Feldstein says 'Netanyahu erased concept of responsibility for October 7,' in first KAN interview

Eli Feldstein, former military spokesman to the Israeli prime minister, gave his first public interview after being accused in the Bild and Qatargate investigations and appearing at the Tel Aviv District Court on May 15, 2025. In the interview he accused Prime Minister Benjamin Netanyahu of having 'erased the concept of responsibility' for the October 7 events, amplifying legal and political pressure on the government; the allegations and ensuing prosecutions raise near-term political and governance risks that could weigh on investor sentiment and heighten geopolitical uncertainty in the region.

Analysis

Market-structure: Political-legal instability in Israel increases risk-premia for Israel-centric assets and raises demand for defense and sovereign-risk hedges. Expect short-term outflows from Israeli equities/sovereign bonds (TA-35 and ILGBs) and stronger flows into defense primes (Elbit ESLT, Lockheed LMT, Raytheon RTX) and safe-havens (USD, gold, oil); moves of 3–5% in ILS or TA-35 inside 7 days are plausible. Competitive dynamics favor publicly traded defense contractors with export footprints versus domestic cyclical sectors (tourism, fintech) that lose pricing power and revenue visibility.

Risk assessment: Tail risks include a larger regional escalation or US sanctions affecting trade — low probability but high-impact (equities down >25%, yields spike 100–200bp). Immediate window (days): volatility spikes and FX dislocations; short-term (weeks–months): flows and earnings revisions; long-term (quarters+): policy changes and budget reallocation toward defense may structurally lift defense revenues by mid-2026. Hidden dependencies: sovereign credit metrics, tourism revenues, and supply-chain exposure to the Levant; a major court ruling or indictment could trigger political realignment and market regime change.

Trade implications: Favor long defense primes and FX/commodity hedges while underweighting Israel domestic equity exposure. Use options to express convexity: buy calls on ESLT/RTX and buy USD/ILS call options; buy 1–3% GLD or Brent exposure if escalation probability breaches 15% in next 30 days. Entry timing: initiate tactical hedges immediately, scale into conviction on 5–7 day confirmation of ILS weakness or TA-35 drop >5%.

Contrarian angles: Market may over-penalize Israel equities relative to global EM — a dislocated correction >10% could present a mean-reversion buy into EIS with protective puts. Historical parallels (short-lived political crises in Israel 2014–2021) show equity drawdowns recovering within 6–12 months absent wider regional war, so consider phased re-entry on signs of political stabilization or decisive US diplomatic support.

Key Decisions for Investors

• Establish a 2–3% portfolio long in Elbit Systems (NASDAQ: ESLT) via a 6-month call spread (buy 6-month ATM+5% call, sell 6-month ATM+25% call) to cap premium; target +20–30% upside if defense orders rise, stop-loss at -12% realized P/L.
• Reduce Israel equity exposure (iShares MSCI Israel EIS or local TA-35 ETFs) by 40% within 3 business days if TA-35 falls >5% or USD/ILS rises >3% in 7 days; hedge remaining position with 1-month 5% OTM puts sized to 50% of residual exposure.
• Initiate a 1–2% notional FX hedge: buy 3-month USD/ILS call options with strike ~+3% to current spot (or enter 3-month USD/ILS forward) to protect against ILS devaluation; increase to 3% notional if escalation indicators (IDF mobilization, cross-border strikes) surface.
• Allocate 1–2% to safe-havens: buy GLD (physical ETF) and 1–2% directional Brent exposure (BNO or short-term Brent futures) if commodity volatility index rises and Brent breaks above +$5 from current level within 14 days.
• Consider a pair-trade: long RTX or LMT (1.5–2% position) versus short EIS (1.5–2%) to express defense demand outperformance versus Israel domestic cyclicals; re-evaluate after 90 days or if US Congressional aid >$X bn (catalyst) is announced.