What turbulent times we live in. The kidnapping of two Israeli soldiers by Hezbollah in response to Arab hostages held in Israel has set the Middle East on fire.
Massive air strikes, the open threat to "bomb Lebanon back 20 years", the evacuation of foreigners... it’s all looking bleak.
These tensions are too deeply rooted which makes peace efforts unlikely to yield any significant improvements. A peaceful cooperation or relationship seem impossible, although many westerners had sky-high hopes after Israel went out of the formerly occupied territories.
Powder keg
Cultural and religious differences add to the complex situation, making the Middle East a historic and future powder keg.
This situation does not worry only me, of course. It’s put the fear back into capital markets this week.
As Israel marched into Lebanon, oil marched towards $80 a barrel and gold to $675. All of a sudden, the fear factor was back in the markets, having just recovered from the geopolitical risks coming from interest rate hikes and consumption figures. Fear, on the capital markets, equals lower share prices.
The Japanese saying goodbye to its long-running zero interest rate policy irritated many investors. The new situation in Japan, in combination with ongoing international problems, could cause major disturbances across the currency markets according to many observers, resulting in negative consequences for the bond and share markets as well.
A bad week for stocks
Most major indices, such as the S&P 500, the FTSE 100, EuroStoxx50, and DAX30 lost significantly towards the end of last week.
Just how much tension there is, was evident with the quarterly presentation by German software giant SAP. SAP is one of the most important software companies worldwide. Many businesses run almost all their critical software and logistic solutions on SAP.
SAP is often considered a model of success, and is therefore always confronted with high expectations. However, in this quarter SAP did not manage to satisfy the expectations of the analysts and fund managers. No sooner had the company presented its figures, SAP’s shares tumbled 8 percent in a market affected by the events in the Middle East. In a less nervous market, this billion-dollar movement would probably have been less fierce.
IPO market also falters through fear
Another example of how this market is affected by fear is the significantly lower return on IPOs. I had already reported about this last week, and how to protect yourself from losing in this market. Last week a number of new candidates tried their luck, but apart from the banks and a couple of consultants I doubt anyone made money on these newcomers.
The market situation remains foggy and volatile. Macro and micro signals point to another volatile week full of ups and downs. I don't expect lower oil prices in the short to mid term.
The geopolitical tensions in the most important oil producing countries remain in place and may get more violent, as the (distribution) battle for the energy of the future (or the future of energy) and other commodities (water, gas, agricultural produce) is only just unfolding.
If the higher energy costs cannot be shouldered by consumers anymore, then industry is facing a slow-down, resulting in lower company profits and therefore affecting share prices.
Be careful with your investing
For these reasons, I would advise against larger investments at the moment – and choose your share purchases wisely. If you’re a member of Profit Hunter, then buy our recommendations only below our limit prices. If you're not a member and are looking for investment ideas that should move independently of the wider markets due to their own unique stories, then we've got three ideas for you now. See the link below.
Most importantly of all, enjoy the sunshine and invest in quality of life, instead of getting upset about share prices going up and down.
Best regards from Zurich,
Beat Erni Profit Watch – Profit Hunter Files
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