The stakes are rising. On Friday, Vladimir Putin seemed to suggest that an attack on its ally, Syria, would provoke a response from Russia. President Obama stubbornly maintained that we will still take military action against Syria, who he accuses of breaking international law by gassing innocent people. Historically, financial markets don’t take well to the threat of war between super powers.
Some might conclude that Russia is simply calling Obama’s bluff by answering one attempt at sabre rattling with another, but investors normally would rather sell first and wait to see if a shooting war develops. In order to navigate the markets these days one needs to be a political analyst, military historian and fortune teller all at the same time.
Well, please come into my parlor, and we will see what my crystal ball says.
On one side, according to the U.S. government, there is some evidence that the Syrian regime did gas its own people. However, the United Nations, Russia, China and the majority of world opinion (including that of our allies) are disputing that and have made it clear that there is no justification for a military response from the U.S.
President Obama, suspecting that a military response might be a hard sell to the American public (less than 30% of Americans are in favor of a strike), handed the decision over to congress last weekend. Both the House and Senate want more details and plan to vote on the issue next week. As a result, I believe that the stock and bond markets, worldwide, will be held hostage to that vote.
You can bet that markets will gyrate up and down based on every comment out of congress and the White House. Overseas, Russia’s Putin, ever the poker player, will be throwing in another chip or two in an effort to increase the stakes of the game. We could see naval or air alerts, even troop movements by Russia in support of its Syrian ally.
In the end, America will have to ask itself if it’s worth it. In the face of a United Nations that refuses to uphold the laws it was created to defend, should we? How will a perceived loss of face and resolve impact Iranian or North Korean ambitions? Is gassing 1,000 Syrian civilians equal to gassing millions of Jews in WW II?
I believe that unless the polls change dramatically over the next few days, Americans have already given their answer and the politicians will vote accordingly. I’m guessing that President Obama, although stubborn, is also pragmatic. He will acquiesce to a congress “no go” vote and back down.
In which case, investors will have worried for nothing. At that point, we will be on the eve of the Fed’s decision to taper (or not) on September 18th. What a wall of worry! Given all of the above, I am impressed by the resiliency of the markets thus far. We are above the S&P 500 Index’s 50 day moving average and are less than 3% off record highs, despite Syrian worries.. I warned readers last week that we are still not out of the woods quite yet. It appears that there are at least two or three good weeks to go before we can see a clearing on the other side. Take heart and stay invested.