Here We Go Again
Watching the video from Tehran and Tel Aviv I just have to marvel at how calm the people in those videos are. Unfortunately, in that part of the World, nighttime air raid sirens are commonplace and they take this all in stride.
We Americans watch and I doubt there are that many of us that Thank God everyday that we live in country where night time missile attacks are not part of daily ritual.
At first, like everyone else, I thought that the Israeli attack on Nuclear sites and other targets in Iran was different. The Israeli’s set this thing up for months and did the most damage with the least amount of civilian casualties possible.
The World was in shock. OMG, those barbarians are bombing poor Iran’s nuclear enrichment facilities! How is Iran going to make a legitimate nuclear weapon if the Israelis keep destroying their infrastructure?
The Israelis did what they had to do. Just like the time before and the time before that. This is not a country you want to mess with. Period.
Worldwide markets took a clear nosedive as things started to develop. Oh No, this is the end of the World! The middle East will be in flames. The US will get drawn in and all Hell will break loose.
Eh, slow your roll skippy.
While this latest battle is taking place in the skies above several countries. Ground forces and a longer fight don’t seem to be in the offing.
I have two legit theories about situations like this.
The first one is: Any sort of geopolitical conflagration has a short term impact on equity markets. The impact, depending on location, might be a little longer, on the commodities market. Bonds will be bonds and they react to a different stimuli.
The second one is equally as important: If there is an air war. Missiles, fighter jets etc, it generally lasts a few days, maybe a week or two. Then everyone comes to their senses and realizes that they just spent several billion dollars to do what? Nothing. Destroy some buildings, kill some soldiers, some civilians. Maybe knock something offline. At the end of the day both sides can claim victory and snarl at each other for a few months and do it all over again. It’s when you get ground forces moving, that’s when things get stretched out. Economies change, Normal order is disrupted for an extended period of time.
Again though, regardless of the day to day of any conflict, markets lose interest in them quickly.
Normal order is restored after a few days or perhaps a week or so. Equity markets resume whatever they were doing and investors refocus on investing.
That is exactly what is happening this week. Missiles are being launched on both sides and markets seem a little skittish but that will end soon. There are only so many ballistic missiles in Iran inventory. Maybe the Israelis have an edge because the US has been supplying them with the most sophisticated weaponry available for years but at some point, stockpiles will get low.
The market’s reaction in two years would be totally different if last week didn’t happen.
In two years, Iran most likely would have developed nuclear warheads. With the technology they already have they could potentially have launched a nuclear strike on Israel. Rest assured, the Israelis would have either interceppted that attack and launched a uch more targetted and strategic strike and the Middle east would definitly be up in flames.
You want to see a selloff? Having a nuclear situation in the Middle East would do it.
Pakistan-India? Honestly, it probably would be “Who cares?”.
The only other geopolitical hotspot would be in the Taiwan Straits. That, I think could do serious longer term damage to equity markets. That blow up would reverberate for weeks or months.
The point of all this is basically to say once again, geopolitical situations generally have a short term impact on markets. Good for day trading but not much else.
The focus this week will most likely be on the Fed and what they say. I doubt there will be any movement as far as rates are concerned and I am pretty sure they really won’t add much as to the dialogue about future policy.
Looking at what they look at, I don’t a pattern that stands out. I think there are several components that are going in the right direction and that might allow them some room to do something later this year which again, is consensus.
People that have read this column know that I try to not toe the party line. I think there usually is a different way of looking at things. generally, from the ground up. The Fed is perched at a much higher level and I don’t think they have a tight handle on what is actually going on. I would love to be on an advisory committee that the Fed would meet with weekly. A common man’s guide to the economy. Never happen.
However, I am going to side with the Fed this time. I think the best course of action is no action and with that no action, I think there should be limited conversation about the next rate cut. Has nothing to do with the confusion the White House has created. It’s just that the economy, to me, is not sending a signal in either direction and the last thing you want to do is do something to force the economy into a direction that is not needed.
As a former trader, this is the absolute worst environment for trading.
Right now, more than in the past, I think this is now becoming a market of stocks. Meaning that at these levels you have to be in or out of individual stocks. No longer a time for betting on “The Market” time to do some research, pick your names and go with them. When the S&P trades at 5,000 or below, it is a stock market. Bet on the whole shebang. At this level, be selective, and be careful.