Analysis of Middle East Conflict; the Fed, Markets and “Uniparty


By Victor Sperandeo with the Curmudgeon

A Pause in the Iran-Israel Conflict:

The Israeli Air Force (IAF) struck Iran early on Friday in what appeared to be the first military response to Iran’s foiled attack last weekend, but the scope was intentionally limited. Three Western and two Iranian officials confirmed on Friday that Israel had deployed aerial drones and at least one missile fired from a warplane.

There were no casualties, but the strike did damage a defensive battery near Natanz, a city in central Iran (near Isfahan) that is critical to the country’s nuclear weapons program. 

Apparently, Israel’s air attack was intended to show that the Jewish state could bypass Iran’s defensive systems undetected and paralyze them.  Initial reaction in both Israel and Iran was muted, which analysts said was a sign that the rivals were seeking to deescalate their conflict.

With no casualties or serious damage, Israel’s soft attack on Iran was a “tit for tat,” but the overt war between the two should be on hold for quite a while now.  However, expect the “shadow war” between Iran and its proxies vs. Israel to continue (more below).

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Iranians at an anti-Israel rally in Tehran after Friday Prayer. Photo Credit...Arash Khamooshi for The New York Times


West Bank, Gaza, and Northern Israel (Hezbollah) Under Siege:

Violence in the West Bank, Gaza and Northern Israel continue unabated and have increased significantly since October 7th.

1. On Saturday, Palestinian health authorities said at least 14 Palestinians, two of whom were identified by Palestinian sources and officials as a gunman and a 16-year-old boy, were killed during an IDF raid in the West Bank. The Israeli military said a number of militants were killed or arrested during the raid, and at least four IDF soldiers were wounded in exchanges of fire. Also, an ambulance driver was killed as he went to pick up wounded from a separate attack by violent Jewish settlers, Palestinian authorities said.

2. In Gaza, where fighting has continued despite the withdrawal of most of Israel's combat forces earlier this month from southern areas, the death toll passed 34,000, Palestinian health authorities (controlled by Hamas) said on Saturday.

Israeli strikes hit the southern city of Rafah, where over one million Palestinians are sheltering, as well as Al-Nuseirat in central Gaza, where at least five houses were destroyed, and the Al-Jabalia area in the north, health officials and Hamas media said.

3. Let’s not forget the stepped-up Hezbollah rocket attacks on northern Israel from Lebanon. Since Hamas’ brutal October 7th invasion of Israel, the best armed Iranian-backed proxy began attacking northern Israel from Lebanon.

There have been over 4,400 violent incidents recorded between Hezbollah and Israel since the start of the October 7th war.   More than 200,000 Israelis have been evacuated from northern Israel since the beginning of the conflict to protect them from Hezbollah rocket attacks.

One IDF soldier died while 13 soldiers and four civilians were wounded in an April 17th attack in Northern Israel, during which Hezbollah launched two anti-tank missiles and an explosive-laden drone from Lebanon, targeting a community center in Arab al-Aramshe.

Geopolitical Analysis of the Middle East Conflict:

1. The U.S. powers that be do not want oil and gasoline prices to be increasing before the November elections. As a result, we believe the U.S. will use its influence to create a multi-month pause in the Iran-Israel conflict.  With Passover upon us (it starts Monday at sundown and lasts for seven days in Israel; eight days in the diaspora), Israel is done with Iran and its proxies for now.

2. The $26 billion Israeli aid package, approved by the House of Representatives on Saturday, includes around $9 billion in humanitarian assistance for Gaza, which experts say is on the brink of famine. The Senate could pass the package as soon as Tuesday, and President Joe Biden has promised to sign it immediately.

3.  In February 2024, the Israel Defense Force (IDF) announced plans to target Hamas command centers, tunnels, and fighters in Rafah, a key Hamas stronghold in Gaza.  Israel blames Hamas for civilian casualties because the militants have command centers and fight in dense, residential neighborhoods using civilians as human shields.

In March 2024, the IDF said that an airstrike killed five senior Hamas commanders in Rafah, including the head of Hamas's Rafah Emergency Bureau.  Israel has carried out near-daily air raids on Rafah where Hamas is reported to have many command centers. 

Overnight, Israel’s Air Force (IAF) struck Rafah killing 22 people, Gaza health officials said Sunday. Israel had no comment and it’s not known whether any Hamas operatives were killed in the latest strike.

“In the coming days, we will increase the political and military pressure on Hamas because this is the only way to bring back our hostages and achieve victory. We will land more and painful blows on Hamas — soon,” Prime Minister Benjamin Netanyahu said in a statement. He didn’t give any details.

Israel’s military still plans to send ground forces into Rafah to take out Hamas, but most IDF troops have been withdrawn from the area – at least for now.

