Let me say first off: I agree with President Obama about putting massive boots on the ground in response to the ISIS threat. I felt the same about Afghanistan in that the U.S. ought to have fully utilized the special forces in a tactical manner to determine when and the place of our choosing to do battle with a non-conventional adversary. The U.S. special ops are a potent disruptive force and when supported with the cavalry and other forms of airpower can inflict great harm. The recent acknowledgement that A-10 Warthogs have been dispatched to INCIRLIK Airbase in Turkey signifies the U.S. has the ability to severely damage the mobile capabilities of ISIS and thus limit the scope of the battlefield and enhance the effective use of U.S. Special Forces. The success that this type of operation had in the early part of the battle against the Taliban when the Special Ops allied with the indigenous Northern Alliance.
My problem with the Obama post-G-20 press conference was twofold. First, President Obama raised the issue of disaffected youth as a major reason for the fertile breeding ground of ISIS recruits and frankly the civilized world need not confront this issue until the complete destruction of the Islamic nihilists. This is why social workers do not command soldiers for we do not need the logic of West Side Story’s Sargent Krupke. Secondly, President Obama talked around the issue of some recent U.S. and allied successes in confronting the ISIS army but because he was in Turkey could not single out the Kurds as being the source of those recent victories. If the West is going to unite in response to the heinous terrorist acts, it must not kowtow to the desires of unreliable “allies.” It would have been a sign of leadership to have publicly applauded the recent military activities by the Kurds.
***Market responses to the events in Paris were fairly as expected:
1. Initial equity market reaction was to open lower but as the day continued on money went in search of assets that have been sold down over the last week. Most in demand were the defense stocks proving the old adage that Wall Street loves a good war for there’s plenty of money to be made supplying military supplies. In Europe, French President Hollande announced that fiscal austerity would have to wait as France increased its military spending. Even Larry Summers must be supportive of increased fiscal stimulus as Paris declares war on ISIS. The European debt markets rallied as it appeared that the ECB was in buying debt in support of all EU markets.
Remember, several ECB members suggested in the summer that the ECB QE program could be front-loaded if the situation demanded increased purchases above the monthly 60 billion euros. The U.S. Treasury market was basically flat on the day as there was some suggestion that the FED would be RETICENT to raise rates in December if the Paris terrorist attacks had created economic headwinds for the global economy.
2. There was an initial rally in GOLD as shorts covered since the uncertainty of geopolitical events gave way to renewed selling as the DOLLAR and SPOOS provided greater profits as a haven. I have written for the last six years that the surest way to go broke is BUYING GOLD on any type of war news for I have the investment scars to prove it over a 38-year career of trading and investing. GOLD is a monetary and commodity asset not an investment in times of violent political outbreaks. Any time you hear a talking head suggest GOLD is up on the outbreak of war, turn the page.
3. The DOLLAR performed well against the euro and it seemed to do so as the European sovereign debt markets rallied, signalling the ECB was in the markets, spreading the salve of liquidity. The more the BUNDS and OATS rallied, the weaker the euro became. This is something to buy attention to and I will remind all my readers: IN THIS TIME OF GEOPOLITICAL UNCERTAINTY AND VOLATILITY TREAT EVERY ACTION AS A TRADE NOT AN INVESTMENT. Also, watch tomorrow’s CPI release for if the number is on the low-end of 0.2% as expected, the DOLLAR will sell off as the market will think that a December rate HIKE may be a lower probability. The U.S. 2-year note will be a very good barometer of market sentiment on the CPI.
Tags: ECB, Euro, France, G-20, Gold, ISIS, President Obama, QE, SPS, U.S. Dollar