|Dow||-50.67 to 16,662.91
|S&P 500||-0.12 to 1,955.06|
|Nasdaq||+11.93 to 4,464.93|
|10-YR Yield||-0.055 to 2.345%
|Gold||-$10.30 to $1,305.40|
|Crude Oil||+$1.41 to $97.01|
Is the “New Cold War” between Russia and the West going hot? That’s the serious question investors and governments are wrestling with today, as conditions on the ground in Europe rapidly deteriorate.
To catch you up on events: We’ve been reading for a few days about a Russian relief convoy heading toward Ukraine. The column includes more than 260 vehicles supposedly laden with sleeping bags, food donations and other supplies for the troubled eastern region of the country.
Many analysts speculated that Russian President Vladimir Putin was sending a modern-day Trojan Horse toward Ukraine. They believed his real goal was to use the humanitarian convoy as cover to supply even more arms and personnel to rebels. Or he could use Ukraine’s refusal to allow the convoy entry as justification to invade.
Then earlier today, two British journalists reported watching a separate column of more than 20 Russian military vehicles and troops heading into the Ukraine. That’s something Ukraine has accused Russia of doing for a while. But this was the first time we’ve seen independent confirmation from non-aligned, non-partisan observers.
Then late this morning, the stock market tanked … crude spiked … gold prices reversed higher … and the euro fell. The reason? Ukraine claimed it attacked and destroyed at least part of the Russian military column.
This would be the first direct, blatant outbreak of hostilities between the two countries’ armed forces, and a huge escalation from the lower-grade conflict we’ve seen to date. Up until now, the battle has involved Ukraine’s uniformed soldiers and shadowy rebel combatants only surreptitiously backed by Russia.
“The markets will no doubt remain on edge while we watch to see how events on the ground play out.”
Needless to say, early reports are sketchy and there’s no telling how this process will shake out over the weekend. Russia is claiming it didn’t violate Ukraine’s borders.
But the markets will no doubt remain on edge while we watch to see how events on the ground play out. And if it turns out that uniformed Russian soldiers died in this attack, it dramatically increases the risk of a larger Russian response.
My investment prescription is to continue to avoid having too much exposure to Europe’s economy and its currency. I already noted that the U.S. is in better fundamental shape than Europe, and I don’t see how the euro holds up here if hostilities widen.
|Conflicting reports have come out about the fate of the convoy that Russia says is bringing aid to people in eastern Ukraine.|
I don’t think it’s a “Sell Everything” moment … yet. As a matter of fact, any escalation in the conflict there should not only drive energy prices higher, but also increase the need for America to build up its own energy reserves and own energy infrastructure.
One of Putin’s biggest potential economic weapons is to turn off the oil or gas taps to Europe in retaliation for sanctions. Combined with ongoing supply problems in Libya, Iraq, and elsewhere in the OPEC world, that could help lead to even more gains for U.S.-focused energy firms!
[Editor’s note: Based on what Mike just said, you don’t want to miss his interview with energy insider T. Boone Pickens on Tuesday, Aug. 19 at 2 p.m. To register for this FREE online interview, click here.]
While we await more details, I’m curious about your opinions: What do you think Putin is getting at here? Is this the start of widespread hostilities? The beginning of a genuine “hot” war right on Europe’s doorstep?
How will European and U.S. officials react? And what will that mean for Europe’s lackluster economy, and American stocks? Share your thoughts on this incredibly important topic at the Money and Markets website.
|OUR READERS SPEAK|
Reader Rayna T. said: “Once there was a time when my best friend and I could spend three hours cruising the store, enjoy our time and spend several hundred dollars. As a newlywed, I couldn’t have stocked my home without their layaway dept. (which they no longer have!). Even 10 years ago I seldom went straight home from work but made almost daily stops getting those few essential items I needed for dinner.
“Now however, I avoid Wal-Mart like the plague!!! Due to poor customer service, long lines (which Sam Walton would never tolerate), merchandise lacking in quality and variety, and just an overall unpleasant environment, my time and money is now spent elsewhere.”
Reader Deloris cited many of the same issues, saying: “I tried Wal-Mart again today and walked out and went to Best Buy. Not only was the service very POOR but the restroom was too dirty to use and the rest of the store looked like it was a slum area. I don’t think I will ever go back and I used to buy almost everything there.”
Meanwhile, Reader Tom J. had some great comments about the issue of wages, inflation, and Wal-Mart’s role in all of it. He said: “Wal-Mart’s image in the eyes of many consumers has suffered from the stark realities that their workers are abused by low wages, necessity of food stamp assistance and the deaf ears of Wal-Mart management.
“Low prices are in general good, but once the images get too shabby, consumers get a creepy feeling and avoid the store. Why take a trip to skid row when all you want to do is shop? This is what’s happening at Wal-Mart.
“It’s curious that you, on the one hand, suggest that employers increase wages to boost the economy, but on the other, reduce benefits and wages, to boost profits and returns per share. My sense is boosting wages will raise all boats. What’s yours?”
I agree that shopping at Wal-Mart can be a frustrating experience, with inventory of key items missing and general surliness and bad service a problem too often. So I think some of the problem stems from company-specific issues.
As for compensation, I would very much like Wal-Mart and other companies to pay their workers more. Cheap money and asset inflation from the Fed isn’t the answer to boosting the economy — at least, the vast majority of it.
The Fed’s “solutions” mostly help the 1 percenters. Just witness the record prices we’re seeing for expensive artwork, Manhattan condos worth tens of millions of dollars, and luxury automobiles sold at this week’s Pebble Beach car auction.
But can you really legislate that from Washington? Or do you need to cut regulation, cut burdensome and overly complicated taxes, and stop meddling in every corner of the economy? Put me in the latter camp.
And as always, weigh in at the website here to add your own thoughts.
|OTHER DEVELOPMENTS OF THE DAY|
Coca-Cola (KO, Weiss Ratings: B) continued its attempt to diversify away from its namesake cola and other related beverages, buying a 17 percent position in Monster Beverage (MNST, Weiss Ratings: B+) for $2.2 billion.
Coke will transfer select energy drinks to Monster, which will ship natural sodas, juices, and teas its way. The move will expand distribution of energy beverages, and it follows Coke’s move to buy 16 percent of Keurig Green Mountain (GMCR, Weiss Ratings: B+) a few months ago.
Next week is the Kansas City Fed’s annual confab in Jackson Hole, Wyoming. This is where former Chairman Ben Bernanke unveiled the idea of a massive second round of QE a few years ago.
It’s also where current Chairman Janet Yellen will give a keynote speech next Friday. How she characterizes the recent data on the jobs market will almost certainly impact stock, bond, and currency markets one way or the other.
It was a bit of a mixed bag on the economic data front, but most reports are still pointing to a general improvement. The Empire Manufacturing index that tracks activity in the New York area slipped to 14.7 in August from 25.6 in July. But that’s still well in expansion territory.
Meanwhile, industrial production rose 0.4 percent in July after an upwardly revised 0.4 percent in June. Capacity utilization climbed to 79.2 percent from 79.1 percent, putting it at the highest level since 2006. Producer prices also rose 0.1 percent in July, with the “core” rate that excludes food and energy gaining 0.2 percent for the second month in a row.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
P.S. Wealthy investors are surprisingly picky about the companies they invest in — demanding the very best in order to preserve their capital and make it grow. Simply put: They have patience. Would you like to know what else separates them from average investors? Then click here for Bill Hall’s FREE report.