Update on Israel-Gaza War, Huge Geopolitical Risks, and
Impact on the Markets
By the
Curmudgeon with Victor Sperandeo
A Smidgen of Good News - At Last:
1. Humanitarian aid arrived in Gaza for the first time Saturday since the brutal unprovoked
attacks by Hamas in Israel on October 7th (Simcha Torah- the
happiest day in the Hebrew calendar).
Egyptian officials said 20 trucks filled with medical
supplies and some food and bottled water crossed into the Gaza Strip on
Saturday morning from Egypt. The convoy
included four trucks from the World Health Organization (WHO), which the agency
said carried trauma medicine and kits to treat as many as 1,200 injured people,
as well as medication for 1,500 patients with chronic illnesses. The WHO said
it also provided basic essential medicine and health supplies for 300,000
people for three months.
A second convoy of 14 aid trucks entered the Rafah
crossing from the Egyptian side to the besieged Gaza Strip on Sunday night,
Juliette Touma, director of communications at the U.N. Relief and Works Agency
(UNRWA), told Reuters.
Another small glimmer of hope for the millions of people in
dire need of humanitarian aid, Martin Griffiths, the U.N.s head of emergency
relief, wrote on social media. But they need more, much more, he added.
Egypt closed the border with Gaza again after the trucks carrying aid entered the Strip. Citizens of
the U.S. and other foreign countries stuck in Gaza couldnt enter Egypt,
officials said.
U.S. President Biden said
Saturday in a statement that the first convoy was the result of days of
diplomatic engagement and said the U.S. is committed to getting additional aid
to Gaza.
2. On Friday, Hamas
freed two American hostages, a Chicago-area woman, and her teenage
daughter, who were reunited with family inside Israel. The hostage release was announced by Abu
Ubaida, a spokesman for the armed wing of Hamas, the Izz el-Deen al-Qassam Brigades, and confirmed a short time
later in a statement from Israeli Prime Minister Benjamin Netanyahu.
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Serious Cause for Concern:
There are indications that the Israel - Hamas conflict is
expanding and drawing in more participants.
A U.S. destroyer this week shot down three cruise missiles and several
drones fired by the Iranian-backed Houthi rebel group in Yemen. A
Pentagon spokesperson said the missiles were launched from Yemen heading north
along the Red Sea, potentially towards targets in Israel.
Saudi Arabia also shot
down an Iranian backed Houthi-launched drone. On Thursday, U.S. bases in Syria
and Iraq were the targets of drone attacks that caused minor injuries and
damage. Also on Thursday, the U.S. warned all its citizens to leave Lebanon,
while the Israeli military warned that the West Bank could become a third front
in the Israel - Hamas war as fighters from the militant group began launching
attacks there.
Iran backed Hezbollah wields significant power in Lebanon,
where it operates as both a Shiite Muslim political party and militant
group. Israel is worried that Hezbollah
could launch an attack from Lebanon at any time.
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Will Egypt Prevent a Humanitarian Crisis in Gaza?
One has to wonder why Egypt,
which claims to be a friend of the Palestinians, wont open their border to
permit Gazas would be refugees to escape the war? Egypt has
had a long, troubled history of hosting Palestinian refugees, welcoming
them, and subsequently restricting their rights according to the political whims
of the day. But since Hamas attack and Israels retaliation bombing of Gaza,
Egypt is faced with a moral dilemma.
Preventing Palestinians from safe access to its territory is a violation
of international law and will surely lead to more civilian deaths. The
displaced residents of Gaza are trapped with nowhere to go.
..
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Geopolitcal Futures- Huge Predicament
for Arab States; Big Win for Iran:
Hamas unprecedented Oct. 7th attack on Israel has
created a major predicament for the Arab states. Countries like Egypt, Jordan and Saudi Arabia, which have long sought peaceful
relations with Israel and deeply oppose Hamas, have been forced to avoid
criticizing the extremist Palestinian Islamist movement and instead take a
public stance in opposition to Israel.
The attack has also created rifts between Arab nations and
the United States. The unfolding crisis is a huge gain for Iran, which
has long sought to destabilize the Middle East in order to
enhance its power and influence.
Amid a growing number of anti-American and anti-Israeli
protests in many regional countries, Jordan canceled a summit it was to
host on Oct. 18 with U.S. President Joe Biden, Egyptian President Abdel
Fattah el-Sissi, Palestinian Authority President
Mahmoud Abbas and the countrys monarch, King Abdullah II.
