Morning Musings From Art Cashin - And The Only Mention So Far Of The Brewing Middle East Conflict

Tyler Durden's picture

From UBS Financial Services

Dollar And Dow Try For Trial Separation – The lock-step inverse relationship between the dollar and the stock market appeared to take the day off Monday.

Pre-opening, the dollar had backed off slightly in the face of new rumors of a Greek rescue package. Stock futures and oil firmed in reaction. Gold refused to get out of bed.

As U.S. markets opened, the dollar began to firm on the lack of any details of the rumored package. The dollar rally failed to even dent the rally in stocks and crude.

Around noon, the dollar (DXY) rally topped out and the greenback began to weaken. Stocks and crude did not appear to even notice.

Some traders claimed that other assets did not react to the dollar rally because of its relative level. The DXY rally failed to reach the levels it hit in the hours after the Discount Rate hike. It was a nice theory but failed to explain the afternoon selloff in crude that accompanied further weakness in the dollar.

After the extensive discussion, most traders chalked it all up to a simple, temporary disconnect. The rally was thought to have benefitted from mergers and the calendar. The first trading day of the week has produced rallies frequently this year.

As we noted yesterday, the first day of the month often benefits from inflows.

Although the rally again came on soft volume, it did some nice things for the bulls. The Dow and S&P climbed above their respective 50 day moving averages. That could be the setup for the rally to resume. The next couple of days may tell us a lot.

I Guess I Missed This In The Times – The Abu Dhabi media website “The National” ran the following report under the headline “That was a war council in Damascus”:

The three-party meeting that took place in Damascus on Friday gathering the Syrian president Bashar al Assad, the Iranian president Mahmoud Ahmadinejad and the Hizbollah chief Hassan Nasrallah was a war council to devise counterattack plans and assign tasks in the event of an Israeli offensive on one or all parties, wrote Abdelbari Atwan, the editor-in-chief of the pan-Arab newspaper Al Quds al Arabi.

“The timing of the meeting, the way it was undertaken and the ensuing press conference that was held at its conclusion, all point to a strategic coalition being reinforced. This is the build-up of a new front that will spearhead the confrontation with the US-Israeli alliance and whichever Arab countries that may, expressly or implicitly, be affiliated with it.”

The Iranian president said he expects war to break out somewhere between spring and summer of this year. Meanwhile, the Hizbollah chief vowed to strike the Israeli capital, its airports and power stations if Israel dared to attack Beirut’s critical infrastructure. “Indeed, we are being exposed to a new discourse here, an unprecedented sense of self-confidence and an unheard-of preparedness for retaliation.”

Separately, Stratfor suggests the U.S. is close to an untenable position relative to Iran. We seem unable to impose effective sanctions and military resolution may be unworkable.

Stratfor suggests the U.S. may have to completely rethink its posture and, perhaps, negotiate some resolution with Iran. And you thought Greece was the problem.

Cocktail Napkin Charting – Monday’s rally easily took the S&P up through the initial resistance at 1106/1110 and into secondary resistance at 1114/1119 (high 1116). A push to close above 1120 could set the stage for a return to the January highs (circa 1150). For today, the napkins suggest support around 1102/1106. Resistance looks like 1118/1123.

Consensus – Bulls have regained control of the ball and attained some new momentum. Can they close above 1120? We’d love to see some volume. Stay very nimble.

Trivia Corner
Answer - The word with the silent "ch" that we thought of is "yacht" (unless you pronounce like Ralph Cramden).
Today’s Question - "Please be quiet" - I'm working!" Lots of letters beside "E" can be silent. The "B" in Dumb; the "H" in Myrrh; "M" in Mnemonic or "Z" in Pince-nez. There is one letter that is never silent. (Hint - It rhymes with "B" or "Z".)

and history:

On this day (-1) in 1917, markets were roiled by news about Mexico. The news also helped to decide World War I (or so some think). Now don't get upset you little historian, you. We know that you know that America had not yet even entered the war (or even officially picked a side). But that's what today was all about.

As you recall, World War I was rather a mess even for a war. The European powers had spent nearly four years pummeling each other and bankrupting themselves. The net result was millions of soldiers and civilians dead but no winners....nobody even had a clear lead.

So, bloodied, bruised and frustrated, both sides looked toward the U.S. - rich in resources, factories and ambulatory young men (draft bait). They figured whoever could get American productivity (and maybe manpower) on their side could win.

Thus, the games began.

The Germans set up plans for dummy U.S. corporations to buy up various strategic materials. They even thought about setting up a major defense plant…..under an America style name…..“General” this or that…..then taking huge orders (and money) from the French and British and then either not delivering....or....shipping sabotaged armaments.

The Brits staged mass propaganda efforts, blaming every accident or problem in America on German espionage. The Germans tried to foil the Brits by performing actual espionage. It worked well. Even after the sinking of the Lusitania and the explosion at Black Tom, the U.S. remained neutral. (At the time, German was the most frequently spoken second language of much of America, very much like Spanish today.)

