Who would have thought Iraq erupting into sectarian / civil war would have , at most, been the cause of a two-day, 200-point decline in the Dow Jones Industrials (so far)? Not that it should be a surprise Iraq would fall into chaos upon the departure of U.S. forces, it shouldn’t. Saddam Hussein, the bad guy (and he was really bad), kept his Shiite brethren, Sunni and Kurdish countrymen apart. They feared him more than they hated each other.
This dynamic is something that might well have been considered before we went in, as Sunni and Shia have been at one another since 632 AD, when a dispute developed as to who should be the rightful heir to Muhhamad as Caliph (Muslim head of state). Ergo, in order to extract our military, we would have had to leave Iraq with a leadership just as tough as Saddam, or simply not leave. Neither of these were ever real options, and now the Sunni and Shia factions in Iraq are working their problems out in a traditional manner…fighting.
What about all that oil?
There are about 3.6 million barrels of oil daily coming out of Iraq. What’s interesting is that the price of WTI (West Texas Intermediate) is only up about $7/barrel since the first of May when it was trading around $100. I will ascribe this muted performance to: 1) Most of the production in Iraq is coming from Basra in the South (the war is North) and 2) the U.S. is much closer to energy independence than it used to be.
We still import oil. What has made the difference is new production and reserves gained through the application of new technology and techniques…”What a difference a ‘Frack‘ Makes.” Great strides have been made in horizontal drilling technology and the extraction of heavy Canadian crudes. We are moving toward energy independence, muting the effects of geopolitical events on pricing and supply disruption that they might create.
You could have knocked me over with a feather!
Another event that might have weighed on the market earlier this week was the defeat of House Majority Leader, Eric Cantor, by a political novice, Professor David Brat. This was a stunner. As Cantor, over the years has been a major cheerleader for the Taxed-Enough-Already wing of the Republican Party, he was devoured by his own young.
In a very low turnout election, Cantor was cast as the moderate in the race; a tool of Wall Street (he voted for the TARP) and too close to big business and the U.S. Chamber of Commerce. This is scary stuff on The Street, if you are a target of their disdain and realize how quickly senior Republican Leadership can be unseated by a virtual unknown. I mean, this guy Brat and Senator Elizabeth Warren seem to be soul-mates.
The media went negative in a big way last week
I will include a clip from Jim Cramer, exhorting his followers to take money off the table, “Something unexpected may be imminent.” They put a ton of bricks in the ‘wall of worry.’ I really cannot argue with the fact a fairly strong correction is due. I can’t predict when or identify the trigger. I can say that it should not be unexpected and it will be normal when it comes. And, if you think the media got negative last week, a real correction will ratchet up the rhetoric big time. Remember, it will not be the end of the world.
What do you think?
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