This past week concludes the worst month of losses in the Dow Jones Industrial Average since May 2012. As this blog has mentioned many times, IBM, one of the Dow's largest components has telegraphed the direction of overall market performance for several months. The above chart illustrates the breakdown of IBM from its all-time high.
All of this despite "good" economic news in the markets. Housing, unemployment, and other economic data have been generally favorable all summer. ...So what gives?
There has been alot of sabre-rattling going on around the world regarding the situation in Syria. The verdict has seemingly been given about chemical weapons used by the Assad regime despite no official report yet from UN inspectors who are on the ground in Syria. But the United States insists the evidence is there and the world should act immediately against the Assad regime.
Before the world jumps on this War Wagon, lets ask ourselves, "Is the Middle East a more stable place today than before recent UN involvement in Egypt and Libya?"
Lets look at the facts:
Libya- The decade long dictator Moammar Ghaddafi was apprehended and summarily executed by his people in 2011. This could not have happened without the help of the UN, specifically the United States, by enforcing a "no fly zone" over areas of this sovereign nation. The United States seemed to breathe a "sign of relief" that this long-hated dictator was now gone after ruling Libya since the 1970s. Today Libya still has no constitution and its government is still in a state of flux with fragmented political parties too numerous to count.
Egypt- This nation is today on the brink of civil war as its recently elected leader Mohamed Morsi was forced out of office by the Egyptian military. Tens of thousands of protesters were on the streets of Cairo yesterday in support of Morsi. Meanwhile, former Egyptian President, Hosni Mubarak was released from prison because of a technicality in Egyptian law. Mubarak was the man who brought stability to Egypt after the assassination of President Anwar Sadat. Mubarak, a long time ally of the United States was imprisoned shortly after Egypt's election. He served as Egyptian President for about 30 years.
It is clear these prior actions have brought more instability to this region.
Meanwhile, Russia and Iran have stepped forward in support of their ally Syria. Any military action against Syria would assuredly give these two nations the excuse they need to escalate the situation.
To their credit, the British parliament voted to hold off any military action until the situation could be assessed further. The voice of reason prevailed.
The market seems to be pricing in some sort of military response by the rest of the world. However, if cooler heads prevail we should see a relief rally in the coming weeks.
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