With all the developments of late, people ask me what should they do? Being the honest person that I am, my reply is simply “Who Knows”.
Investing is always precarious and we are in one of the more precarious eras in recent memory.
I typically don’t think that geopolitical issues have long lasting implications for the market. They generally have that WOW factor at first and things settle down pretty quickly. The industries that will benefit from any given geopolitical situation are generally well known and investors, like lemmings, herd into those investments. Historically that has always been the case and will always be the case.
Makes sense right, a defense contractor should have increased sales and increased earnings during times of turmoil. I get it but in the bigger, longer picture, an invasion, an incursion, an insurrection all have limited investment impacts.
9/11 was different but generally speaking after the initial acts, things get back to normal.
Is this time different? You have a situation in Ukraine that for all intents and purposes looks to be some rekindling of Russias invasion of Afghanistan. They lost hundreds of thousands of soldiers, spent billions and left with the tails between their legs (not sure why we didn’t learn anything from that). It took 19 years. Ukraine may not last that long since I think the allies lined up to help them are starting to get a little anxious considering they have sent billions to Ukraine and some of those countries are starting to see their defense budgets strained because of it. Maybe this was Russia’s plan from the beginning, sacrifice a couple of hundred thousand Russian lives and wear down their opponents and then take what they want. Totally possible and I think they may have taken a page from Reagans playbook, outspend them until they capitulate. We will see.
Along with that theater or war we now have Hamas’s attack on Israel. As this war goes on, I think one of the several mysteries surrounding it will be exposed. That particular mystery is not how the terrorists got such great intel, I think it will be what is it that Hamas was trying to gain from this attack? Hamas may be well coordinated and well funded they still are no match for the IDF. On the surface it really doesn’t make any sense. Do they want to gain territory? Do they want total independence for the Palestinians of the Gaza Strip? Or is it something deeper?
I think the answer might be much simpler. Since Hamas is most likely a proxy for Iranian interests in the Middle East, it would make sense if the Iranians created enough pressure to prompt Hamas to strike, knowing the Israeli response would be quick and devastating. The Iranian thinking might be that the World will look at Israel and it’s powerful Army, Air Force and Navy destroying a defenseless autonomous region filled with women and children and non combatants. The World will shun the Israelis because of their response. The Middle East will no longer welcome the Israelis as has been happening for the last five years. The Middle Eastern countries will rise up and crush the Jewish state.
Maybe.
What is much more possible is that the powerful Middle Eastern countries that have been creating ties to Israel will continue to do so. The benefits of peaceful coexistence with a neighbor like Israel outweighs the Mullahs hatred of Israel. Better ties to Israel, better ties to the Western nations that buy their oil and will help them develop new sustainable industries when the oil runs out.
Keeping my people fed, clothed and housed or dealing with psychopath religious zealots in Baghdad? I will take the former.
The miscalculation by Hamas (more likely the Iranians) will cost thousands of lives on both sides. Hamas obviously miscalculated the results and the Israeli’s (along with US intelligence) miscalculated Hamas.
Back to my original point. This war in Gaza will have very little impact on the US equity markets. Coverage has been non-stop and please don’t listen to any of the talking heads as far as it’s impact here on the economy. It will have zero impact. Should this escalate to something a lot more intense and complicated, that will only impact markets for a short period of time as well.
The residual effect of Russia’s invasion of Ukraine was the oil markets volatility but I think a good part of the pricing volatility has to do with oil traders and speculation. I think that during normal times, supply and demand are the sole drivers of oil prices but when there is a geopolitical event that involves an oil producer, oil traders take the reins and I believe that they will inflate or deflate prices by roughly 10-12%. Price spikes generally happen during turbulent times and always come back to the correct price based on supply and demand. We are seeing that correction now. If I were to guess, I think the more stable level for oil based on supply and demand would be closer to $76 a barrel.
The concern as far as the market is concerned should be about consumer spending, the housing market and what the Fed is going to do. Earnings season is upon us and not much is expected as far as surprises but I do think the 3rd quarter will be just fine and at the end of the day, its not a war in Ukraine or a war in Israel that will guide prices, it’s earnings.
Yep, agree, Thank You!