In recent posts I discussed my projections that the Dow will blow past 20,000 and move on to as much as 30,000 in the near future as foreign investment capital continues to seek shelter in the American markets. I also detailed that major global events will be the most likely triggers that could derail that climb and expose the fact that there’s nothing under-pinning those markets except fear of worse markets abroad.
Over the last week we’ve seen a few perfect micro-examples of exactly how that could happen. As the Syrian civil war has continued to rage on with no end in sight, the rhetoric coming out of the Trump White House represented a notable change from rhetoric on the campaign trail from candidate Trump. Running in contrast to an Obama administration which itself had reversed its position on foreign entanglements from Obama’s rhetoric on the campaign trail, candidate Trump sounded as isolationist as any candidate in recent memory. But that all changed roughly a week ago when nearly five dozen Tomahawk missiles were fired from a U.S. navy warship into Syria.
With tension still on high between the U.S. and Russia and with no obvious resolution in Syria, the remaining questions are whether and when the next event in the Middle East will be met with another U.S. response and whether Russia will make good on its promise to respond militarily to any new actions from the U.S. The mere prospect of additional actions have ignited a new Cold War.
To make matters worse, North Korea’s nuclear saber rattling reached a fevered pitch in the anticipation of its annual ‘Day of the Sun’ celebration in which it routinely test-fires ballistic missiles in its ongoing pursuit of intercontinental nuclear weapons. With a U.S. Navy carrier group sent to the region and reports of Navy SEAL groups on the ground as well, the prospect of regional war is as imminent as it was in the run up to the invasion of Iraq under President George W. Bush in 2003.
And just as we saw then we’ve seen the markets respond accordingly. Brent crude prices spiked in the days leading up to the attack on Syria and afterward. For anyone paying attention, profits on stock and options trades in fossil fuels were plentiful both on the front end and now on the back end this week with the opportunities to short those trades in front of the market micro-correction.
Depending on the timing, a similar escalation of military action running alongside the explosion of the Dow and other American markets would offer the same opportunities. In fact, a full-scale war, on the upside, and an ultimate ceasefire, on the downside, would offer massive profit baskets that pale last week’s opportunities in comparison.
As I explained previously, with fear and greed playing the critical role as primary drivers of investment decisions, global military instability creates opportunities like nothing else. This is true because military conflict shifts demand for fossil fuels and interrupts international trade agreements, both of which create huge ripple effects in secondary markets.
In the coming weeks I’ll be keeping a watchful eye on events in Venezuela, Syria and North Korea. Each of these hotspots present situations in which a massive shift in the status quo will be marked by market reactions within hours.
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