|Dow||-42.44 to 17,079.57|
|S&P 500||-3.38 to 1,996.74|
|Nasdaq||-11.93 to 4,557.69|
|10-YR Yield||-0.03 to 2.33%|
|Gold||+$6.90 to $1,290.30|
|Crude Oil||+$0.70 to $94.58|
Amid all the handwringing over the U.S. economy, a funny thing happened. It actually BOOMED in the second quarter!
Revised figures show that Gross Domestic Product expanded at a 4.2 percent rate in the most recent three-month period. That was up from an initial estimate of 4 percent … better than forecasts of 3.8 percent … a huge rebound from the 2.1 percent contraction in the first quarter … and the third-strongest reading since the Great Recession ended five years ago.
Business investment rose at the fastest rate in more than two years, while pre-tax corporate profits jumped 8 percent. That was the biggest rise since late-2010. A measure of money earned by consumers, businesses, and the government – called gross domestic income – rose at a 4.7 percent rate. That was the biggest gain since 2012.
So the markets rejoiced in response, right? Not at all! That’s because Ukraine and Russia are rapidly heading toward all-out war!
In just the past 48 hours …
* A summit in Belarus on Tuesday between Russian President Vladimir Putin and Ukrainian President Petro Poroshenko was an utter failure. We heard a few brief comments about seeking peace, but absolutely no action. Then soon thereafter …
* Ukraine said it’s now fully engaged in battle against both separatists and regular Russian soldiers – calling the action a “full-scale invasion.”
* NATO officials accused Russia of sending “well over a thousand” troops into Ukraine, and warned that a “very aggressive Russia” was providing everything from weapons and ammunition to special forces training and intelligence to the rebels. That reportedly includes advanced Grad rockets, SA-22 surface-to-air missile and gun systems, tanks, and armored personnel carriers.
|The U.S. GDP grew at a rate of 4.2 percent in the recent quarter, but worries about Russia and Ukraine stymied any big gains in the market.|
* Not only is fighting continuing in Donetsk and Luhansk, but now it’s breaking out in southern Ukraine around the border town of Novoazovsk. That could lead to Russia overrunning the territory separating it from Crimea, essentially linking up with its forces there.
* Ukraine asked for “large scale” military help or intervention from the U.S. and Europe. It also demanded the U.N. Security Council convene to discuss the crisis.
Russian officials denied in multiple venues that its forces were operating over the border, adding that “Russia is not taking part in this armed conflict.” But reporters on the ground continue to see Russian military hardware, helicopters, and troops pushing deeper into Ukrainian territory.
This is deadly serious. While the West only bloviated and shuffled its collective feet when Putin annexed Crimea, the invasion of Ukraine proper is a much bigger gambit. The sanctions we’ve seen to date clearly haven’t deterred Putin, so it stands to reason they’ll be ramped up substantially if southern Ukraine is overrun.
“The sanctions we’ve seen to date clearly haven’t deterred Putin.”
NATO is also talking about re-positioning more military hardware in Eastern Europe as a deterrent, with new bases potentially opening up in Poland and the Baltic states. And Russia has responded that such a move would naturally result in IT taking more aggressive steps, too.
As an investor, these developments have several implications …
First, they show why you absolutely need some exposure to gold and gold miners in today’s uncertain world. They are great “insurance” plays for a world gone mad.
Second, they underscore the very real global threat to the world’s energy supply chain. Putin wields a huge cudgel in the form of oil and gas supplies! If he chooses to cut Europe off in retaliation for sanctions, there’s no telling how much energy prices could jump.
Throw in the loss of production in Libya, and the burgeoning ISIS threat to major oil producer Iraq, and you can see why I’m expecting energy prices to rise over time. And now more than ever, it’s abundantly clear that the U.S. needs to step into the breach and build up its own domestic energy industry.
Third, sanctions will hit Europe much harder than the U.S. given Europe’s greater geographic and economic ties. So European stocks and the euro will likely come under even more pressure if things go pear-shaped in Ukraine. So my simple rule remains: “Invest here, not there!”
