by Tom Luongo, Tom Luongo:
I’ve been watching the unfolding events in the Middle East since last week’s attack by Hamas on Israel like everyone else. We can all sense that this is a watershed moment. What occurred is the kind of thing that precludes going back to the way things were before.
It was always the thing that sat out there, a rough beast waiting to be born, in our nightmares, thanks to the accelerating chaos of global systems on the verge of dramatic change.
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I don’t pretend to understand the history of the conflict with any degree of nuance and nor the depth of the passions existent on both sides. That said, I was asked by Sputnik News to give my thoughts on the effects on capital markets this new phase of conflict birthed.
And from that perspective I answered their questions as honestly as I could. Small events have far-ranging effects because of what they mean to those who will use them for their own purposes. And what was clear from the questions asked was there is, as expected, a Russian angle on this.
The article posted is here. I think it’s a more than fair representation of some of my comments. As always, I will post the entirety of my response to them here for transparency’s sake as well as to illuminate some of the deeper issues as I see them.
You are, of course, free to disagree with me here.
But, that said, these were written first thing the morning of October 14th, after the capital markets closed for the week. Their response to this and the US CPI data that came out on Thursday are very striking.
The markets are telling us that they expect cooler heads not to prevail and that all attempts to hold the old price regimes in the geopolitically important commodity, bond and currency markets are about to go haywire.
In short, it was a flight to quality moment as capital stormed into US assets, a trend that I think is only just beginning. As well we saw “high-quality” European assets strongly bid… but for how long?
I ask that because the whole repeat of “I stand with Ukraine” schtick coming from the EU doesn’t seem nearly as convincing for Israel than it did last year. There’s a definite sense of this being far more complicated a relationship between the US and Europe than it was in February of 2022.
The popular war fatigue is fueling the changes to the political fortunes of major players. Poland’s elections today will be yet another referendum on NATO policy in Ukraine. And I note that Poland has become one of the major buyers of gold in recent months according to World Gold Council data (login required), as it seems they are preparing for a much different world in the future than we’ve been living in.
Because once money starts going to ground the way it did this week, it won’t stop. The sell off in oil, gold, silver and the dollar all reversed themselves strongly and in ways that are definitive. You can check out the slide deck for today’s Patron Market Report to get a sense of what I’m talking about.
The good news is that we’re seeing conflicting reports of conflict between Israel and Hezbollah today, while Israel has postponed their invasion of Gaza for the time being. It will be touch and go this week, however, as there are too many imperatives outside of the Middle East pushing this into a potentially wider conflict.
For now, it looks like the US is being forced to choose between Ukraine and Israel. The UK still wants both conflicts and Europe just wants the US to die. The feeling is mutual in D.C. towards Brussels. If you can’t see that at this point, I can’t help you.
