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).
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.
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:
- Gold
and Silver prices are increasing because inflation
is sticky and U.S. economic growth is strong, thanks to massive government
spending.
- Oil
prices will be stable unless something changes.
- Commodities,
except for the grains, are in for a correction as the economy is in pause
mode.
- The U.S.
dollar has been strong this year, but many countries are trying to
de-dollarize. The BRICS alliance kick-started the de-dollarization agenda
to replace the dollar as the world’s reserve currency. China and Russia
have been trying to convince developing countries to use other currencies
for global trade rather than the U.S. dollar. It’s been a very slow slog.
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:
- House Speaker Mike
Johnson (Rep. Louisiana) is a traitor.
He is pretending to be a Republican voting for freedom, but that is
a sham. He is no different than former House Speakers Nancy Pelosi or
Kevin MCarthy who voted the same way.
- Pelosi
has been described as a corrupt oligarch who made millions of dollars
trading stock while in Congress.
Her tenure as House Speaker ended after the November 2022 mid-term
elections. She subsequently retired as House Democratic leader.
- McCarthy
was ousted as House Speaker after nine months of fighting with hardline
Republican party conservatives and just days after he engineered
legislation to avert a government shutdown with the help of Democrats,
which drew sharp criticism from the GOP dissidents led by Rep. Matt Gaetz
(R., Fla.).
This is what the U.S. political environment looks like today:
-->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.
…………………………………………………………………………………………………...
Be well, success and good luck. Till next time………………….
The Curmudgeon
ajwdct@gmail.com
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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