The Week Ahead: Geopolitical Issues Dominate

Welcome back to recession. Actually, the “new style” concern is inflation, after the European Central Bank [ECB], Bank of England [BOE] and International Monetary Fund [IMF] all pounded that fear down the market’s throat this past week. However, the true catalyst behind the move in the markets certainly had something to do with the double-digit rise in oil prices and geopolitical tensions. Stocks sold off on the week, with the Dow Jones Industrials declining 2.4%, the S&P 500 falling 1.8% and the NASDAQ Composite drifting 1.3%.

The market started falling even before the central bank decisions and fear-inducing press conferences. Geopolitical issues and petroleum and gasoline price rise were very likely catalysts behind the market’s dismay. What started during the prior week, with Turkish air raids on Kurdish rebels, and the resulting Kurdish threats of retribution against American forces in Iraq, continued this past week with new catalysts.

Geopolitical tensions seemed to spread and intensify all week long. The Supreme Leader of Iran announced that his country would not back down to international pressures, and would continue forward with its nuclear program. That same day, a U.S. general declared that America could not engage Iran now, with fires to put out in both Iraq and Afghanistan.

As if that was not enough, Nigerian petroleum production and distribution came under further stress, as rebels attacked infrastructure in the major petroleum-producing nation. By the end of the week, attention had turned to Venezuela, as The Wall Street Journal reported that President Hugo Chavez had actively offered assistance to Columbian rebels.

Meanwhile, a very interesting event is taking place in Lebanon, where Hezbollah has taken over parts of Beirut. At the same time, the tiny Republic of Georgia declares that war with Russia is a very real possibility.

Take note, there seems to be a clear underlying driver behind oil price movement that is counter to supply trend. After all, petroleum inventories increased sharply again this past week, rising by 5.7 million barrels. Meanwhile, just weeks after Israel staged a nationwide drill more intense than any in its history, Wall Street Greek hears of a closed-door Federal Advisory Committee meeting of the U.S. Nuclear Command and Control System Comprehensive Review Advisory Committee scheduled for early June.

Yes, we mean to insinuate that the bombing of Iran may not be very far off, and may be playing a role behind the rise in oil prices. Goldman Sachs (NYSE: GS), an investment bank often in the know, this week reported expectations for an oil price spike to $200 in the next year or two, and a natural gas price spike as well. So, some very “smart money” might be behind the counter moves in oil and stocks.

The Week Ahead

This week’s economic reports may be less important to stocks than the resolution of last week’s geopolitical tensions. However, April’s Retail Sales Report (Tuesday) and Consumer Price Index (Wednesday), and May’s Consumer Sentiment reading on Friday carry significant importance.

The week ahead includes earnings reports from: Monday – Imperial Sugar (Nasdaq: IPSU); Tuesday – Applied Materials (Nasdaq: AMAT), Cameco (NYSE: CCJ), Whole Foods (Nasdaq: WFMI); Wednesday – Deere & Co. (NYSE: DE), Double Hull Tankers (NYSE: DHT); Thursday – Hewlett-Packard (NYSE: HPQ), JC Penney (NYSE: JCP); Friday – Abercrombie & Fitch (NYSE: ANF), British Airways (Nasdaq: BAIRY.PK) and more.

Comments

[icandoitdon]

what a frightening scenario.

i'm baffled by the notion that the u.s., already neck deep in the iraq war, which 2/3 the public no longer even supports, would decide to bomb yet another mideastern country. $200 oil would likely break the economy and create conditions that americans haven't seen since the great depression.

i can think of only one reason the u.s. would do this and it has nothing to do with protecting ourselves. i think it's a bit too steep a price to pay.

[garyccb]

Is that John Kerry speaking? We haven't even approached the Carter years. 18% interest rates, gas lines, disposing of the dreaded Shah of Iran. Turning the Panama Canal over to the Chinese. 12% unemployment.

Yea, I remember that one. I suspect we may be forced to join the Chinese and drill our own oil off the gulf of Mexico. Jeeze, what's it coming to...

[ChaunceyGardener]

Take a Xanax and try to relax Markos. We can kill off these miserable Third World lunatics whenever it becomes necessary. The focus next week is CPI,Dude.

[texasgolfer]

3 or 4 cruise missiles and 3 or 4 less problems. It is a very serious mistake to underestimate the power of the USA and the world knows it, but little p*** ants try to rattle and prattle for their controlled populations. Gives the media something to speculate about.

