Monday, August 24, 2015

The Saudi Situation

Freak Out and Carry On by Julieta Gutnisky

Going through my email inbox this morning was amusing. A wide variety of emails (even one, literally) screaming "Time to Panic!" had flooded in over the weekend. The time to "panic" was about a year ago at the latest (it takes time to emotionally work through these things).

To steal a line from a short post from way back in 2007, we advised you to "Panic Now, Avoid the Rush" back then (would've been good timing, by the way, just saying...) Panicking when things are in crisis is a bad evolutionary strategy. If you haven't long ago found a way to reach a reasonably Zen-like state of calm when facing the whipsaws of the equity and commodity markets, figure it out now.

Whether this is yet another head-fake before the final blow-off top (as Martin Armstrong would have you believe) or whether we are long overdue for a major and sustained sell-off in equities (as the bright minds at EWI are suggesting), at a minimum this is a good time to at least do some back of the envelope scenario planning on what a downturn in mood and markets could mean for you in areas other than your 401(k) or stock portfolio.

The socionomic indicators make me think, at least for the US, we are staring at a net-negative mood environment, possibly a severe one. Look at the success of the Trump candidacy (a two-fer for socionomic analysis - strong insurgent political candidate and strong traction on strengthening border controls and repatriating those who came here illegally during an era of more positive mood) or the ongoing anti-cop anger making headlines across the US. You could even tack on the recent terrorist attack attempt which was foiled in France and the ongoing issues Europe is facing with illegal immigration as well.

However, instead of talking market action or Western socionomic trends today, I want to revisit what I regard as the linch-pin of the Middle East - the Kingdom of Saudi Arabia.

Saudi Arabia

In January of this year, we had a post entitled The Clown Show, in which we tried to look at the unfolding situation in the Arabian peninsula with a different lens than was being reported at the time. The chart of the Tadawul All-Share TASI Index at the time was coming off low and showing the signs you get from net-negative mood eras, such as a major terrorist attack.

As 2015 carried on, the index recovered somewhat. As this timeline of Al-Qaeda and ISIS attacks in Saudi Arabia shows, attacks and incitement to violence continued. With the strong downdraft in Saudi share prices recently, it is my suggestion it is time to get concerned again about just how stable the Kingdom is:
SASEIDX on a 1 year chart from Bloomberg
China, Europe, and the US will be getting the headlines as the next market moves play out - whether we see one more plunge into delusion and credit-fueled insanity, or whether markets around the world head for the Great Reset and some sort of cleaning of the Augean stables of debt and corruption which have ruled for so long. While others solely focus on those markets, I beg you to keep Saudi Arabia in your thoughts and scenarios.

The Kingdom is basically the Islamic State Lite. Beheadings, oppression of women, a bleak interpretation of the Word of the Prophet - that is all funded and supported by Saudi Arabia, and has been for decades. The Kingdom has exported the exact ideology the Islamic State adheres to, all the while ruled over by an aristocracy whose behavior leaves it open to charges of, shall we say, hypocrisy. Combine that with a collapse in oil prices to fund the programs a booming population has come to expect and, well, you do the math.

Put the SASEIDX on your list of markets to track. I might even suggest that those of you who work with Elliott Waves do you own count and see where you find yourself.

If the KSA goes down into civil war, especially at a time when Syria and Iraq are in flames and Turkey is facing internal challenges, things could get quite exciting there - and that excitement could spill over into Egypt (and their lovely canal), Jordan, and potentially Iran.

Whether your concerns are over the price and availability of petroleum, prospects for future expansion of US oil production, the likelihood of a family member deploying yet again to the Sand Box, or the potential for conflict there to trigger a wider war, it will pay to be ahead of the curve on this one.

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