|Dow||+49.38 to 16,867.51|
|S&P 500||+9.55 to 1,959.53|
|Nasdaq||+29.401 to 4,379.757|
|10-YR Yield||-0.019 to 2.56%
|Gold||+1.30 to 1,322.20
|Crude Oil||+.56 to 106.59|
No doubt about it. The mess in the Middle East is getting worse by the day. Just in the past 48 hours …
- Syrian warplanes bombed Sunni targets inside Iraq’s borders. The airstrikes reportedly killed more than 20 people, and injured almost 100, in the town of Qaim.
- Israel launched its own air and rocket strikes inside Syria’s borders, striking a military command target. The strike was retaliation for a missile attack in the Golan Heights.
- In Iraq, ISIS rebels renewed attacks on a key Iraqi oil refining facility at Beiji north of Baghdad. Iraqi government forces have been pulled back to defend Baghdad, essentially conceding large swaths of territory to rebels. In fact, ISIS is now reportedly attacking a former airbase that large numbers of U.S. forces called home as “Camp Anaconda” when they were in the country.
Stock markets suffered their worst day in several weeks yesterday, while volatility surged by more than 10 percent. The deepening conflict was the proximate cause, especially because there seems to be no easy way out. The alliances and loyalties of fighters and governments on all sides are complex, and the sands keep shifting from day to day and week to week.
|A trip for crude to $115 and beyond may be in the cards.|
I mean, just read this excerpt from today’s Washington Post’s recap of the chaos. You tell me: Doesn’t it make your head spin how all the sides have incredibly conflicting loyalties?
“ISIS militants are fighting the governments on both sides of the Iraq-Syria border, and an apparent decision by Syrian President Bashar al-Assad to intervene to help Maliki further tangles the already complex knot of actors in the overlapping crises.
“In Syria, the United States opposes both Assad and ISIS, which it condemns as a terrorist, al-Qaeda-inspired organization.
“Iran supports both Assad and Maliki and is sending aid to both, although Iraq’s ambassador to Tehran on Tuesday denied reports that the leader of Iran’s Revolutionary Guard Corps was in Baghdad helping the government there, Iran’s Fars News Agency reported.
“Shiite leaders in Iran and Iraq, as well as Assad, have accused Sunni governments in the Persian Gulf of aiding the militants. On Thursday, Kerry will meet in Paris with his counterparts from Saudi Arabia, the United Arab Emirates and Jordan to ask them to intervene more forcefully with Sunni tribes in western Iraq to sever all ties with ISIS and join efforts to preserve a unified Iraq.”
“I believe that inflation is the likelier path forward from here, given the out-of-control printing we’ve seen in the past several years.”
So where do we go from here? Well, crude oil prices spiked as high as $107.50 in the overnight session amid the increased turmoil before pulling back a bit. If we can clear these levels, a trip to $115 and beyond may be in the cards. We may see that happen if, as the Wall Street Journal reports, the U.S. gets more deeply involved and starts targeting rebels in both Iraq and Syria with direct strikes.
That kind of rise could fuel even more inflation in energy prices and energy stocks, though the latter depends on whether volatility spikes when disturbing headlines cross the tape. It could also put more pressure on policymakers to stop talking about inflation as just “noise”.
So what is your take? Is there any hope for stability in the Middle East? Is Iraq going to splinter along sectarian lines? Or will the Shiites, Sunnis and Kurds figure out a way to pull things together? How about Syria and Israel? Are they going to get dragged even deeper into the conflict, and what does all this mean for oil prices and stocks? Let me know by hopping over to the comment section and sharing your view!
|OUR READERS SPEAK|
In the wake of the recent bout of confusing economic data, Federal Reserve speeches and more, there seem to be some conflicting thoughts about which way monetary policy will go.
Reader Michael said: “The Fed has to keep interest low so that the government can borrow money at low cost, otherwise the government would default because of high interest cost. Fed doesn’t care about inflation (watch what they do and don’t listen to what they say).”
Reader Donald M. also cited the potentially huge cost of servicing our debts at higher interest rates. But he added: “On the other hand, the U.S (and much of the rest of the world) is awash in cash due to irresponsible borrowing/lending practices plus the irresponsible use of the printing presses. These inflationary excesses will, of course, result in higher interest rates. Visualize our economy likened to two speeding locomotives going in opposite directions on the same track. This is not going to end well.”
I agree that we have an inherently unstable system right now, where powerful forces on both sides are battling it out. I believe that inflation is the likelier path forward from here, given the out-of-control printing we’ve seen in the past several years. But I’m interested in your thoughts as well, so feel free to share them here..
|OTHER DEVELOPMENTS OF THE DAY|
The economy performed much worse than earlier believed in the first quarter, according to revised government figures.
Gross Domestic Product (GDP) shrank at a 2.9 percent annualized rate, worse than the 1 percent rate that was previously estimated. That was the biggest contraction since the 2009 recession, though markets were fairly sanguine about the number because problems estimating the impact of Obamacare were responsible for a fairly sizable chunk of the revision.
Iraq isn’t the only potential flashpoint for the world markets. President Obama is considering more targeted sanctions against Russia and President Vladimir Putin. The sanctions would focus on industries like finance, energy, and defense. It’s unclear if our European allies are on board with the idea, but a decision could be made as early as later this week.
The stock market just crashed … in Dubai! The Middle East financial hub’s benchmark index has tanked 25 percent in the last two months. That’s a bear market in traditional Wall Street parlance.
Shares rebounded a bit today from the decline, driven by concerns over a key real estate firm’s stability and government support, and worries over a new market bubble. But the question on the table is whether this is a one-off “Who cares?” kind of move … or a canary in the coalmine for more emerging markets. Only time will tell.
Reminder: You can let me know what you think by putting your comments here.
Until next time,