[icandoitdon]

garyccb...

let me help you with your history...

first....the shah of iran, who declared himself "king of kings," lost power in iraq because he came to be viewed by both the religious and nonreligious elements in iran as a brutal and corrupt u.s. puppet who dispensed favor to his political friends and supporters and torture to his enemies. he was our kind of dictator. unfortumately he wasn't iran's kind of dictator. you might even call him one of the early terrorists, against his own people. he was lucky to escape with his life. by the way, as a reward for his long period of loyalty to the u.s., we refused to give him asylum. nobody in the west would. egypt, in the end, did, which is where he died.

another of our good buddies during that period was saddam himself. donald rumsfeld, our brilliant architect of "iraqi freedom," has the smiling, hand-shaking photos to prove it.

is there a pattern here?

second....we didn't turn the panama canal over to the chinese. we turned it over to panama. i suppose you think that we turned hong kong over to the chinese too.

third...i'm happy to blame carter for 18% interest rates and 12% unemployment if you'll blame bush for $120 oil, $3.50 gasoline, sinking home prices and skyrocketing foreclosures. deal? no? i thought so.

fourth...i never liked john kerry either...too much of a wuss for me. but he was a veteran who served his country in vietnam when dick cheny had "other priorities." i bet you have other priorities than serving in iraq too...don't you.

chauncey....

that's a great sentiment. it's this combination of simple-minded arrogance and ignorance that's got our country into trouble on foreign soil repeatedly. if anyone hasn't told you let me be the first...don't go into politics.

[nutty buddy]

You lost me at "shah of iran, who declared himself "king of kings," lost power in iraq". The rest is all blah, blah, blah - paid for by George Soros. Get a life if you candothat.

[Igorisky]

The Bush Administration has made these 4 monumental mistakes:

Mistake #1.
During the 2000 Presidential campaign, it became apparent that George II was an intellectual lightweight. Experienced people like Scowcroft, Powell, Sinseki advised him not to go to Iraq but he could not comprehend and was swayed by others so he still did.

Mistake #2.
Then he got rid of one of the few competent guys he had in his administration, the one who had an actual successful experience running the Kurd area - Jay Garner - and replaced him with an inexperienced diplomat - Bremmer - who quickly dismantled the whole government of Iraq by dismissing the military and the Baatist gov't workers who had kept the country running relatively smoothly.

Bush II and his administration, heavily dominated by the religious rights wanted to so badly get rid of the bad Saddam guys that they thought naively that by letting the Shiites (with zero experience in organizing and running a government) run the country everything will be fine. Bush II and his administration did not understand that it takes decades to change and develop governments. He could have just gotten rid of a few of the top Saddam people and maintained the military and the rest of the government. Bush did not understand at that point that the worse thing he could to do is put people in the military (who are trained to shoot and bomb enemies) out of work (no income) and with no hope. (The insurgency was run by ex-military Iraqi leaders.)

**These first two mistakes is costing us about $800 B and counting.

Mistake #3.
Not only did he (and still does) refuse to heed scientist's warnings about global warming but even made moves to fire them from their government positions. He let his people alter critical reports to make it appear that everything is hanky-dory and there is nothing to worry about. Even now when evidence is coming in daily, he still has not admitted his mistake and therefore, is not making any moves to change direction. The Global Community has been asking for a change in direction and he still would not budge. Calculations have been made indicating the cost of addressing global warming is still affordable. How much this wrong headed decision to ignore global warming is going to cost will not be known (in dollars and future of the human civilization) until a few years from now but it could very well make the cost of the Iraq War relatively puny.

Mistake #4.
Subprime. His administration was hell bent on pushing the American dream of home ownership and encouraged it to the hilt without regard to sound economic practices. When the price of houses rose many times faster than personal incomes to support them, no one in his administration did anything investigate and stop it. In pushing for the expansion of home ownership and consequent expansion of the US economy, he failed to consider the limits of affordability. Why is this his mistake? His hiring of incompetent and unqualified people to oversee his pet programs. Remember Brown of FEMA of the Kathrina fame?


These are the major mistakes of the Bush II Administration. Surely he has made some very good decisions in the last 7 years but I have limited my discussion here to his mistakes for it far overshadows his good deeds. I am glad his administration is almost over.

The US is now at the brink of electing a new President. The next one should be one who has the wisdom and mature judgement to hire qualified and competent people regardless of their religious beliefs. He should hire a Chief of Staff a person who has a global perspective and a passionate student of world history and be a very persuasive person. None of the candidates have this quality so this person need to fill this gap.

One last item for the future.

Comments were given above regarding Iran. If Iran insist on making the 'bomb', then it needs to be pre-empted.

The justification? When we dropped the bomb on Japan, it was because it was better to kill several thousands of the enemy who started and was prolonging the war, than several millions of both our military as well as enemy population - military and civilians.