→ We certainly hope Israel will be much more cautious in limiting civilian casualties in Gaza. There’s now a glimmer of hope……………...

4.  The population of Rafah has swelled to more than one million people — or half of Gaza’s total population — since the start of the October 7th war as civilians evacuated southward to flee the fighting between Israel and Hamas.

To protect them, Israel has ordered 40,000 new tents to be purchased and deployed in Rafah to keep residents out of harm’s way.

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Makeshift tents where Palestinian families are taking shelter in Rafah, Gaza earlier this year. The 40,000 new tents have yet to be deployed. Photo credit: Abed Zagout/Anadolu/Getty Images


“Clear places will be defined in the Strip where the tents will be placed and the refugees will stay,” according to an Israeli official. 

-->That’s a wow of a job, indeed!

Israel – Hamas Going Forward:

Public opinion has turned decisively against Israel and the Jewish people, accompanied by a great deal of propaganda and protests. Antisemitism is at an all-time high, especially at universities.

As a result, Israel must be much more careful to avoid civilian casualties in their end game of exterminating Hamas.  We think some type of IDF/IAF oversight is required to achieve that objective. 

Again, limiting Palestinian civilian collateral damage is a very difficult task, since Hamas’ command centers are located beneath hospitals, schools, apartment buildings and even mosques.

Victor - The Fed and the Markets:

The financial markets will now focus on the Fed and the May 1st FOMC meeting. The key will be the words they speak about the timing of future rate cuts this year. 

The recent stock market sell off of about 5% from the end of March is more about Fed Chairman Powell’s comments that inflation is not going the right way and implying interest cuts will not come this year. More of the “higher for longer” rhetoric.

Victor still believes there will be two 25 bps cuts starting at the July FOMC meeting. This is all about politics and little or nothing to do with inflation or the economy.

Stocks will ignore any negative news as there will be NO recession this year.  The Fed and the U.S. powers that be view the economy through how well stocks do. Budget deficits help the economy and stocks in the short run, but not in the long run due to massive government debt.  But that is someone else’s problem?

However, the bond market is paying the price of huge U.S. debt with the iShares 20+ Year Treasury Bond ETF (TLT) down -9% in 2024 YTD. Huge budget deficits, which result in massive auctions of new U.S. government debt, has created a supply/demand imbalance for U.S. Treasury notes and bonds.  Annual issuance of U.S. Treasury’s has exploded, nearly doubling since the pandemic began. The government sold a record $23 trillion worth in 2023 and more is expected this year. The Treasury market has grown more than 60% to $27 trillion since the end of 2019. It is roughly sixfold larger than before the 2008-09 financial crisis.

“Running a nearly $2 trillion deficit during a peacetime economic expansion—that’s a lot of bonds for the market to absorb,” said Stephen Miran, an adjunct fellow at the conservative Manhattan Institute and a former Treasury Department senior adviser.

Victor is still neutral on U.S. Bonds.  His outlook for other markets:

Victor - U.S. Politics Ruled by a “Uniparty”:

Politics is the name of the game in this election year. The most blatant proof of this is Republican Speaker of the House Mike Johnson giving EVERYTHING to whatever President Joe Biden and Senate leader Chuck Schumer want!  Under his leadership, the House recently passed a $1.2 trillion spending bill and (on Saturday) a $95 billion foreign aid package for Ukraine, Israel, and Taiwan.  But there’s been no bills passed to protect the U.S. southern border from immigrants!

Curmudgeon Note: Others use the term “bipartisanship” to describe when both Congressional parties vote to pass bills.

The “uniparty” is the best name for the U.S. government today. The view that the Democratic and Republican parties are actually too alike has become increasingly prevalent. “Uniparty” is often used to criticize the bipartisan consensus on globalization and free trade that has dominated U.S. politics for decades.

The term “uniparty” has come to denote the idea that Democrats and Republicans are actually working for the same evil establishment enterprise, their loudly proclaimed differences being a mere sham.  Victor believes that U.S. political parties now have a shared vision, which tends to uphold the same powerful elite regardless of party affiliation. 

Victor’s Political Conclusions:

This is what the U.S. political environment looks like today:

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-->Sadly, the U.S. Constitution, the Democratic process, and the rule of law officially died in 2008.

End Quote:

The most important problem America faces is not Fed Policy, but the observation of former U.S. President Andrew Jackson:

“From the earliest ages of history to the present day there never have been thirteen millions of people associated in one political body who enjoyed so much freedom and happiness as the people of these United States. You have no longer any cause to fear danger from abroad... It is from within, among yourselves - from cupidity, from corruption, from disappointed ambition and inordinate thirst for power.”

Andrew Jackson was the 7th U.S. President (from 1829 to 1837), seeking to act as the direct representative of the common man.

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Be well, success and good luck.  Till next time………………….

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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