In a word, no.  Well, maybe… I guess it depends… I have to give you a reason to keeping reading, right?

Every economic cycle is accompanied by its own set of unique headwinds.  The current cycle has been marked by, just to name a few:

• Government shutdowns
• Debt ceiling crisis’
• Taper Tantrums
• Deflation threats
• European periphery nation debt crisis
• Middle East conflict (Libyia, Syria, Afghanistan, Iran, should I keep going?)
• Eastern European conflict
• Tsunami/Earthquake

The interesting thing about all of these headwinds is that at some point they started as a headline, but not all headlines turn into significant headwinds for the economy.  Often times the market may react to a headline in fear of what it may become.

The current headline causing the markets to lurch is the insurgency occurring in Iraq.  The market lurches because of the possibility that this insurgency can cause:

Oil output disruption > increase in oil prices > increase in gas prices > consumer to spend less money > ultimately leading to weaker corporate profits and lower stock prices…

While this is possible (the key word) and this could become a headwind, I would like to offer a few reasons why it may just stay a headline.

1)      Oil flow is not currently disrupted and from all accounts the insurgent strong hold is in northern Iraq and the vast majority of Iraq oil production comes from the southern part of the country.

2)      Another reason that this headline is less likely to become a headwind is because the amount of Oil the US imports from Iraq nominal in comparison to other nations.  Domestic production of oil accounts for 60% of the oil we consume, thanks in large part to shale exploration, the imported oil (40%) comes from Canada, Mexico, Venezuela, and Saudi Arabia[1].

3)      Should this insurgency give way to hefty gas price tensions, the recent lack of inflation may give gas prices some slack to run before they cause a meaningful dent in consumer spending.   Our economy has seen little inflation over the last 3 years making an increase in gas prices (while distasteful) more affordable overall.

This is not to rule out the possibility of it becoming a headwind, rather, it is best to step away from the media and look at the situation from a more objective perspective, weighing the situation for what it is as opposed to how many viewers will it produce…

For more information:

If you would like an in-depth analysis of your current positions and allocation, please feel free to call Jason Roque at 719-313-7536 to schedule an appointment.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.  Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.