking to possibly move back to his country; 6 months later he returned stating that there was no way in hell he would move back permanently. The story below quite clearly demonstrates how the situation has suddenly changed in Afghanistan.

According to a tally by The Associated Press based on reports from Afghan, NATO and coalition officials, nearly 4,000 people have died in violence during 2006 -- mostly militants but also including about 300 civilians.Meanwhile, in a video message obtained by AP Television News in Pakistan, Afghan insurgent leader Gulbuddin Hekmatyar claimed that U.S. troops would be forced out of Afghanistan like the Soviets before them. Full Story

Conclusion

The consequences of Israel mounting such an attack are going to be huge and the impact will be felt on a global basis; here is a partial list of what could transpire if a war should break out between these two nations.

Oil explodes upwards and in doing so brings inflation to the forefront of the Fed's radar screen. They are aware that inflation is rampant but are able to via manipulation of government statistics to give the illusion that everything is fine; with oil soaring over 20-30 dollars a barrel in a matter of days they will then be forced to raise rates. The impact on precious metals will be two fold; not only will they take off because of the fear that this war could generate but remember precious metals also rise in an inflationary environment. Hence if this situation should transpire then expect Gold, Silver, and Platinum etc to mount rather huge rallies. It is for this reason we repeatedly stated that if one has no bullion one should make one has some exposure to both Gold and Silver bullion. Only those that have positions can wait for further pull backs to ad to their positions. Even though we are currently expecting Gold to possibly test its recent lows as it has failed to trade above its main uptrend line which corresponds roughly to the 645 price point level. The geopolitical situation is such that the situation could change on moments notice and hence one should allocate a certain amount of money to this sector. One does now wait for the house to burn down before buying insurance.

If attacked Iran could completely shut down the Straits of Hormuz where over 25% of the world's and over 80% of the Persian Gulf oil passes through. Imagine the effect of temporarily removing 13-15 million barrels of oil per day from the markets. Oil will easily be trading past 99 dollars maybe even past 120 dollars and Gold could easily explode past 720. Even without a war with Iran the geopolitical situation is bad enough in the region; Iraq could descend into a full scale massive civil war that eventually starts to draw its neighbours in. We already believe Iraq is in the midst of a civil war and stated this back in May of this year (we warned our subscribers via the market update) when our Exclusive religious provocation index put in yet another new high.

Long term it looks like the situation in the Middle East can only get worse; we are stuck in Iraq and there appears to be no relief in sight to the sectarian violence that is ripping that country apart. Iran continues to grow stronger and even if Israel should attack it in attempt to destroy its nuclear facilities it will not fully succeed they are spread far apart and many are buried very deep; at most such an attack will only delay but not stop Iran from developing nuclear capabilities. Thus it appears that the commodities sector in general is going to remain in a super bullish phase for years to come. Note that once interest rates start to rise prices of basic commodities will start to increase also; note how coffee, cocoa, cotton, soybeans, wheat etc have all started to mount rather strong rallies.

Bottom line

One should at the very least have 20% of their money in other currencies other then the US dollar and Gold and Silver are by far the best currencies in the world. One should attempt to time Gold and Silver only after one has established a core position in one or both these metals. We advised our subscribers to take such core positions back in 2002 and early 2003 when both Gold and Silver were one of the most hated investments out there; we still have not sold our core position. However we wait for opportune moments to buy shares in Gold and Silver companies and also lock in profits by selling a portion when the markets have risen considerably. Finally on a percentage basis we still expect Silver to significantly outperform Gold.

"Wise people, even though all laws were abolished, would still lead the same life." - Aristophanes BC 448-380, Greek Comic Poet, Satirist