While U.S. stocks are rising today because of better-than-expected economic growth and jobless claims, the balance of risks in global investing remains to the downside.
An exogenous event known as Syria is casting a pall over the markets. But, remember, the stock-market rollover has been under way for several weeks. (The MSCI Emerging Markets Index has dropped 10 percent in three months, or an annualized 40 percent.)
If the “Syrian event,” the newest theme for investors, comes and goes without enduring ramifications, stocks may extend their gains, some pundits say. I don’t think that’s true.
|Once the first missile is fired, you don’t know how it will end.|
The effects will likely be more enduring, even if the U.S. and its allies organize a blitz of missiles that lasts only a few days. While it’s true the U.S. and Western Europe are arguably obligated to do something because of the “red line” of chemical warfare being crossed, once a response commences, you don’t know how it will end.
The first thing to go is a well-thought-out plan. Russia and China oppose any action. In the case of Russia, that doesn’t just mean U.N. opposition, but active support to the Assad regime. In the case of China, it supplies missiles and could, hence, again create a diversion by provoking Japan over the islands.
There is another aspect: Israel has avoided involvement. It has acted only on the inventory and transit of missiles, when Assad tried to transfer high-tech equipment to Hezbollah terrorists.
And Iran has come forward and said that if there is a war, Israel will become the first casualty.
Since Israel isn’t a protagonist in the Syrian catastrophe, that amounts to a threat of war by Iran against Israel, the biggest U.S. ally in the Middle East.
That is particularly dangerous because such statements give reinforcement to the argument that Iran must not be allowed to “go nuclear.”
What could go wrong with the best-laid plans? Syria already has preempted any assault by attacking the U.S. electronically. The Syrian Electronic Army, a hacker group, interrupted The New York Times, Twitter and the Huffington Post this week.
The bigger question remains as to what can be done not only by Syria, but also by Iran or even China.
Here’s what we do know from Egypt, from Libya, from other conflicts: Events will not unfold as choreographed.
The bottom line is that Syria can be the trigger, but it’s not the underlying economic driver of why equity markets were already under pressure earlier this month.