Stock Market and Investing: Five Things Investors Have to Worry ...
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Photo: Dieter Spannknebel | Photodisc | Getty Images |
Here are five areas to watch for 2012:
- Conflict with Iran: The U.S. and other Western countries are moving to put economic sanctions on Iran for its nuclear weapons program. Tensions are rising and analysts worry about scenarios where Israel could take action against Iran, or that it could take some action to reduce the flow of world oil through the Straits of Hormuz, a key shipping channel between Iran and Oman. Either way, the worst case scenario drives oil prices higher, hurting the global economy and financial markets.
- North Korea?s New Kim: Kim Jong-un, the youngest son of Kim Jong-il, took over after his father died last Saturday. There is little known about the 28-year-old leader, but he now heads a secretive and closed off country with an advanced nuclear weapons program. There are reports he will head a ruling group that includes his uncle and the military.
- Iraq Civil War?: Just a day after the U.S. pulled out of Iraq, the country?s Shiite dominated government ordered the arrest of Sunni vice president Tariq al-Hashimi, accusing him of running death squads and assassinating public officials. The fragile coalition government is at risk of dissolving, creating more instability in the Middle East and an unknown for oil supplies.
- Pakistan-U.S. alliance weakens: The bristly relationship between the U.S. and Pakistan worsened after U.S. and NATO troops accidentally killed Pakistani soldiers on the Afghanistan border. The relationship is critical to the U.S. efforts in the war on terror and in keeping balance in its relationship with neighboring India, a U.S. ally. Recent rumors of a coup were quashed when President Zardari returned from medical treatment in Dubai.
- Russian Election Uncertainty: Prime Minister Vladimir Putin?s coalition lost its majority in parliamentary elections that were criticized for fraud. The question is does the Russian populace want the strong armed leader to return to his position as president in the March 4 election. A shift in the center of power in Russia, viewed as unlikely as of now, could have impact on its dealings with the rest of the world, and has implications for energy, as Russia is the world?s largest oil producer.
Citigroup [C? Loading...? ? ? () ?
] chief U.S. equity strategist Tobias Levkovich said the market is always pricing in some level of geopolitical risk, and right now it?s also pricing in negative U.S. corporate earnings growth.
?The Chinese situation for me is a very big deal,? said Barry Knapp, head of equity portfolio strategy at Barclays [BCS? Loading...? ? ? () ?
]. Knapp said China has now rolled its growth target to 7.5 percent from 9 percent. He also said the reversal of portfolio flows may also be signaling something bigger is going on there.
?The other big emerging market issue for me is Eastern Europe,? he said, noting the Hungarian Central Bank this week raised rates to 7 percent to stop the decline in its currency. ?For me, Eastern Europe is the real canary in the coal mine for European bank deleveraging. All those places don?t have really developed banking systems so if Europe cuts them out, it?s a big problem.?
Oil Tight Rope
Topping the geopolitical concerns that could significantly impact oil markets is the difficult situation with Iran. While hoping to harm it enough economically to stop its progress towards nuclear weapons, Western governments are balancing the potential impact on the price of oil.
A spike in oil?and gasoline prices?could have a swift negative impact on the fragile economic recovery and on a European economy on the brink of recession. In the U.S. gasoline prices spiked above $4 a gallon this past summer, immediately hurting the U.S. consumers? ability to spend.
As gasoline prices eased up, so did consumer attitudes and spending improved along with sentiment.
Trevor Houser, director of energy and climate practice at the Rhodium Group, follows Iran closely and he says oil markets could be in for a choppy year.
?You have legislation the president will sign by the end of the year as part of the Defense Authorization Act that will impose sanctions on the Central Bank of Iran. There is a relatively tight timeline on the implementation,? he said. The sanctions are a change in strategy for the U.S. which has previously tried to discourage the long term investment in Iranian oil production, not target near term exports.
?The view is that while the investment sanctions have been effective on long term production that?s not sufficient given the time line for Iran?s nuclear program,? he said.
Meanwhile, Europeans are debating an Iranian oil embargo with a decision expected by the end of the month.
Houser said under the U.S. sanctions, if an entity is involved in processing oil payments with the Central Bank of Iran, it would be precluded from doing business with the U.S. financial system. He also said there is some flexibility in the bill which would allow for the president to make the decision based on input from the Department of Energy on the oil market.
?We think that it has a potential to be meaningful in terms of impact,? he said. ?The problem with this is it?s all opaque political risk. How exactly are the sanctions going to be implemented and on what time frame??
?People are going to be trying to read the tea leaves?and it will make for a choppy year? (in the oil market), he said.
Follow Patti Domm on Twitter: @pattidomm
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Source: http://www.cnbc.com/id/45752402
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