With Iran, if we let them make a bomb(s), they will surely use it. Although Iran can deliver it via missles they now have, they can also deliver it in numerous other ways. An example is via innocent looking ships ... like oil tankers which they can blow up when it docks in say, a port in New Jersey across NY City. A Nagasaki type will surely kill millions in the NY area. With the advancement in technology and aid of Mr. Khan of Pakistan, we can almost be sure the bomb they are making is several times more powerful. It will make the twin tower event really miniscule. But like the twin tower, it will be a surprise. This is a justification for pre-emption.

We can deliver several of our nukes right where Iran is making their fissle materials and bombs. Just to be sure we wipe it out, we deliver our nukes simultaneously on several locations. It will show our resolve and warn others. Surely there will be repercussions like bin Laden calling on his troops to create chaos all over the world. But if they do and they surely will, the damage to us will be a lot smaller than Iran's bomb.... and what if Iran instead explodes several bombs knowing we will retaliate? Remember, these willing-to-die-guys want to go to heaven at our expense - the infidels - so it does not matter to them and their innocent bretherends if they die. It is all in Allah's will.


So, it is a decision we have to make, to take the lesser of two evils. the last thing the US should do is send our troops into the country. Destroy their nuclear bomb making capability. With this dire scenario, the US need to pick the right candidate to be our next President.

Don't we all wish Truman was our next President so we can count on him to make the right decision?

[icandoitdon]

nutty butty.....

you may not like what i say, but i've contributed to the dialogue. try to do the same sometime. otherwise stick to reading your comic books.

[icandoitdon]

igorisky:

i understand the rationalization for not wanting iran to develop nuclear weapons. but the genie was out of that bottle long ago. nuclear proliferation is a fact of life and it cannot be stopped. it's like wack-a-mole. are we going to bomb them all?

[Igorisky]

icandoitdon, as you very well know it is the radical leaders in Iran that have been supporting the terrorists all around the world that makes Iran unique and therefore needs to be destroyed...before they can severly damage us. All the other wackos will behave themselves once we have demonstrated the consequence of Iran's support to Islamic radicals to the world. This generation has not seen the mushroom cloud and needs to be shown another demo in their own land.

[getaprespective]

Why do americans get huffed up about $200/barrel or $4/gallon oil?

Because the media wants them to. And the leaders can drum up sentiment to go to war over it. All Europe pays (and has been paying) more than $4 for several years ($8/gallon in London). Most of Asia pays about $4/gallon


en.wikipedia.org/wiki/...

"Geopolitical Issues Dominate" - they don't. Economy is just in a cyclical downturn. Can't make sense of the stock market - don't.

Don't get huffed up about oil prices!

[TheHistorian]

When it comes to politics every one seems to have an opinion. I personally believe that no one individual is at fault for the problems we face today. Sure the president takes most of the blame, but its very easy to point the finger at one person and say he or she caused this.

1st domestically the sub prime problem is really not just about sub prime. Most of the people I know are all trying to live like the super rich even though they can not afford it. Our nations savings rate is dismal and we spend way to much money. Now I know that some of you might say that without spending our economy would not be as strong, but its that same spending without savings that is the ultimate cause of this credit problem. Ask yourself why banks advertise consolidating your high interest unsecured debt with a home equity loan? That makes sense use your house to buy clothes and all the other stuff you bought with your credit cards. What ever happened to saving your money for a 20% down payment?

2nd the oil problem can be solved. 80% of our total oil consumption goes to transportation. I believe that if the country spent some money on updating our infrastructure than this could help decrease our dependency on oil with out having to increase supply. We should build better public transportation and focus on clean coal technology. After all we are the Saudi Arabia of coal. I have heard that the technology to turn coal into gasoline exists. Build more solar and wind farms. Geo thermal is also another source of power. We don't need to be driving Hummers either. What is the point of all these huge gas guzzlers?

3rd dealing with the Middle East. Prior to World War II the United States was respected by much of the world. We were powerful, but we did not try to police the world. I know that many will say that is why we had to fight to world wars. We don't have to be the world's policeman in order to step in when something is about to happen. Our own president's father stepped in to remove Saddam from Kuwait. He did this by building an effective coalition. When coalitions are created wars tend to be shorter at least in the modern era. We should concentrate on being the most technologically advanced country in the world. We don't need to get involved in nation building.

I will leave you with this thought. When our country was contemplating its independence we decided this on our own. After we declared independence and decided to fight for our rights we asked France to support us in our fight. It was not France that removed England from America. I believe that when people are ready they will fight, not before and that is what happened in Iraq. Instead we should have sent more troops to Afganistan and left Iraq alone.