Legendary commodity investor Jim Rogers sees some serious problems stemming from the situation in Syria and the end of the U.S. Federal Reserve's generous flow of money.
In an interview with Reuters on Tuesday, Rogers said "oil and gold will go much, much higher" due to a "market panic."
"I own oil, I own gold, I own things like that and if there is going to be a war, and it sounds like America is desperate to have a war, they're going to go much, much higher," Rogers said. "Stocks are going to go down, some of the markets that I'm sure are already going down, commodities are going to go up. I'm not particularly keen on war, I assure you, but it sounds like they want it."
Rogers continued, "No matter how well the plans are made, strange things happen in war and who knows what unintended consequence will come."
Equities have been hit hard over worries of a war with Syria. The rout started late Monday following comments from U.S. Secretary of State John Kerry that the United States has a moral obligation to act on Syria's chemical weapon attacks. Selling picked up steam Tuesday with the Dow plunging 170 points.
Global equity markets also are feeling the pain from Syria's carnage, with Middle East exchange experiencing the steepest declines. The benchmark index in Dubai has plummeted some 7%, and markets in Abu Dhabi, Israel, Bahrain, and Kuwait all slipped 1% to 3% on Tuesday.
While there's no panic yet, we're already seeing a spike in both gold and oil.
Gold has regained its luster this year after being battered 17% year to date amid record-breaking stock market rallies and worries of a Fed QE taper. Investors recently have poured money into the yellow metal due to its "safe-haven status" in times of geopolitical turmoil.
The precious metal gained 2% Tuesday to a three-month high of $1,420.60. Up some $200 an ounce, or 20%, since its June lows, gold is now officially in a bull market. [Bonus: Check out what Rogers said about gold's multi-year bull market in our exclusive interview with him from April.]
But it's oil prices that could move the most on news out of Syria...
Syria's Effect on Oil Prices
Oil prices are being closely watched, as any chaos in the Middle East could potentially disrupt global supplies.
Tuesday, oil prices soared roughly 3% to an 18-month high. Oil climbed another 1% Wednesday, briefly above $112 a barrel, as the U.S. government and its allies moved closer to a military strike on Syria following the country's suspected use of chemical weapons in its civil war.
While Syria is not a major oil producer, there is always fear of a ripple effect that would entrench nearby nations in the conflict and disrupt trade routes. Between the Suez Canal and the Suez-Mediterranean pipeline, 4.5 million barrels of oil flow through Egypt daily, about 5% of the global oil supply, according to the Energy Information Administration.
Emad Mostaque, a market strategist at Noah Capital, told CNN Money that Brent crude "could easily go up by $10 and $20" and jump even higher if a strike on Syria leads to a global oil supply disruption. Oil prices already are up more than $12 since the start of July.
A move higher will hurt already anemic economies and reduce spending. Ethan Harris, co-head of global economics at Bank of America, estimates that every $10 a barrel rise in oil prices correlates with a roughly quarter-percentage point reduction in gross domestic production.
Jim Rogers: The "Sea of Liquidity Will End"
Syria's turmoil is adding volatility to an already vulnerable market, thanks to the Federal Reserve...
Emerging market equities and global currencies - particularly in countries with current account deficits, which are likely to be hardest hit by higher oil prices - have also been dragged down recently on fears of the worldwide impact that a winding down of the Fed's generous bond-buying programs (launched to juice the U.S. economy) will have.
Speaking of the global impact of a Fed QE taper, Rogers said:
"Of course they [emerging markets] face rough waters ahead. You know, India and Indonesia - Turkey too, which is part of Asia - all of them have huge balance of trade deficits, which they've been able to finance with all of this artificial free money that's been floating around. Now, the artificial sea of liquidity is going to end some day and when it ends, all the people depending on this free money and this sea of liquidity are going to suffer. Whether it's this week or this year or next year, they're all going to suffer." [Read more: How the Fed QE Taper Will Affect Foreign Markets]
Moreover, emerging markets will suffer further if Syria is hit with a military strike because investors will yank money out of these traditionally more volatile markets in favor of safe havens.
While a recent spate of lackluster economic data may give the Fed reason to pause on its taper timeline, it's coming. And when all is said and done, Rogers said, the outcome will be a mess.
"This is the first time in recorded history that all major central banks have been flooding the market with artificial money printing at the same time. They've all been trying to debase their currencies at the same time," Rogers noted.
Expecting the worst, Rogers added, "When this artificial sea of liquidity ends we're going to see panic in a lot of markets, including in the U.S., including in West developed markets."
That's why we're telling investors which moves to make today to prepare...
Related Articles:
- CNN Money:
Oil Jumps as Syria Conflict Heats Up
Credit: Money Morning - Only the News You Can Profit From http://feeds.moneymorning.com/~r/moneymorning/jOLe/~3/TfOqccrU7sI/
