|Dow||+123.37 to 17,100.18|
|S&P 500||+20.10 to 1,978.22|
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|10-YR Yield||+0.01 to 2.484%|
|Gold||-6.10 to 1,310.80|
|Crude Oil||-0.12 to 103.06|
Disturbing details from yesterday’s tragic downing of Malaysia Airlines Flight 17 continue to pour in. Some 298 souls lost on the Boeing 777, the most in a single airline crash or incident since 9/11. The second airplane lost for Malaysia’s flagship carrier in the past four months.
But perhaps most disturbing of all is the unfolding narrative of who — and what — was likely at fault:
An advanced surface to air missile …
Fired by separatist rebels in Ukraine …
Supplied directly or indirectly by Russian President Vladimir Putin, or stolen from Ukraine by rebels he has backed.
The response from Ukraine has been swift and strident. Prime Minister Arseniy Yatsenuk used some of the most inflammatory language I’ve seen yet, saying:
“This is a crime against humanity … All red lines have been already crossed … We ask our international partners to call an emergency U.N. Security Council meeting and to [do] everything we can to stop this war: a war against Ukraine, a war against Europe, and after these terrorists shot down a Malaysian aircraft, this is a war against the world.”
He added: “Everyone is to be accountable and responsible. I mean everyone who supports these terrorists, including Russians and the Russian regime.”
On the flip side, Putin has strongly denied Russia was responsible in any way. He put the blame solely on Ukraine by saying:
“This tragedy would not have happened if there were peace on this land, if the military actions had not been renewed in south-east Ukraine. And, certainly, the state over whose territory this occurred bears responsibility for this awful tragedy.”
“We do know it puts the ongoing, simmering conflict in Ukraine squarely in front of the eyes of the world again.”
Whether the missile strike was deliberately launched against a civilian jetliner … an attack aimed at the Ukrainian military that went horribly wrong … or something else entirely, we don’t know yet for certain. But we do know it puts the ongoing, simmering conflict in Ukraine squarely in front of the eyes of the world again.
At the same time, Israel has launched a full-scale ground invasion in Gaza. The assault is designed to halt rocket attacks and incursions from attackers using tunnels under the Israeli border.
More than 250 Palestinians have already died in the conflict over the past 11 days, compared with only a handful of Israelis that have either died or been injured. But now that ground troops are moving in, the potential for a sharp rise in casualties on both sides will increase. And the sad truth is, these kinds of conflicts in the region have been going on for several decades — with multiple peace plans collapsing over the years.
The human toll of the rise in global violence is unmistakably large. The question before us here, though, is what does it mean for investment markets and you?
|Hamas has once again come into direct conflict with Israeli troops, another factor helping to increase global tensions.|
First, every market on the planet has been incredibly placid so far this year. Volatility in currencies, commodities, bonds, and stocks has fallen to record lows, or close to it — a side effect of all the easy money central bankers have thrown at the markets.
But I’ve been saying I doubted that could last much longer, and rising geopolitical tensions are a clear potential trigger for a change in trend. That means the risk of owning fundamentally weak stocks or bubbly, junky bonds is going up.
Second, if Putin digs in his heels and throws more support behind the rebel movement in the Ukraine despite this air disaster, the response from the U.S. and Europeans will get even harsher. We already saw President Obama announce new sanctions aimed at Russian businesses, individuals, and capital markets. Who knows how far Washington and Brussels will go if Putin pushes harder?
One reason why Putin might stick with his current stance is that he faces no pressure at home to back off. A whopping 83 percent of Russians approve of the job he’s doing, according to a new Gallup poll. That ties the highest approval rating Putin has ever seen, recorded in 2008.
Third, we’ve already seen the energy and gold markets perk up thanks to the increase in inflation and economic growth in parts of the globe. If you layer rising geopolitical instability of the kind Larry Edelson has been discussing on top of that, you have a recipe for much bigger gains in both markets.
So all else being equal, this could be a good time to dial down some risk in your equity holdings. It also makes sense to increase your exposure to energy and gold investments, given the trends impacting both of those markets.