Gaza Hospital Bombing:
A deadly blast at the Al-Ahir Baptist hospital in the
Gaza Strip has created much controversy and finger pointing. The U.S and Israeli authorities are saying
the explosion was caused by a misfired rocket launched by the Palestinian
Islamic Jihad militant group. Arab states insist Israel is responsible for
hitting the hospital, but U.S. intelligence evidence strongly disputes that.
The bombing of the hospital in Gaza occurred as Mr. Biden was
enroute to Israel to help prevent the crisis from spreading into a regional conflict.
Biden was forced to cancel his trip to
the Jordanian capital after the hospital bombing.
Putting it all in Perspective:
The scale of the latest Hamas attack has broken the cycle of
the past decade and a half, in which every few years there was a Gaza war
ending in a truce. It has created a situation where the Arab states, which
oppose Hamas and share an interest with Israel in containing the
Iranian-backed group, have been forced to disregard its actions and instead
criticize Israel.
The fear of regional instability among Arab governments has
them on the defensive. In this way, Iran and Hamas have been able to
derive significant geopolitical dividends.
As more Palestinian civilians in Gaza are killed in the Israel - Hamas
war, Iran stands to benefit from the negative publicity.
For decades, proxy terrorist groups have been a core
component of the Islamic Republics regional and international strategy. Irans supreme leader, Ayatollah Ali
Khamenei, has already declared the Hamas conflict an irreparable defeat for
Israel, adding that the Israeli government will no longer be the regime it
used to be, and they cannot easily compensate for the blow that has struck
them.
Impact on the Markets:
As one might expect when theres war in the Middle East, Oil
moved higher this week.
l West Texas Intermediate, the U.S. benchmark, rose 0.3% to
$88.30 a barrel after starting the week around $87.
l Brent Crude, the international standard, ticked 0.4% higher
to $92.51 after beginning the week around $90, according to FactSet.
Gold has also increased in
price since the Gaza invasion of Israel, but not as much as many expected as a
flight to safety.
Chart courtesy of Goldprice.org
-->Please see Victors market comments below for more
clarity.
.
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Victors Market Comments:
The financial and economic consequences of the Hamas attack
on Israel are a high probability game changer event for the entire world. There
are important geopolitical ramifications as the Curmudgeon has noted above and
I augment below in the subhead: Possible Expansion of the Israel-Gaza War.
The big IF in the mix of this war is Irans involvement,
and to what extent? Iran funds both Hamas and Hezbollah. The Islamic Republic has already made some
cryptic comments about Israel, but has not been
specific about what they would do if Israel went into Gaza in a major military
invasion.
The bottom-line question is: will Iran is close the Strait
of Hormuz, - a body of water between the Persian Gulf and the Gulf of Oman
where tankers carry oil from the Middle East?
That strait is the only sea passage from the Persian Gulf to the open
ocean and is therefore one of the world's most strategically important choke
points.
On the north coast lies Iran, and on the south coast lies the
Musandam peninsula, shared by the United Arab Emirates and Musandam
Governorate, an exclave of Oman. The strait is about 90 nautical miles long,
with a width varying from about 52 nautical miles (nmi)
to 21 nmi.
More on why the Strait of Hormuz is critically important:
A third of the world's liquefied natural gas and almost 25%
of total global oil consumption passes through the Strait, making it a highly
important strategic location for international trade. It has been so for
centuries.
Implications for Oil, Gold, Silver, U.S. Dollar, and
Bonds:
If Iran closes the Strait, threatening to sink ships that
enter, Oil prices would double very quickly. Because virtually
everything we use is tied to the cost of energy, thereby what we purchase would
also double in price. Coal, and Electricity can be used in some cases, but the
bulk of energy comes from natural gas and especially oil. If oil doubles in
price the economic results will be dire, indeed.
Gold and Silver would also (approximately)
double in price, while the U.S. dollar and bonds would decline in a big way.
Markets would close until global governments are able to negotiate some
settlement on the price of oil to permit the exchanges to reopen.
In this unpleasant scenario, Oil, physical Gold, and Silver
would be hoarded, while a massive run to own these assets takes place. Yields
on long duration bonds would increase substantially as bond prices decline.
