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Morning Musings From Art Cashin - Dissecting The Iran Quandary
From UBS Financial Services
Early Currency Bounce In Stocks Fades In Final Hours – The foreign exchange markets were quite volatile Tuesday. Around 4:00 a.m. (EST), the dollar (DXY) was roaring higher. By 7:30 a.m. it was down on the day, allowing stocks, oil and gold to openhigher.
For much of the day, those assets fluctuated in reaction to the Euro’s strength (or lack thereof). The dollar relationship blurred, ever so slightly, perhaps due to the extreme weakness showing up in the British Pound.
It was not currency that caused the late fade in the Dow. That seemed to be a case of fatigue.
We wrote that the bulls needed a close in the S&P above 1120. While it did hit 1123 intra-day, the late day fade took the S&P back below the target. That left open the question of a possible retest of the January highs. The bulls may need to regroup if they wish to try again.
More On The Iran Quandary – In Tuesday’s Comments, we alluded to an evaluation of the U.S./Iran standoff by Stratfor. We thought their essay good enough to revisit. Here’s a bit of the assessment:
Iraq, not nuclear weapons, is the fundamental issue between Iran and the United States. Iran wants to see a U.S. withdrawal from Iraq so Iran can assume its place as the dominant military power in the Persian Gulf. The United States wants to withdraw from Iraq because it faces challenges in Afghanistan — where it will also need Iranian cooperation — and elsewhere. Committing forces to Iraq for an extended period of time while fighting in Afghanistan leaves the United States exposed globally. Events involving China or Russia — such as the 2008 war in Georgia — would see the United States without a counter. The alternative would be a withdrawal from Afghanistan or a massive increase in U.S. armed forces. The former is not going to happen any time soon, and the latter is an economic impossibility.
Therefore, the United States must find a way to counterbalance Iran without an open-ended deployment in Iraq and without expecting the re-emergence of Iraqi power, because Iran is not going to allow the latter to happen. The nuclear issue is simply an element of this broader geopolitical problem, as it adds another element to the Iranian tool kit. It is not a stand-alone issue.
Stratfor then goes on to compare the interests and goals of both sides.
Consider the American interest. First, it must maintain the flow of oil through the Strait of Hormuz. The United States cannot tolerate interruptions, and that limits the risks it can take. Second, it must try to keep any one power from controlling all of the oil in the Persian Gulf, as that would give such a country too much long-term power within the global system. Third, while the United States is involved in a war with elements of the Sunni Muslim world, it must reduce the forces devoted to that war. Fourth, it must deal with the Iranian problem directly. Europe will go as far as sanctions but no further, while the Russians and Chinese won’t even go that far yet. Fifth, it must prevent an Israeli strike on Iran for the same reasons it must avoid a strike itself, as the day after any Israeli strike will be left to the United States to manage.
Now consider the Iranian interest. First, it must guarantee regime survival. It sees the United States as dangerous and unpredictable. In less than 10 years, it has found itself with American troops on both its eastern and western borders. Second, it must guarantee that Iraq will never again be a threat to Iran. Third, it must increase its authority within the Muslim world against Sunni Muslims, whom it regards as rivals and sometimes as threats.
Now consider the overlaps. The United States is in a war against some (not all) Sunnis. These are Iran’s enemies, too. Iran does not want U.S. troops along its eastern and western borders. In point of fact, the United States does not want this either. The United States does not want any interruption of oil flow through Hormuz. Iran much prefers profiting from those flows to interrupting them. Finally, the Iranians understand that it is the United States alone that is Iran’s existential threat. If Iran can solve the American problem its regime survival is assured. The United States understands, or should, that resurrecting the Iraqi counterweight to Iran is not an option: It is either U.S. forces in Iraq or accepting Iran’s unconstrained role.
Therefore, as an exercise in geopolitical theory, consider the following. Washington’s current options are unacceptable. By redefining the issue in terms of dealing with the consequences of the 2003 invasion of Iraq, there are three areas of mutual interest. First, both powers have serious quarrels with Sunni Islam. Second, both powers want to see a reduction in U.S. forces in the region. Third, both countries have an interest in assuring the flow of oil, one to use the oil, the other to profit from it to increase its regional power.
Stratfor’s assessment is that a military move by either the U.S. or Israel is off the table. Further, they feel the attempted
sanctions are not effective enough to cause change but are annoying enough to further embitter the Iranians.
Today there are reports that Secretary of State, Clinton, told reporters that the U.S. may soon move in the UN to remove
the sanctions. Something new may be brewing. Pay careful attention.
Cocktail Napkin Charting – As noted above, the bulls missed a chance to kick the rally into overdrive Tuesday. Yesterday, we wrote that the napkins indicated resistance in the S&P around 1118/1123. As previously noted, the intraday high was 1123.
For today, the napkins suggest support at 1110/1112 and then 1102/1106. Resistance looks like 1121/1125.
Consensus – At dawn, stock futures are wary as they assess Greece’s new austerity proposal. Talk is beginning to shift toward Spain and its lack of austerity. Several Fed speakers and the Tan Book at 2:00. Stay very nimble.
Trivia Corner
Answer - The only letter that we couldn't find a silent use for was - "V".