So the Brits shifted to high gear. They leaked to the Germans (anonymously) that America was leaning British. The Germans bought. The German Foreign Secretary, Arthur Zimmerman sent a cable to their Washington Embassy suggesting that if America budged, the Germans should offer Mexico lots of money and….post victory....offer the return of New Mexico, Arizona, Texas, California, etc. The Washington office sent a confidential telegram to their Mexican Consulate, suggesting the offer.

The Brits decoded the message but obviously couldn't give it to the U.S. without revealing that they had broken the German code. So....the Brits contrived a way to claim they found the note. President Wilson was outraged and on this day he released the secret German message. But the public thought it was just a British setup. That is...until two days later....when Western Union broke 60 years of tradition and released the telegram to Mexico. The public was outraged...America joined the war....and the rest is history.

The markets will be looking for a message today but we’re pretty sure it won’t come in a telegram. It could come in an international cablegram, however. We’re not sure whether the post-mark will be Athens, Berlin or, maybe, London.

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Going Down's picture


Brewing Middle East Conflict? Relax.


The stage is now set for a meaningful multilateral dialogue on Iran's nuclear program that may result in a mutually acceptable deal that would represent a modified version of the initial "fuel swap" agreement unveiled last October.

trav7777's picture

The time for this was right after 9/11.

Iran offered up the nuclear program and the Hezbollah in exchange for normalized relations and Busch told them to get fucked.  Now we are hyperextended in two godawfully expensive wars of nation building and going through a huge recession.

I don't see Iran giving an inch; why should they?  They already have the pipeline transit deals to China and are forming resource partnerships.  Sanctions will go nowhere and a wider war by Israel is a non-starter.  The jews were so squabbly after the non-win in Lebanon last time and calling for heads - their army isn't what it was when it fought in the 6-day and Yom Kippur conflicts against other armies.

Too much knowledge has been gleaned regarding asymmetric warfare and attrition for any conventional force to get anywhere without "offending" the international community (iow Europe) at the bloodshed.  Iran has rearmed its proxies in Lebanon and if Israel chooses to go the war route, they will not fare better this time than last.

Certainly, they have the armament and force structure to level places, but that is simply politically unpalatable at this juncture.  We did nothing about PRK, Iran sees this as jawboning and they are correct.  They will receive patronage from China in the UN and there is no practical way to destroy their capability without seriously jeopardizing any stability in the region.

macfly's picture

Very much as I see it too, we are checkmated. Honestly, even if Iran gets the bomb, the Persian people are far more level headed and sensible than the quick to flare Pakistani's next door, and they've had it for years, and we're all still here. I see more fear than reason in all this posturing against Iran, they would never be a first strike nation, and quite honestly I don't think we will ever see a first strike kind of war. We'll see a lot more war, but it will just be loads of messing around chasing ghosts in the poppy fields, emptying our coffers to fill Haliburton and the Carlyle Group's purses.


However it might get tricky when China starts placing it's army in the middle east to protect its resource partners, but I'm not sure that'll happen anytime soon.

Anonymous's picture

Agreed, Pakistan is a far scarier country than Iran.

The real conflict is with Russia and China over Middle East oil and gas reserves, not Iran. Iran is actually a natural ally as they have more to fear from their large neighbors than the US in the long term.

Anonymous's picture

So what we just wait for them to go nuclear and plead to the eunuch Europeans for more paperwork and meaningless talk? Iran and its counterparts only respect force and the whining about Bush and the toothless sanction talk will only buy them more time.

Anonymous's picture

If my country had over 100,000 invading forces plus another 100,000 mercenaries occupying the countries directly to my east and my west, I'd want a nuke also.

AnonymousMonetarist's picture

Off-topic, well maybe loosely connected to Art's sunspottin'...

Thus the ancient notion of a “harmony of the spheres” and especially the fundamental ideas of Johannes Kepler have been confirmed for the first time, and this in a manner that can principally be verified by everyone.

colonial's picture

Assuming some of what has been advanced above is accurate, it leads to a few questions.  The first is not whether the US is willing to allow Iran to become nuclear but whether Israel is so inclined. 

The second seems to be rooted in the belief that a potentially rogue nuclear nation (the example above is Pakistan,) would be unable to initiate an attack. 

Regarding Israel, even a casual observer would be foolish to under-estimate Israel's reaction to a nuclear Iran. 

But the second point, allowing countries to have nucs believing they will not use them, seems naive.  At some point, there is just too much nuclear material available in places removed from the world's eye.  Even the threat that a nuclear Iran might allow some its bounty to be used to build a dirty bomb should send a chilling message.   

That said, you have to give Iran some credit.  They used their energy to greatly advance their strategic position in the world.  Now there are two choices, eliminate the threat, (which is more difficult every day,) or deal with a new nuclear power in the world's most volatile region. 


Anonymous's picture

looking at the Israeli Stock exchange which reached today the 1200 level(up 100% from last year) and -3% from all time high ...we can conlude that there will be no war in middle east ....there is no fear at all - this market is war premium....

Tom123456's picture

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