President Bidens Trip to Israel:
The main reason President Biden went to Israel this week was
to try to stop them from invading Gaza to avoid the expansion of the war which
then might bring in Iran. Biden did not say a negative word about Iran, despite
the well-known fact that the Iranian Revolutionary Guard (IRG) has
funded, armed, and trained Hezbollah militants since the early 1990s.
Also, Biden promised an unprecedented $14.3 billion
package of aid to Israel. The aid, which must be approved by the U.S.
Congress, includes funding for air and missile defense, military financing, and
embassy support. However, with bulging
budget deficits, the U.S. cant afford to finance two wars (Ukraine and Israel)
at the same time.
Possible Expansion of the Israel-Gaza War:
The obvious new players, both backed by Iran are Hezbollah
and the Houthis (see Serious Cause for Concern above).
Hezbollah has exchanged deadly
fire with Israeli forces for more than a week, but it has so far been
relatively limited cross-border shelling. The powerful Iran-backed group is
based in Lebanon, and it has a large arsenal of long-range rockets. With tension along the northern border
soaring, Israel's Ministry of Defense announced Friday that the roughly 20,000
residents of the town of Kiryat Shmona,
near that Lebanese border, would be evacuated.
Reports of U.S. bases in Iraq and Syria being targeted
by drones have increased since the Israel-Hamas war erupted. Iran-backed militias in northern Iraq and
Syria have long targeted American forces in the region.
President Biden has warned Iran and its regional allies
repeatedly and clearly not to get involved in Israel's war with Hamas.
Another critical issue, not talked about much, is the
possible involvement of Turkey, which has 1.5-5 million Arab citizens
and an army of 500,000+ men. Turkey reportedly harbors
some of Hamas top leaders.
If this war expands to include Arab countries and other
terrorist groups, it will be an existential threat to Israels existence, which
could in turn precipitate a third world war.
Addendum 1.
Backgrounder:
Israel left Gaza in August 2005 and ceded control of the
strip to the Palestinian Authority (PA), which was envisioned as an interim
organization to administer a limited form of Palestinian self-governance. That didnt last very long. The residents of Gaza voted for Hamas in the
January 2006 elections, because they believed the PA was corrupt. There have not been any elections either for
president or for the legislature in Gaza since then!
Hamas governs more than two
million Palestinians in the Gaza Strip, but the group is best known for its
unprovoked and brutal terror attacks on Israel.
The U.S., EU, and dozens of countries designated Hamas a terrorist
organization many years ago.
Hamass charter is to eradicate the state of Israel. They want a one state solution which is exclusively
Palestinian with no Jews left. The original 1988 Hamas
covenant invokes this injunction:
The Day of Judgment will not come about until Muslims fight
Jews and kill them. Then, the Jews will hide behind rocks and trees, and the rocks
and trees will cry out: O Muslim, there is a Jew hiding behind me, come and
kill him.
Hamas later (2017) softened the language from Jews to Zionists and kill to resisting the
occupation with all means and methods, but the meaning is the same - eradicate
the state of Israel, killing the many Jews that live there!
To accomplish its objectives, Hamas acquires smuggled weapons
from Iran and builds them in Gaza in order to attack
Israel. Theyve also built tunnels into Israel to facilitate their attacks on
the Jewish state.
Addendum 2. The Massive Historic Immorality of Hamas:
Hamas October 7th attack was not a military
operation, even though some Israeli soldiers were killed and held as hostages.
It was a general attack on ALL CIVILIANS in Israel, including women,
children and even visitors to Israel (many of whom were not Jewish).
There is nothing Victor could find in all of history (from Genghis
Khan in the 1200s to date) like the indiscriminate killing of anyone who
happens to be on the land of an enemy state.
No entity has chosen mass murder to innocent people to achieve their
objectives!
In contrast, the Drug Lords of Mexico and South America
have killed specific families who betrayed the drug gang, or who testified
against them, but they never killed innocent people just to kill. Yet that is exactly what Hamas has done!
The Hamas attack on Israel can only be understood as serial
killing murder without a reason, but to kill for its own sake. This goes beyond
Hamas charter (aka as a covenant) to eliminate the state of Israel in a
divinely ordained holy war.
In summary, the killing of civilians and deliberately failing
to avoid killing civilians are war crimes under international law.
All nations should declare that this type of moral
reprehensible terror has no place in a civilized world.
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Be well, success, good luck and till next time
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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