Domestic Political Developments Unlikely to Drive Markets

I read from some ad hoc commentaries that the direction of the domestic financial markets for the coming week would find bearing from the Philippine president’s State Of the Nation’s Address (SONA). I find this attribution to be ludicrous. Unless of course, draconian policy changes would be endorsed to either choke or liberalize business conditions, the most one can expect from these events would simply be vainglorious political rhetoric and counter demagoguery from the political opposition.

If the previous market’s reaction to past political conditions were to be a gauge (e.g. aborted coup, heated elections, garci scandal, etc...) then the market could be expected to discount this as a nonevent. And as for these forecasters groping for any variables to associate to the market’s behavior, Robert Prechter of the Elliot Wave Theory describes them best, ``Those who regard the news as the cause of market trends would probably have better luck gambling at race tracks than relying on their ability to guess correctly the significance of outstanding news items.”

I would view developments in Lebanon as having more potential significance than local politics. The present military engagement has the open-ended possibility to escalate and diffuse as to drag the entire region into conflagration. With the world’s oil supplies, about three-fifths of the world’s proven oil reserves (see Figure 1), heavily dependent on the region, an expanded theater of war would bring the world to its knees with a supply shock. Think oil at $100 per barrel at least! That is the reason why we have to keep our eyes on the unfolding geopolitics rather than be transfixed on vapid and toxic domestic “personality based” politics.

Figure 1 Moneyandmarkets.com: Commanding Share of Middle East Oil