World War 3 Brewing

I tend not to write about politics, but seeing as how it impacts financial markets, this post makes an exception.

 

Two weeks ago, things were very different. Window dressing at the end of the 2nd quarter had pushed the markets up significantly from their June lows. Things were looking better as the Fed hinted they might be nearing the end of these rate hikes (although they have hinted this now on and off for a while), and inflation was still in check.

 

Since then, the world has changed significantly. It all started on the 4th of July when North Korea tested their long range missiles, capable of carrying nuclear warheads. This was followed by rising tensions in the middle-east, which since then has blown into an all out war. Whether people like to admit it or not, things are just as bad if not worse than they seem. And just when nothing else could go wrong, Russia is starting to flex its military muscle through some strong words by Putin. Russia has the 5th largest army in the world and more nuclear missiles than the US. They also have one of the largest oil and gas reserves in the world.

 

Imagine this – Israel goes after Syria for aiding the militant groups in Palestine and Lebanon, which prompts Iran to go after Israel, which prompts the US to rain down over Iran, which pulls Russia into the war (seeing as how they are eager to do business with Iran despite the disapproval of the US). And this scenario does not even involve North Korea yet. It seems far fetched, but so were the attacks on 9-11. We can only hope and pray that this scenario never plays out, but thats not in our hands. What is in our hands is our money.

 

All this geopolitical tension cannot be good for the financial markets as is obvious from the 3 consecutive triple digit losses suffered by the Dow this week. At this point, I cannot predict which way the market will go. I believe a sign of peace in the middle-east might provide some relief to the market, but until then, we might just have to contend with sell offs.

– Faisal Laljee