Just When You thought your Money was Safe...the World Changes!
It seems like only yesterday we were rolling along with a resurgent dollar and the markets at manic highs. The situation in Ukraine had quieted, Israel and Hamas were talking ceasefire, our counter-terrorism efforts in Iraq seemed to be keeping things in check … and many were feeling particularly cozy with their paper assets. History repeatedly confirms one recurring certainty, however, the world is unpredictable.
When the US military and five Arab allies launched sustained air and sea attacks inside Syria earlier this week …everything changed. America’s new anti-terror coalition targeted ISIS militants and an al Qaeda off-shoot called the Khorasan that had been plotting an imminent attack against the US.
This new action is unprecedented. It is the first time that a coalition of Arab states has worked alongside the US in an active, supporting role in the region. Saudi Arabia, Bahrain, Jordan, United Arab Emirates, and Qatar helped the US hit ISIS strongholds by air across four provinces including their purported nerve center in the city of Raqqa. Meanwhile, the USS Philippine and the USS George H.W. Bush launched Tomahawk missiles by sea.
This first-time partnership marks a new regional strategy for dealing with ISIS that is neither uniquely Western nor American. After all, the Gulf nations share our concerns over the sudden rise of the Sunni extremist group. During its unchecked rampage of mass killings, rapes, beheadings, mutilations, and violent ethnic and religious cleansing …. ISIS has, in fact, murdered scores of Iraqi and Syrian civilians including women, children, and fellow Muslims.
The recent actions, however, also mark a clear escalation in the conflict and it will not be without backlash, repercussions, and increased risk for the region. Middle East observers are waiting and wondering what will Assad do? What will Iran do? What will Turkey do? What will Russia do? And, what will ISIS do? Military experts are wrestling with whether an assortment of freshly armed Syrian rebels, Kurds, Shia, and the same Iraqi troops who previously fled the battlefield can really be effective. And US strategists are grappling with how much further the US may be drawn in.
The conflict exposes many inter-warring factions, deep regional divides, and uneasy alliances leaving countless questions. Perhaps the biggest of which is whether we have now set the table for a full blown and protracted new Middle East War?
For the markets, this all comes at a very bad time as the Fed finally removes the QE pacifier and calls upon the economy to stand on its own feet. With all of our amassed stimulus debt, Congress has committed to another $500 million in new funding to support the military escalation while estimates suggest a potential 3-year engagement with a price tag of another $10 billion a year.
So as investors cling to their cash, it’s worth noting that since the start of our last incursion into Iraq back on March 20th of 2003, gold has risen more than 265% while the dollar has lost almost 30% of its value. That conflict lasted almost 9 years at a cost of some $2 trillion creating insurmountable debt and deficits for generations to come.
As this latest Mideast campaign unfolds investors would be wise to consider history’s lessons, the volatility of armed conflict, and gold’s unbroken track record each time the world changes … yet again.