Today's Question – To raise money for St. Paddy’s day, Nelson set up a stall at the flea market to sell statuettes. He sold the jade ones for $5, the amber ones for $4 and the porcelain for $3. After 3 days, he had sold 2000 statuettes for a grand total of $7,500. Interestingly, he was able to sell 1,494 of 1 type. How many of each type did he sell??
...and history
On April 3rd in 1860, a young rider galloped out of St. Joseph, Missouri. His name was Henry Wallace and he carried a unique satchel. It was the first packet of mail carried by the Pony Express. The cost was $5 per 1/2 ounce and the packet arrived in Sacramento, California in an amazing ten days. The concept caught the imagination of the nation and the press. And, for the next 130 years, American Folklore would claim that a good part of the winning of the west was done through the efforts of these pre-hardened teenagers dodging Indians and rattlesnakes.
In fact, the idea was not new. Ben Franklin's design of the U.S. Postal Service (nearly 100 years earlier) was based on a series of way stations and riders. And, even Franklin copied that idea from the Persian Postal Service under Xerxes nearly 2,000 years
earlier. But, what killed the Pony Express (it lasted only 18 months) was not Indians, rattlesnakes or even old ideas. It was a relatively new idea - the telegraph. And so when, despite a civil war, America completed a transcontinental telegraph line in the
fall of 1861, the Pony Express folded despite the fact that a rider left promptly at noon each day (except Sundays) and they averaged over 20 miles per hour.
To celebrate invite an attractive person of the opposite gender to a game of "Pony Express" - it's a lot like "Post Office" but there's more horsing around.
Traders weren’t playing either Post Office or Pony Express Tuesday. The game they were playing looked more like Blind Man’s Bluff.
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of course we will hit new highs on the US indexes, Fed and their shareholders will take us there last week of March. they still got enough QE marginal liquidity to do it in a volumeless market
1494 amber
3 jade
503 porcelain
bulls need to regroup if they wish to try again. bears need to show that they can push the market lower. This coming week wil be very interesting. Napkin charts:
resistance Bla-bla-bla or bla-bla, support Mla-mla-mla or mla-mla. If those numbers donot work then try Fla-fla-fla or fla-fla.
PS. Please please let me have my job for another years or so. I promise every day i will write same jibberish that does not mean anything, that does not help anyone in investing and that no one reads. Special thanks for ZH for making my name known to wider public.
3 jade 1494 amber 503 porcelain
Also, it looks like Art is a month early on his history lesson.
Or 1500 amber and 500 porcelain.
If he sold 1500, that means he also sold 1494 ;)
So, our real national interest would be best served by having Iran as our major ally in the area, not Israel?
You are correct, sir, or madame, as the case may be. This is all Great Game stuff with the prize being access/control of Central Asia's treasure trove of natural resources. At the moment, China and Russia, allied with Iran, hold all of the high cards. The US, on the other hand, allied with loser states Israel and Pakistan, has no better than a pair of deuces. The decision making in DC has been abysmally shortsighted and terminally conflicted. If things don't change soon, the Great Game will be lost and the US will be isolated as, Europe, the Japanese and probably the Indians, will have no choice but to join the victors if they want to secure crucial future energy supplies.
(Currently awaiting ZH bearish spin on good ISM Services number...)
Tell you what CL,
Why don't you tell us what the seasonal adjustment is and then we'll tell you...
Bill King : Few people realize that the index is seasonally adjusted and the ISM will not divulge the adjustment.
People that called ISM to get the adjustment were told to ‘figure it out for yourself’.
(The cafones and poveretts, for whom the books are always closed have been told 'col tempo la foglia digelso diventa seta'. -AM)
As expected, the bears believe the gov't is now manipulating economic statistics. (They truly may be, who knows?) The point is that even if there is real growth in the economy, folks here will still spin things bearishly:
"Oh... 350k new jobs created in July? Must be seasonally adjusted for good weather... Time to load up on puts"
"Rise in consumer spending? Probably just unemployed folks buying stuff... Short the SPY"
"Unemployment rate is now down to 7.5%? Buy gold! We must be printing too much money! The world is going to fall apart any day now!"
"I sold my house for 50% over 2006 prices! Must be all those government tax credits... Short the dollar!"
You did not answer the question good sir... what is the adjustment?
That's not spin, 'tis but the method of the skeptical empiricist.
I don't know what the adjustment is. You still miss the point though. Numbers will always be spun in a bearish way here.
"Ethan Allen reports 16% increase in orders for Q3 2009. Oh, must be all the unemployed folks buying furniture to sit at home with since they still don't have a job..."
Contrary to popular belief, the economy isn't as dire as some may think. Yes, there are challenges, but this isn't the end of the world, not is a -20k jobs number a foretelling of a 75% crash in the markets. I know I'm speaking to the mob, as many folks here really believe the Dow is headed to 3600 by next week.
'I don't know what the adjustment is. You still miss the point though'
No I think I got it ...
Thanks!
+1000
3 @ $5, 503 @ $3, 1494 @ $4
I thought this was March 3rd? (see Pony Express)
Have I been asleep for a month and missed something?
I hope not, cos this is history in the making.
Nobody better than Bob Baer when it comes to Iran and the complexities of the mid-east. Stratfor hasn't quite grasped the analysis. Iran's been developing its relations with the sunni for some time now and hardly see the US as a threat.
Raise your hand if you solved that in Excel...<shakes head>
Ray McGovern really broke down Iran in an interview yesterday. Strange things going on.......
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