Iran Military Conflict and the Financial Markets-A Missile Dodged?

Posted in , By David Robinson

The possibility that US-Iranian hostilities could erupt into a Middle East war has been high on our list of geopolitical risks that might spill over into the financial markets. The recent US assassination of a top Iranian military leader turned up the heat dramatically, dominating the headlines and causing the price of oil to move upward. The reaction of the financial markets has been surprisingly muted. Notwithstanding the escalating rhetoric, the Iranian response has also been surprisingly muted. Iran did launch an attack on US bases in Iraq that resulted in no US service personnel casualties but then appeared to signal that it considered itself duly avenged. We expect strategic fallout with Iraq forcing US troops out of its country, but this alone will not impact financial markets.

Not that we needed the reminder but understand that financial markets care about earnings, interest rates, inflation and economic developments. Unless and until political and policy events occur with significance for those core financial concerns, financial markets will continue to be coldly indifferent to external events that may nevertheless be truly important to the US or geopolitically.

  • Iran’s Measured Response: Unless there is more to come, Iran has responded to the General Soleimani assassination modestly by any measure. Perhaps Iran enjoys poking the bear but doesn’t want the bear to attack? (Axios)
  • Fed Has Multiple Tools to Deter Recession: Ben Bernanke weighs in, noting that the Fed has multiple tools, beyond cutting short term rates, including “forward guidance”. Forward guidance is when the Fed commits publicly to not raising rates for a foreseeable amount of time, thereby enabling consumers and businesses to take on increased risk. Interesting. (Wall Street Journal)
  • Three Easy Ways to Reverse Aging: I love this stuff! I mean after all who doesn’t want to get younger. Harvard professor David Sinclair is a cutting-edge longevity researcher. He offers three ideas for going back in biological time: 1) consume fewer calories; 2) eat organic because food grown organically is hardier; and 3) take a one-minute ice bath daily. The ice bath suggestion obviously begs the question of what constitutes “easy”. I’ve experimented with brief cold showers but sure wouldn’t classify that type of experience as easy.  (mindbodygreen.com)
  • The Great Service and Manufacturing Divide: Impacted more by tariff concerns, the US manufacturing sector isn’t doing well. The service economy is doing fine by comparison with US consumers and businesses willing to spend on services. The US is primarily a service economy now with manufacturing accounting for a little over 10% of our GDP. (Axios)
  • Recession on a State Level: We think about and talk about economic recessions on a national level, but it matters where you live. This Bloomberg article caught my eye for its list of states already in a recession. As I read the underlying data, expect the economies of these nine states to contract in 2020: Pennsylvania; Vermont; Connecticut; New Jersey; Kentucky; West Virginia; Oklahoma; Montana; and Iowa. (Bloomberg)
  • The Power of Tiny Habits: Stanford professor BJ Fogg is the world’s expert on habit formation and modification. Considering that some huge percentage of our behavior is driven by habit, there is something to be said for mastering the technology of habits. Professor Fogg’s research and insights, now articulated in his new Tiny Habits book, indicates that the key is to create and perform tiny habits, behaviors so small that there is virtually no friction to stop you from performing it. You want to become a runner? Create a tiny habit of lacing up your running shoes after you get up in the morning. Then build the habit of walking to the end of your driveway. Before you know it, you’re running ultra-marathons! Perhaps, I’m getting carried away, but the strategy does work. What’s the secret sauce here? Tiny habits build momentum and become...habitual. They are so easy that it becomes easy to do more and more. (Tiny Habits)
  • Understanding the Different Generations: Understanding generational similarities and differences has never been my strong suit but that is not to say that this type of thinking does not have useful insights. I liked this article written from a parental point of view. (Parent)
  • Pack Your Bags! 10 New England Travel Destinations: This Boston Globe article presents some terrific ideas for places to see, all within New England, including Maine and New Hampshire. Please check it out as you plan your 2020 travel. (Boston Globe)

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david-robinson

About the Author David Robinson

A wealth advisor with more than 25 years of experience in the financial field, Dave serves as Robinson Smith Wealth Advisors’ Co-Chief Investment Officer and is a Co-Managing Member of the firm. As a Certified Financial Planner® and non-practicing attorney, he provides clients with deep expertise in areas including investment management and retirement planning.
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