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Iran threat remains an issue, but US stocks attempt a comeback Monday

Written By | Jan 6, 2020
Iran threat, US stocks

A protest in Tehran on 4 November 2015, against the United States, Israel, and Saudi Arabia. Photo by Mohamad Sadegh Heydary, November 2015. Photo via Wikipedia entry on US-Iran relations. CC 4.0 license. Modified to fit.

WASHINGTON – Predictably, US stocks opened down roughly 200 points at the New York Stock Exchange’s 9:30 a.m. ET opening bell. But then, markets began a slow, steady upward grind. As we put together this report at 1:20 p.m. ET, that pattern continues. Currently, the Dow is off just 22+ points (-0.7%) now. Meanwhile, the broader-based S&P 500 and the tech-heavy NASDAQ are currently gaining 2.54 (0.08%) and 20.08 (0.22%) points respectively. While the Iran threat appears to remain the primary issue for traders, it seems its influence on US stocks is already being discounted.

Or not.

Don’t ever bet on Middle East outcomes

Because predicting the outcome of anything in the Middle East is a crapshoot at best. That’s true of the current Iran threat. I noticed this in my morning review of financial columnists and prognosticators. They’re all over the boards. For example, via CNBC, a Moody’s analyst warned Monday “that any sustained clashes [with Iran] could have global economic repercussions.” And Moody’s had more gloom and doom to worry about.

“‘A lasting conflict would have wide-ranging implications through broad economic and financial shock that significantly worsen operating and financing conditions,’ Moody’s senior analyst Alexander Perjessy wrote in a note to clients Monday.

“‘A protracted conflict would potentially have global repercussions, in particular through its effect on oil prices,’ he added.

“Following Thursday’s death of top Iranian commander Qasem Soleimani, on Sunday an Iranian state-run television broadcast said that the nation would no longer respect uranium enrichment restrictions set forth in 2015′s nuclear deal. Also on Sunday, the Iraqi parliament passed a resolution calling for an expulsion of foreign troops, which raises question about the future of the allied mission that has successfully fought the “Islamic State,” or ISIS, in recent years.”

So the message to investors here is “Be afraid. Be VERY afraid.”

Moody’s poor Middle East logic

But the final paragraph above has two gaping holes in its logic.

  1. Iran will now “no longer respect uranium enrichment restrictions” it had agreed to in Barack Obama’s previous non-treaty, now in President Trump’s shredder. This is no threat. Like the liars they are, once they got their more or less $2 billion cash present from Barack, the Iranian regime has happily violated terms of Obama’s non-treaty at will. Just like we predicted. So “not respecting” the non-treaty’s limits on uranium enrichment isn’t exactly news. The Iranians have been cranking away at this all along, just as they intended, once Obama’s massive gift of US taxpayer dollars was safely stashed wherever Iran’s thugs decided to stash it.
  2. Sunday, Iraq’s parliament voted “overwhelmingly” to send US troops packing, as the Clinton News Network and other Democrat media operatives have been trumpeting ever since that vote. First of all, you can bet your bottom dollar that Iranian thugs roaming Baghdad’s street coerced most of those anti-US votes. They more or less control the Iraqi government at the moment. A few death threats surely did the trick. But more notable: Parliament’s vote to kick the American devils out was non-binding. It effectively means nothing. So the central government itself has to do precisely nothing. Not much about that in the media.

In other words, at least at the moment, the media’s apparently longed-for WWIII scenario, inspired by their obsession with the Iran threat is a non-story at best.

Also Read: Iran conflict vs US stocks: Black Swan event, or selling excuse?

The continuing problem with machine- and event-driven investing

But whatever the case, as we’ve also been noting for years, US and international stock markets – driven by algorithmic high-speed trading supercomputers – trade today on headlines, not earnings and dividends. So, until around noon today, the machines have hammered US stocks based largely on propaganda, not financials and not facts.

As Innovative Income Investor’s Tim McPartland observes,

“Markets are likely to trade in a wider than normal range this week…

“Regardless of what fundamental data we see this week, the middle east situation will likely dominate the news and thus affect the markets. Historically these types of events have ‘blown over’ in a few days (or weeks), but I get the feeling this one may be with us for longer. When Iran says they will retaliate we simply don’t know if that will happen this week, next month or next year.”

Or at all. Although I’d bet these clowns do something nasty, if only to save face. Death doesn’t matter to Iran’s mad mullahs, just as long as it’s happening to infidels.

Problem is, by killing Iran’s arguably #2 jihadist and murderer, that wildly unpredictable Donald Trump has just demonstrated that the US can and will take out Iran’s dictators if they’re not careful. This changes the usual body-count math, something those cocky ayatollahs never figured on. Even after 8 years of playing games with the bizarrely pro-Iran Barack Obama.

Via ZeroHedge, Rabobank’s Michael Every has even more to say on this.

“Crucially, economically-feeble and massively out-gunned Iran does not want a real war with the US even more than the US does not want one with Iran. As such Tehran can either respond to Suleimani’s death by escalating with further US deaths, which triggered this crisis, and in which case war looks more realistic; or it can accept Trump has upped the ante to a level where it will have to make only a token response (against US allies?) instead.

“In doing so it will lose face domestically, where the regime has already just faced an uprising that has seen hundreds shot and the internet closed down (to no real Western opprobrium), and internationally the limits of tweaking the US’s nose will be made clear to *all* globally. As I have written many times: Si vis pacem, para bellum: if you desire peace, prepare for war. That’s what the US just did.

More from Michael Every

“The Economist magazine has always been a fan of free markets. Guess what they have to say about the US-China trade deal due to be signed on 15 January? ‘Don’t be fooled by the trade deal between America and China: the planet’s biggest break-up is underway’…

“They add ”The threat to the West from China’s high-tech authoritarianism has become all too clear. Everything from its pioneering artificial-intelligence firms to its gulags in Xinjiang spread alarm across the world,” while decrying the muddled US response so far. That was just before China’s Global Times reported Beijing will not ‘sit idle’ if Huawei is excluded from Germany’s 5G rollout. Sides are being picked here, just as they are vs. Iran, and Europe is again caught impotently in the middle. This time markets might be right to panic. Even The Economist now gets that the US-China struggle is the main act and Iran the relative side-show – for now.”

(Bold and italics via ZeroHedge.)

Will sober heads prevail?

Meanwhile, over at Fox Business, Allianz’ widely respected investment guru Mohamed El-Erian puts the current Iran threat in perspective.

“The longer the U.S. and Iran go without an escalation, the better off markets will be, according to El-Erian.

“‘Markets are very much in the wait-and-see mode, and the longer they wait, the more the risk-off is going to fade,’ he said.”

Of course, no one knows what the answer is or will be. But Michael Every’s longer-term observation on the importance of China should remain in the forefront. Despite the presence of those murderous, headline-grabbing mullahs pushing the Iran threat thing. And, lest we forget, that “for sure” Phase I US-China trade agreement becomes reality on January 15, right. If the signing ceremony fails to happen, expect far more dramatic and negative consequences for US stocks, than anything that occurred over the past couple of days. The Iran threat is real. But it’s a sideshow to what could happen to stocks if investors get disappointed once again by another Chinese backout on a for-sure US-China deal.

BTW, for better or worse, our portfolios remain almost fully invested. Though that could change.

Stay tuned.

— Headline image: A protest in Tehran on 4 November 2015, against the United States, Israel, and Saudi Arabia.
Photo by Mohamad Sadegh Heydary, November 2015. Photo via Wikipedia entry on US-Iran relations. CC 4.0 license.


Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17