So what are your thoughts about the latest developments in Europe? Is Putin turning up the heat? Or is Ukraine just making things up to try to draw the global community in on its side? What is the chaos in Europe … and the ongoing turmoil in the Middle East … doing to your investment strategy? Are you factoring it in, and if so, how? Let me know at the Money and Markets website here.
|OUR READERS SPEAK|
As you might expect, the discussion over the Ukraine-Russia conflict is heating up right along with the crisis.
Reader Steve C. said that Ukraine should get “fast-tracked” for NATO membership “so the western world would be fully ready and justified to blow Russia’s butt out of Ukraine.”
But Reader Richard K. countered with the following: “Fast tracking Ukraine into NATO would be akin to reigniting the Cuban Missile crisis in the eyes of Moscow. From Ukraine’s northern border it’s only a 350 mile drive to the outskirts of Moscow or roughly the same driving distance from Cleveland OH to Washington DC . At low attitude, an F15 can travel 900mph or 15 miles in a minute or approx. 23 minutes for 350 miles.
“In the span of 150 years, Russian armies fought to the death against invading armies from Western Europe, 1812 against France, 1914 against the German & Austro-Hungarian Empires and 1941 against Nazi Germany. History is not lost on the Russian hardliners and nationalists. The thought of having NATO forces so close to Moscow would force Russia to react rashly and possibly invade Ukraine before the treaty takes effect. And if Russia does invade, does NATO get into a shooting war with a country with 8,000 nuclear warheads or are we naive enough to think that we can go to war with a nuclear power using conventional weapons only?”
Reader Al H. added: “Ukraine should NOT be brought into NATO. This would only result in another country which we (the US) would be committed to defend if Russia continued to pressure. And of course, we foot the vast majority of the cost of NATO operations with money we DON”T HAVE. It’s time we stop trying to rule the planet, take care of our country and mind our own business. “
But Reader Mark S. took the other side, saying: “A very simple response must be made; bring back ‘MAD.’ The Russians are barbarians and have breached the gates, they have broken agreements and we must do whatever we deem necessary to neutralize, or terminate the problem.
“Boots on the ground should be European and all the former Soviet satellites should be anxious to put enough forces on the ground to stop the aggression. Weapons and military intelligence should be provided in force to destroy all the military forces acting against the Ukraine inclusive of Russia itself. Make them pay the price in blood for their acts. Putin is nothing but a KGB bully and if he personally must be dealt with then let’s just get it over with. Let us act as he has and the Russians have.”
Needless to say, events are moving fast and there are strong arguments to be made both for and against military or economic action to offset Putin’s moves. So keep the comments coming at the website and I’ll do my dead level best to keep you updated on all the new developments, as well as what they mean for your wealth and security.
|OTHER DEVELOPMENTS OF THE DAY|
Housewares and kitchen vendor Williams-Sonoma (WSM, Weiss Ratings: A-) was one of the biggest losers on the day, after the company forecast disappointing results for 2014 as a whole. Teen and young adult clothing retailer Abercrombie & Fitch (ANF, Weiss Ratings: C) also slipped after reporting a quarterly sales decline of almost 6 percent.
The migration of demand away from coal and toward cleaner-burning, abundant natural gas is continuing. I feel that it’s better for the environment, better for our country, and better for the economy. But it sure isn’t good news for coal miners and mining country. This Washington Post story goes into more depth.
We all try to keep our banking information safe from online thieves. But they keep on trying to break in anyway. The FBI and Secret Service are reportedly investigating hacking attempts that targeted JPMorgan Chase (JPM, Weiss Ratings: B+) and at least four other U.S. banks (not to mention European institutions).
Another American citizen has reportedly been killed fighting on the side of ISIS in Syria. The first, Douglas McArthur McCain from the Minneapolis area was confirmed dead earlier this week, and reports suggest another American from the area died.
When an 18- or 24-pack just isn’t enough to keep your fellow thirsty tailgaters hydrated, you can now go all out! The Texas brewery Austin Beerworks just rolled out a 99-pack of beer, selling at a retail price of $99. The 7-foot long package won’t fit in your fridge, so make sure you bring plenty of ice!
Reminder: You can let me know what you think by putting your comments here.
Until next time,