Will the Middle East conflict pass markets by?

With last weekend’s ‘surprise’ Hamas attack on Israel, it exposed a massive crack in the Middle East powder keg security that had kept the lid on wars there in recent months. With the wholesale ground invasion of Gaza imminent with even more innocent Palestinians to be killed and/or injured, I am wondering how long will the patience of nations such as Iran wear out. It is hardly inconceivable that friends of Hamas will stay silent for long.

With crude markets sharply higher this morning, I can see some oil producers ‘weaponising’ their output to put pressure on the West as a supporter of Israel. They have nothing to lose – lower output and higher prices is a wash for them.

That opens up the real prospect of a wider conflict of course. But so far, financial markets have shrugged off these matters. But for how much longer? But the oil markets have certainly taken note of the implications. As I write on Friday morning, WTI is up $3 and in a sharp recovery from last week’s $81 corrective low. Meanwhile NatGas makes new highs for the season.

As I have been endlessly pointing out in my blogs, the mad dash to Net Zero is having the entirely predictable and ironic result in much higher energy prices. If the so-called renewables are so cheap, why are we not seeing that reflected in our bills? Because fossil still supplies over 80% of global energy demand and the ‘renewables’ continue to make to impact overall, we are all at the mercy of OOPEC+.

The tragedy of our energy system is that the mad dash to the Net Zero fantasy is perversely pushing up energy prices and not the advertised lowering. So much for promises of politicians. The mystery to me is in a democracy is why we keep voting for them? But I digress.

Are stocks poised to resume major wave 3 down?

The bounce off the 4 October Dow low at 32,800 has carried to the 33,900 region at a very important chart point – the meeting of the Fib 40% retrace and the previous wave 4 high back on 29 September.

(Typo on chart should read: I expect a deep wave 5 of 3).

It is a curious fact that retraces in a bear or bull market often reach a previous wave 4 extreme and then reverse. This seems to be the case here. If I am correct, this wave 5 of 3 will be devastating. And I believe a stronger oil market will help it down along its Slope of Hope.

And a weaker stock market spells darker social mood and darker social mood spells trouble for governments in power. With national elections a bout a year away both in the UK and USA, I expect incumbents to be ousted with a changing of the guard – to harsher regimes.

This is not an environment conducive to making long term investments (unless going short, of course).

But real (hard) assets such as Gold will be increasingly seen as a flight to safety and is already showing signs of being snapped up by early birds.

I am away for the weekend now to see family and grandchildren. have a good weekend! Next week promises to be exceptional.