Syria Turmoil Stirs Markets

On Friday, August 30^th the markets woke up to an unpleasant surprise.  It appears that the UK Parliament decided against military action in Syria.  When this news came out I watched as the European exchanges went from positive to negative territory and remained there for the rest of the trading session.  As a backdrop to this it seems as though Syria decided to launch chemical weapons against their own citizens whom they claim were “rebels”.  Now in the United States we use this term loosely as a “rebel” to us is anyone who doesn’t agree with government.  The whole meaning of democracy is people who don’t agree with government and sometimes that means armed rebellion.  Such is the case in Syria.

When this was discovered on August 21^st the current Secretary of State John Kerry was shocked and horrified.  Who is Syria to defy International Law?  From that time to the present the markets have been up and down based on what was happening in Syria with the emphasis on chemical weapons in violation of UN statues not to use them.  This is a reprise of what Saddam Hussein did in Iraq when he used chemical weapons against the Kurdish tribes.  Syrian President Assad should have taken notes on this before he decided to attack his own people.  Adding to the backdrop is the revelation that Iran will attack Israel if the US attacks Syria. 

On Saturday, August 31^st we heard President Obama announce planned military action against Syria in defiance of International Law.   I guess the good news is there won’t be ground forces involved and the President has asked Congress to debate the issue with him.  I have no doubt there will be many “takers” on the GOP side of the equation that will do so; and regardless of whatever action he takes there will be detractors.  For example, I fully expect John McCain to come out and say that airstrikes aren’t enough; “we need boots on the ground”.  Now there are many people in the United States who still believe that war is good for the economy.  They’re thinking about pre-WWII when the US wasn’t prepared for global conflict.  That is clearly not the case today.  We won’t be shutting down automobile assembly lines to build tanks.  The United States is clearly the “Arsenal of Democracy” and won’t have to go to such measures. 

The markets on the other hand will rebound regardless of what any other exchange worldwide does.  We saw this in 2003 after the US attacked Iraq and the same held true after the 1^st Gulf War.  In fact each and every time the US attacked someone the markets went up.  I’m certain some pundits will say “see, war is good for the economy”.  I disagree.  War is good for the markets, not the economy.  And I have a completely different take on why the markets will rebound.  The markets will rebound because they’re oversold; not because “war is good for the economy”.   Want proof? Look at a chart of the Dow the entire month of August.  The Dow hit a high of 15,600 and is now trading at 14,800.  Of course when it rebounds it will overshoot that mark as it always does; so I wouldn’t be surprised if it exceeded the 16,000 area.

 President Obama on the other hand and even in his last term in office is still playing it safe.  He’s asking Congressional approval for taking military action.  I would think he should get UN and international approval.  Even Bush 41 and George W. sought that out.  I would say that this is important as the wildcard in this event is Iran.  Obama needs international support in the event that Iran gets involved and decides to do something foolish like attack Israel.  He should be directing international support such that if Iran decides to get involved they will face global scrutiny.  Instead he seeks Congressional support.  Additionally he’s not considering what this will do economically within the United States.  The markets will go up because it doesn’t like uncertainty, but once a decision is made it will be business as usual.  However employers here will back away from hiring as this lends an element of uncertainty for them.  The US economy is quite fragile at this time.  The so-called “recovery” is the slowest on record in terms of job growth.  Employers in the US want to hire part-time help because they have no exposure or long term obligation to part-timers.  Part timers aren’t eligible for benefits, paid time off, vacations or retirement.  Employers will blame the government for this as they’ll complain about increased regulation (ObamaCare, Dodd-Frank, etc.)  Sadly there is some measure of truth to this.  ObamaCare has turned out to be exhaustive for employers and employees alike.  The so-called exchanges aren’t even set up yet and applications start in one month (October 1^st).  UPS as a company has already told employee’s that they will no longer cover a spouse who has coverage thru their jobs.  I suspect UPS won’t be the last company to do this.

The President may be underestimating Iran and overestimating the US economy as the US hasn’t finished paying for Iraq and Afghanistan.  But as in all things, time will tell how it all works out….

Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a free, daily newsletter that discuses and teaches market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com  Interested in Market Correlation?  Want to learn more?  Signup and receive Market Tea Leaves each day prior to market open.  As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.