Where do you come down on these latest events? Now, do we need to get more aggressive when it comes to attempting to contain Putin’s ambitions? Or will that just make a bad problem worse? Do you think geopolitical tensions are going to get better from here, or could we be on the verge of even larger conflicts in Europe, the Middle East, and elsewhere?
Finally, what will you do in response with your investments? Let me know at the Money and Markets comments section.
|OUR READERS SPEAK|
Some comments and opinions are already pouring in, of course, given the Malaysia air tragedy. It appears that you have widely divergent opinions on what, if anything, we should do — and what Putin will do next.
Reader Mike S. said: “Anybody that thinks the Russians are our ‘best friends’ or ought to ‘be trusted’ have their heads in ‘dark places’. The screw up that we made after bankrupting them with Star Wars was to allow our oil companies to go in there and modernize their antiquated oil and gas extraction facilities, then encouraging the Europeans to buy gas from them.
“That new funding has only allowed them to have a weapon to use against the Europeans and the funds to modernize their military and return to the Cold War. When will we ever learn?”
Reader William F. said that he spent more than two years in Ukraine over the past decade, and offered the following insight: “The majority of the people in this area of Ukraine are more pro-Russian than you can imagine as most of them are former or current Russians themselves. They are frustrated with the lack of real representation for many years of their needs and wants, which Kiev has consistently never delivered, only broken promises over and over again.
“I do not foresee a peaceful resolution in this situation until Russia either 1) Is allowed to annex the Donetsk and Lugansk regions or 2) Russia takes these two regions via the current pro-Russian forces and/or a land invasion by Russian troops or 3) Ukraine wipes out all of the pro-Russians which is not realistically possible.”
Finally, he added: “God help us (the USA) from any more direct involvement in the likely event this escalates further from here INCLUDING supplying arms to Ukraine. Putin is not one to mess with and from today we can see the real effects (and ramifications) of our imperialistic ways and actions (sanctions) unfold as Putin said/predicted himself.”
Reader John T. also cautioned against getting swept up in the conflict, saying: “I don’t think the U.S. government has any business in the Ukraine and Russia. It looks like to me that President Obama sees himself as the world’s disciplinarian. He wants to dictate his beliefs to everyone or face punishment.
“Putting stiff sanctions on any country can lead to war! That’s what Franklin Roosevelt did to Japan, provoking Japan to attack Pearl Harbor. That brought us in to World War II.”
If you would like to add your input to the discussion, please don’t hesitate to go to the Money and Markets comment section and do so. These are tense times, and the potential ramifications for all of us — as investors, Americans, or citizens of other countries — are large. So hopefully we can all gain from each other’s expertise and opinions.
|OTHER DEVELOPMENTS OF THE DAY|
The AbbVie (ABBV, Weiss Ratings: B) deal for Shire (SHPG, Weiss Ratings: B-) is now official. Abbvie will pay about $54.8 billion to buy Shire and shift its tax jurisdiction overseas, potentially slashing its tax rate to 13 percent by 2016 from 22 percent now. It’s the biggest “tax inversion” transaction to date, but certainly won’t be the last unless tax policy changes!
General Electric (GE, Weiss Ratings: B+) is seeking to tap an eager initial public offering market. The company wants to sell its credit card unit, Synchrony Financial, to the public in a deal that could raise as much as $3.25 billion. The unit provides private label cards — cards financed by GE but bearing the names of retailers or other third-party firms on the front.
Google (GOOGL, Weiss Ratings: B+) wasamong the many “brand name” stocks reporting earnings in the past 24 hours. The Internet advertising and search firm reported a 22 percent surge in sales, topping estimates with revenue of $15.96 billion. Earnings came in a bit light, but investors nevertheless cheered the results.
But chipmaker Advanced Micro Devices (AMD, Weiss Ratings: D+) got hit hard after reporting weaker-than-expected earnings. The company faces stiff competition from powerhouse Intel (INTC, Weiss Ratings: A-).
Not much on the economic front to report, and investors are much more focused on geopolitics here anyway. But a confidence index from Thomson Reuters/University of Michigan slumped to 81.3 in July from 82.5 in June.
Reminder: You can let me know what you think by putting your comments here.
Until next time,