- Money Morning Australia

How Will Investors React to a War in Syria?


Written on 28 August 2013 by Kris Sayce

The Age says that <b>investors</b> are sitting on the sidelines waiting for news of a potential <b>war in Syria</b>. We’ll give you our take now…
Local investors stuck to the sidelines today amid global worries about an escalation of the conflict in Syria coupled with lingering expectations the Federal Reserve will soon cut its massive stimulus.‘ – The Age

If you follow us on Google+ you’ll know we’ve had a lot to say about the bloodthirsty clamour for war in Syria.

The Age says that investors are sitting on the sidelines waiting for news of a potential war in Syria.

We remember the beginning of the Iraq War in 2003. It coincided with the bottom of the market. George W Bush declared war…stocks took off, barely looking back for more than four years.

So, can investors read anything into the current bout of war mongering? We’ll give you our take now…

Last night the Dow Jones Industrial Average fell 170 points and the NASDAQ fell 2.2%. But the reality is that you can never be 100% certain how investors will react to certain news.

Proof of that has been the ‘good news is bad news’ and ‘bad news is good news’ market mentality of the past few years. (Although sometimes it has been ‘good news is good news and bad news is better news!’)

Now, some will say that it’s somewhat distasteful to think about investing in the context of war. But heck, you can’t put your head in the sand and pretend it’s not happening. By not doing something you’re effectively taking an investment position, so doing something about it isn’t that much different.

As we see it, it all adds to our reasons for not having too much exposure to the stock market. If another war has a negative impact on stocks you need to make sure you don’t have too much of your wealth tied up in the market.

On the other hand, if the past few years have taught you anything, it’s that investors are a plucky bunch who have a habit of brushing aside perceived problems…


If in Doubt, Blame Greece


Look at the following chart of the S&P/ASX 200 index:


Source: Google Finance

Since stocks bottomed in March 2009 the ASX has gained 63.5%. That’s an average annual gain of 14.1%. Although we will acknowledge that three-quarters of that gain came within six months of the market bottom.

Even so, with everything that has happened since then, only the grouchiest of bears could say the market’s performance hasn’t been impressive.

We can’t even remember the entire roll call of problems that have hit the market over the past five years…

Portugal, Ireland, Italy, Greece, Spain, Greece, Dubai, US debt ceiling, Greece, China, Japan, Greece, QEI, QEII, Greece, Operation Twist, Greece, the Sequester…Greece.

That’s not to mention all the problems around the European Central Bank and its various debt programs. Oh, and let’s not forget Cyprus…which in a way is connected to Greece too.

Blame the Greeks. They’re as good a scapegoat as anyone.

Despite all that, the Australian stock market is 63.5% higher than it was in March 2009. Anyone who missed out on those gains because they focused on all the negatives mentioned above (plus the ones we’ve forgotten about) must surely be kicking themselves.


US Consumers Looking on the Bright Side


This is exactly what we mean when we say it’s hard to know how the market and investors will react to certain events.

So far, despite a lot of volatility, the overall response by investors has been positive. Only time will tell if investors will keep feeling that way. But if this report from Bloomberg is any indication, the good times for markets may not be over yet…despite last night’s action:

The U.S. is weathering federal budget cuts and higher payroll taxes, growth is picking up and some economists predict the expansion, now in its fifth year, may last longer than most.

The signs of resilience are everywhere: Households continue to spend. Businesses are investing and hiring. Home sales are rebounding, and the automobile industry is surging. Banks have healthier balance sheets, and credit is easing. All this coincides with the economy shedding the excesses of the past, such as unmanageable levels of consumer and corporate debt.

Don’t worry, we’re not falling for all that spin hook, line and sinker. For a start, according to the Federal Reserve Bank of St Louis, while US household debt to GDP is much lower than it was four years ago, in dollar terms it has only fallen from around USD$14 trillion to USD$13 trillion.

So we would hardly call that ‘shedding the excesses of the past‘.

But what we think about that doesn’t matter. What’s important is to understand what others think and how they may react.

Right now, with the market poised as it is, our sense is that investors are looking for any excuse to keep buying the market. Whether they will or not is another story. Remember, the market never rises or falls in a straight line.

But as things stand, even another war in the Middle East may not be enough to knock the market from its upward trend. The US indices fell last night, but they fell just before the Iraq War started too.

For stocks, it could be 2003 all over again.

We’ll see.

Cheers,
Kris+

Join Money Morning on Google+

From the Port Phillip Publishing Library

Special Report: Panic of 2013

Daily Reckoning: The Federal Reserve’s Crucial Next Step

Money Morning:  Why The 30/20 Tax Rule May Rise Again

Pursuit of Happiness: War: The Reason to Own Gold

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks


Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au


Categories | Investment Strategy

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery

How Money Morning Can Help You Become a Smarter, Better, Investor
Blue Chips
Latest Stock Market Updates
  • ^NDX3987.252+37.665 - +0.95%
  • ^FTSE6396.58-3.15 - -0.05%
  • ^AORD5369.900-3.400 - -0.06%
  • ^AXJO5383.100-2.800 - -0.05%
  • AUDUSD=X0.8777
  • USDJPY=X107.931
Gold Stocks leadgen
ASI – intercept banner 220
Resource sector leadgen
NFI Megatrends – birthed stock gains
The last investment megatrend birthed stock gains of 11,095%, 20,621% and 50,760% over 20 to 40 years.

If Kris Sayce is right, gains from this next megatrend won’t just reach those heights...

They’ll SURPASS them..
To see why, click here.
Iron ore leadgen
Diggers and Drillers
After three years in the doldrums…

Aussie resource stocks
are now a raging BUY
 
The last time resource stocks traded this low we saw a two and a half year rally that saw them gain 124%...
 
Now they’re getting ready to do it again. Read on to discover why…and three tiny Aussie miners that could explode up many times higher than that in 2014…click here.
Investing Success leadgen