- The Fed disappoints Wall Street, Wall Street sulks…
- Up the escalation ladder in the Middle East…
- Thinking about buying oil stocks right now? Don’t. You’re just following the herd. The “smart money” knows better.
Dear reader,
The Federal Reserve held rates steady yesterday.
Thus we have no addition to the federal funds rate — or a subtraction from the federal funds rate.
Thus the central bank’s decision did not surprise me or disarray me.
A spirit of uncertainty presently permeates the Eccles Building… like a thick maritime fog that has stolen in from the sea… or an enveloping cloud of mustard gas.
Mired in gaseous muck, it gropes about for guidance.
It bumps blindly against a potential energy crisis here, a softening stock market there, a slackening employment and potential credit crunch there again.
And so, at yesterday’s post-announcement press conference, Chairman Powell babbled the four wisest words to ever cross his pencil lips:
“We just don’t know.”
So wise are these words… I would chisel them into the Eccles Building’s facade, gigantically.
Sorry Wall St., no Rate Cuts This Year
I mention, in passing, that the market presently gives above-even odds — 55.8% — that the central bank will hold rates steady through year’s end.
And so the rate cut-drummers on Wall Street sobbed into their beer yesterday. They had set their caps for two rate reductions this year.
And now? Potentially none.
Thus the Dow Jones Industrial Average hemorrhaged 768 points yesterday. Percentagewise, both the S&P 500 and Nasdaq Composite endured similar lettings.
Dow 50,000… we scarcely knew ye.
Let us now direct our attention towards events far worthier of comment than the Federal Reserve.
I refer specifically to the ongoing Middle East nastiness.
Israel Attacks Iranian Energy, Iran Retaliates Against Gulf Energy
Early yesterday the air force of Israel assaulted Iran’s South Pars natural gasfield — the largest gasfield on Earth.
Iran, in turn, trained its sights on its Gulf neighbors’ gasfields.
Iran rained down missiles upon Qatar’s Ras Laffan gas facility. The Ras Laffan facility, to my understanding, is the largest liquefied natural gas export facility in existence.
The missile barrage reportedly wrought “extensive damage.” And the Qatari government subsequently heaved Iranian diplomats out of the nation.
Iran likewise took gas facilities in Saudi Arabia and Bahrain under missile and drone fire.
The other cheek is not turned in geopolitics… much less Middle East geopolitics.
Thus Iran’s semi-official Fars news agency reports that:
- The pendulum of war has effectively swung from limited battles toward an ‘all-out economic war.’ As of tonight, the red lines have shifted. If the enemy believed these attacks (on its gas facilities) could increase pressure on Iran to force it to back down, they have made a fatal miscalculation, for this action has placed the trump card of reciprocal retaliation squarely in Iran’s hands.
An Escalatory Spiral?
Meantime, Bloomberg commodities analyst Javier Blas fears an escalatory spiral:
- Both sides are now targeting upstream (i.e., production) oil and natural gas assets.
- Is this an attempt to escalate to de-escalate? Or is it simply a sign that escalation is spiraling out of control?
Perhaps, in either instance, it is a distinction without a difference.
Finally, a certain Fernando Ferreira directs the Geopolitical Risk Service at Rapidan Energy. He fears Iran may set aside all restraint should assaults upon its energy infrastructure continue:
- Iran has calibrated its strikes on Gulf energy infrastructure to signal capability without triggering extended outages. That restraint has been deliberate. The question now is whether Tehran shifts from signaling to targeting critical components that could take months, if not years, to repair.
The answer, I hazard, is in Israel’s lap. Should it continue assaulting Iran’s energy facilities, Iran will transition from signaling to targeting.
Israel Won’t Attack Iranian Energy Again — But Trump Will
President Trump has spared Iranian energy facilities. That is because he fears their wrecking would elevate energy prices.
And so he gave his Israeli partners a slight rap upon the knuckles for its assault upon Iranian energy — the assault that set the latest escalatory dominoes falling.
“The United States knew nothing about this particular attack,” claimed the president. It is a claim Israeli officials have denied. They claim President Trump was informed of it.
“NO MORE ATTACKS WILL BE MADE BY ISRAEL,” the president nonetheless declared, gravely and sternly.
Yet he did file a crucial caveat. Should Iran renew assaults upon Qatar’s gas facilities, the president pledges to visit upon them Old Testament retribution:
- The United States of America, with or without the help or consent of Israel, will massively blow up the entirety of the South Pars Gas Field at an amount of strength and power that Iran has never seen or witnessed before.
- I do not want to authorize this level of violence and destruction because of the long term implications that it will have on the future of Iran, but if Qatar’s LNG is again attacked, I will not hesitate to do so.
An Eye for an Eye
How would Iran respond if President Trump carried through?
Iran would likely respond by climbing another rung of the escalation ladder… and attempting the indefinite destruction of the region’s energy infrastructure.
Why would it not? What has it to lose?
To date, Iran has greeted escalation with escalation. And I am far from convinced it will climb down now.
Meantime, energy prices are on the jump. They will remain on the jump so long as the involved parties remain upon the escalation ladder.
Recession, perhaps severe recession, is their possible consequence.
I am tempted to argue that recession is their certain consequence. Yet hard experience has taught me the uncertainty of certainty.
Let us depart nevertheless in pursuit of wisdom.
“An eye for an eye makes the world blind,” as Gandhi — Mahatma Gandhi — supposedly quipped.
In the case under present consideration… unless peaceful settlement is soon attained… an eye for an eye may well make the whole world poor.
Brian Maher
for Freedom Financial News
