Chaos in International Relations

Hang on, I thought Trump and everyone else was getting ready to fight North Korea’s Kim Jong-un?

Apparently not. Syria is now the target of Trump’s wrath. He, along with perennial Middle Eastern allies, Britain and France, lobbed a few bombs into Syria early on Saturday morning, in response to a suspected chemical weapons attack on the rebel-held Syrian town of Douma, by the ruling Syrian Government.

Why is the Syrian Government (allegedly) gassing its own people? Good question. How long have you got? The machinations of the ongoing Syrian Civil War make the political intrigues of Byzantium relatively easy to follow.

Without getting too bogged down, Syria is the staging ground for a war between regional powerhouses Saudi Arabia and Iran. The US, thanks to its traditional need to secure oil supplies, is on the side of the Saudis (that bastion of democracy) while Russia support Iran, who in turn support the ruling Syrian government, who the Saudi’s want to remove…got that?

The biffo is both ideological and economic. The Saudis and Iran believe in different strains of Islam — you know, the Sunni/Shia thing — and for some demented reason they want to kill each other because of it. Ah, the power of ‘religion’.

That’s what the architects of these wars tell the masses anyway. The other motivating force behind this ongoing war is — surprise, surprise — energy. Iran and Qatar share ownership of the world’s largest gas field, South Pars, and there were plans at one stage to pipe some of the gas through Syria and onto Europe.

The Syria route suited Russia as they control some of the strategic ports in Syria, which in turn would allow them to control the flow of gas into Europe. Along with the Russian gas that flows into Europe from the North, this would give Russia an unacceptable dominance over Europe’s energy needs.

Needless to say, this is why energy prices go nuts whenever Middle Eastern conflict raises its ugly head. While the airstrikes occurred early Saturday morning, with the markets closed for the weekend, oil prices still managed to hit new highs last week.

Brent crude closed at US$72.58 per barrel, the highest level since December 2014 (when oil prices were on the way down). Oil is clearly in a bull market, as you can see in the chart below.

Brent crude closed at US$72.58 per barrel, the highest level since December 2014 (when oil prices were on the way down). 16-04-2018 Source: Optuma
[Click to enlarge]

It will be interesting to see whether the price rallies again today as it absorbs news of the weekend airstrikes. Often, commodities like oil and gold tend to rally on the expectation of military action and then sell off on the actual news.

So today’s response will give you a good indication of what is already priced in. 

The same goes for gold

On Friday, it rallied US$10 an ounce to around US$1,348. Clearly, the gold price got a whiff of some impending action on Friday afternoon. If it continues to rally today, it will indicate traders have underestimated the ability of the Syrian conflict to escalate again.

Gold continues to trade just below a major breakout point, as you can see in the chart below. It looks like it’s building up a head of steam. If it breaks higher, chances are it will move much higher in a short space of time. I’ve prepared a special report to profit from this potential move. You can access it here.

Gold continues to trade just below a major breakout point... 16-04-2018 Source: Optuma
[Click to enlarge]

The Financial Times reported over the weekend that things appear to be heating up:

Mr Trump last week told Mr Putin there was a “big price to pay” for backing Mr Assad and later explicitly threatened Russia with military action in Syria, although the weekend strikes stopped short of attacking targets associated with Moscow and the Pentagon has repeatedly warned against broader conflict.

But the strikes appeared to push Mr Assad’s main backers, Russia and Iran, closer together. Mr Putin on Sunday warned against further western strikes against Syria. In a phone call with Iranian president Hassan Rouhani, the Russian leader said “if such actions, carried out in violation of the UN Charter, continue, it will inevitably lead to chaos in international relations”.

Presumably it wasn’t a private phone call. Rather it was designed to tell the US that Russia and Iran are on the same page, and won’t be intimidated by the US and Saudi Arabia.

Needless to say, US markets — looking shaky already — don’t really need a Middle East conflict and increasing tensions with Russia right now. But that is just what they may get.

So keep an eye on the gold price, as it’s always an important geo-political barometer. A breakout above major resistance at US$1,380 will tell you that the Middle East is about to flare up again. If it continues to mark time, then you can assume that the latest Russia/US tension is all talk and no substance.

Which wouldn’t surprise me. After all, Trump probably wants to get rid of the perception that he is cosy with the Russians. What a better way to do it than bomb someone else’s country that the Russians support!


Greg Canavan,
Editor, Crisis & Opportunity

Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Crisis & Opportunity. As the name suggests, Greg sees opportunity in a crisis. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines traditional valuation techniques with charting analysis.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Money Morning here.

And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here.

Official websites and financial e-letters Greg writes for:

Money Morning Australia