Just a quick look at the map below is enough to see the size of the problem. Syria has Iraq and Iran to the east, Turkey to the north, Israel and Jordan to the south, and Lebanon to the west.
The last week of August witnessed the so called flight to quality, with investors reacting to Obama and Kerry statements by buying treasury bonds. On Friday, Obama’s and Kerry’s speeches caused a jigsaw in the stock market. The American people entered the long weekend with the belief that an attack on Syria was imminent, but on Saturday morning Obama said that he was going to seek Congressional approval for military use. Obama’s change of heart was a result of his solitude. Without the approval of the UN Security Council, lacking British support, and without the public on his side, Obama decided to sell the idea to the Congress. Obama is in a difficult spot. Theoretically, he is right, and should intervene if it is established that the Syrian government violated the Chemical Weapons Convention by using gas. Not only that, but there are humanitarian reasons to justify action against Syria.
The issue transcends the United States and, as an international problem, requires a coalition and the approval of the UN. China and Russia probably will never vote for it so that coalition will not occur. Obama also has a tactical problem, as most of Syria’s neighbors do not want to serve as a lodge pad for the strikes, and don’t want to be dragged into the conflict. Nobody knows what the consequences of an attack will be, how Iran will react, or if there will be strikes against Israel as retaliation. To be sure, nobody can predict how an attack on Syria would spread to affect the region.
The other side of Obama’s problem is domestic: he will have to make the case to the American people for a threat to national security. Americans are tired of wars; they want jobs, not another conflict. Furthermore, the House is controlled by Republicans who, while normally in favor of wars, are against Obama in this case. If the American Congress doesn’t authorize Obama it will be the first case in history and it will not be good for the US image. The American image, already damaged, will be weakened further.
Obama put himself in this situation and there isn’t a good option for him. Even if he gets approval for military action, what is the goal, what is the mission, when and how does it end?
That is not the only crisis on the horizon: when Congress returns, two other battles are about to start: the budget negotiations and the debt ceiling negotiations. In both cases, the “tea party” representatives are promising to cause trouble. The US fiscal year ends on September 30th and some republicans don’t want to vote any bills hoping that that will stop Obamacare (the Affordable Care Act) from being implemented. They are also threatening to reject the increase of the debt ceiling. In the first case, it looks like they don’t understand democracy: Obama won by a large margin and so The Affordable Care Act is the law of land, period. They had their chance to elect another president who could overturn the law and they lost. Move on, already. In the second case, they don’t understand how the world works: the debt ceiling needs to be increased because in the past, Congress passed bills to spend money, and now it is time to pay. So, let’s wait and see if in mid-October we will have a repeat of the summer of 2011, when the agreement was reached at the last minute and didn’t preclude the downgrade of the US credit rating and the fall of the stock market.
Moreover we have a change of command of the FED and all the possible “tapering”. Who will be the next FED chairman/chairwomen and how will he/she act? Where are interest rates going and how will it affect the stock market?
It is hard to navigate in the midst of so many problems but I still keep my position that the US is still the best place to invest. Of course diversification is necessary and there are vehicles for that, but the point is that it is important that the investor doesn’t get confused by the noise, and sees the whole picture. As I stated in other occasions, my optimism doesn’t apply to Brazil. I still believe that the country has excellent opportunities for an investor with capital, but the small investor doesn’t have too many options. Until a couple of years ago, investing in Brazilian treasury bonds was a great option but this has changed and now it is hard to beat inflation. The stock market has suffered with the government policy and its constant changes of rules, the outflow of foreign money, the Eike Batista effect and others. Moreover the depreciation of the REAL brings about several challenges for the economic policy, for the businessman, and for the consumer.
Last Saturday there was a column in the New York Times that read: “the current government….has made two fundamental errors. First, it assumed that growth was in autopilot and failed to address serious structural problems. Second, flush with revenues, it began major redistribution programs, neglecting their consequences…..”
While the article was about India, it applies to Brazil as well. Emerging markets are suffering because they believed that global growth first and easy money later would last forever. So now we are back to crisis management mode, so common to those countries.