Wednesday, August 28, 2013
Geostrategic concerns centered on the Middle East are in the
spotlight, with impending U.S. strikes in Syria stoking fears that
the conflict could engulf the entire region. This is producing all
the typical flight-to-safety movements across the different asset
classes, but the moves are unlikely to have much staying power.
The U.S. government is in a tough spot. Its need to maintain
international credibility in the face of the alleged use of
chemical weapons by the Syrian regime demands a military response.
But the war fatigue in the country limits the government's options.
The U.S. also needs buy-in from independent entities like the U.N,
the Arab League, and others for a more robust response, which is
simply not there at this juncture.
Even more importantly, there is no compelling strategic case for
the U.S. to replace the Syrian regime with the rebels - the
alternative is no better than what is available now. What all of
this amounts to is a symbolic show of force by the U.S. through a
few surgical strikes that ensure that the conflict doesn't spread
to the outside the region beyond what it has already.
But the potential U.S. entry into the conflict does add to
uncertainty and fears of a wider conflict in this strategically
important region. And this is creating the usual safe-haven bid in
gold, pushing oil prices higher and stocks lower. The slide in
Treasury bonds has eased a bit as well, helping 10-year yields
modestly reverse the move towards the psychologically important 3%
The stock market weakness is likely a function of other variables,
like the future of the Fed's QE program and the prospect of another
fiscal fight in DC. But I don't envision the current bid in oil,
gold and treasuries to have much staying power.
Director of Research
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