The war that Israel started was not unexpected. It was more successful than expected, but probably also had more consequences. It was important for Israel that it succeeded in persuading the USA under Trump to bomb a sovereign state. It was probably also a prerequisite for Israel to begin bombing. This speaks to the fact that intelligence findings proved that Iran had produced fissile material in quantities that made intervention “necessary”.
It is bad enough that fewer than a dozen countries in the world have nuclear weapons. But the fact that Iran would probably be prepared to use them if it had them is even worse.
Iran is well aware of its weaknesses and is trying to put on a brave face. Its technological inferiority compared to Israel and the USA is obvious and significant. A weak state whose regime is probably much less stable than is thought from the outside evokes the following reactions:
- For now, accept defeat with the least possible loss of face.
- Take all necessary measures behind the scenes to avoid getting into trouble like this again.
Hopefully, the USA and Israel will continue to prevent terrorist attacks and the acquisition of nuclear weapons.
If the mullah system manages to survive, we can expect more unrest within the next 5–10 years. In the short term, the mullahs will recover and attempt to stabilise the regime.
The US Dollar Remains Weak
Once the weakness of the USD became apparent, it was clear to me that it would gain momentum.
A devaluation of 13.25% in six months, from 1.0275 EUR/USD to 1.1745 EUR/USD, would come as a shock to many treasurers and CFOs. Receivables this year are probably largely hedged. Six months ago, I recommended buying 3-year options with a strike price of 1.15 EUR/USD, which was spot on. The price of the option premium was extremely low at 1.75%.
Those who have not yet done so must now accept the risk that has arisen. The option is already paying out at 2.25% for the first time. Not only will the weaker USD exchange rate remain, it will also become even more dynamic (see issues 12 and 14).
The Problem with Weak Decision-Making
Missed opportunities cannot be made up for. For example, if you lose €10,000,000 in turnover over the next 2.5 years because the average USD exchange rate is 1.30, you will have lost €1.5 million because you did not purchase an option and your speculation on low exchange rates did not materialise.
Describing risk management tools as speculation in order to justify one’s own inability to act is not helpful. Failure to manage risk has consequences. I partly understand why people want to avoid it. Decisions can only ever be made within a specific timeframe and context. If the context changes, the previous decision must also be discarded. In the case of hedging, this also means abandoning hedges if events occur that prove a change in perspective, such as the outbreak of war against Ukraine three years ago. You have survived the last 15 years of inaction thanks to a strong USD. However, if you don’t adapt to a period of USD weakness, you risk facing significant economic problems.
The USD could depreciate to 1.25 EUR/USD within the next 6–12 months.
