More Sanctions On Saudi Unlikely, Despite Congress Grandstanding

December 5, 5:00 pm EST

I was away from the markets yesterday, on a big down day.  With markets closed today to honor the 41st President, let’s take a look at what happened on Tuesday.

Why the ugly and persistent plunge in stocks?

Many of the reasons that have been attributed to the two stock market corrections this year, bubbled up again yesterday. But as we’ve discussed, the stock declines this year appear to have had everything to do with Saudi capital flows–and less to do with all of the hand-wringing issues you hear and read in the financial media.  Same can be said for yesterday.

When prospects rise that Saudi assets may be threatened by sanctions(or seizures in the case earlier this year, related to the Crown Prince’s corruption crackdown) indiscriminate and aggressive selling of U.S. assets hit immediately (likely led by the Saudi sovereign wealth fund, which has assets over half a trillion dollars).

We had it again yesterday.  Stocks had a big gap up on Monday on movement on U.S./China trade. It was after the close on Monday that the news hit that the CIA would brief the special Senate committee on Tuesday.  Stocks immediately started moving lower. The Dow futures were down 250 points by midnight.  And then of course, yesterday, when news hit that the briefing was underway (just after noon), the bottom immediately fell out of stocks. A little more than half an hour later, U.S. Senators were standing in front of cameras telling the world that the Crown Prince was involved in the murder and that Congress should invoke the Magnitsky Act.  This law authorizes the government to sanction human rights offenders, freeze their assets, and ban them from entering the U.S.

That sounds ominous for the Crown Prince.
But the Magnitsky Act comes in the form of a request from Congress, and the President has the discretion to act or not (but must decide within 120 days).

With that, I suspect this was nothing more than grandstanding.  Trump will not (can not) act for the reasons we discussed last month.

From a security standpoint, Saudi Arabia is a critical alliance in the fight to defeat ISIS and check of Iran. Maybe more importantly, pushing Saudi Arabia toward an alignment with China and Russia in the long game would be a grave danger for the U.S.
Taking action against the Crown Prince would jeopardize both.
So, as I said last month, Trump has been leveraging the Saudi crisis to get oil prices lower. And he’s gotten it – to the tune of a 35% decline in oil prices. And to this point, it appears Trump has settled on the sanctions that have already been levied already on Saudi individuals involved in the Khashoggi murder (which don’t include the Crown Prince).

If he sanctioned the Saudi government over this, oil prices would probably explode and stocks would crash (not really an option).

We’ll see how stocks react tomorrow after a day of reflection.  I suspect Tuesday created another buying opportunity.

What stocks do you buy?  Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.
Trump Is Settled On Saudi Sanctions — Good For Stocks

November 21, 5:00 pm EST

We looked at the below chart yesterday.  We’re continuing to get a bounce off of this big trend line that incorporates the lows of the oil price crash of 2016, and the election later that year. 

Importantly, as I said yesterday, the stock declines of this year appear to have everything to do with Saudi capital flows — and less to do with all of the hand-wringing issues you hear and read in the financial media.

As we discussed last month, the top for stocks in January and the top in October, both align perfectly with the timing of events in Saudi Arabia.

Let’s revisit that timeline from my October note: “Remember, last November the Saudi Crown Prince Salam, successor to the King, ordered the arrest of many of the most powerful Saudi Princes, country ministers and business people in Saudi Arabia on corruption charges. More than $100 billion in assets were claimed to be under investigation (a third frozen) in what was called the “Saudi purge.”

These subjects were detained for nearly three months. The timing of their release and the market correction of early this year is where it all begins to align.

They were released on Saturday, January 27. S&P futures open for trading on Sunday night. Stocks topped that night and proceeded to drop 12% in six days. And rallies in stocks were sold aggressively for the better part of the next seven months.

Fast forward to this month and we have the murder of the journalist who was a public critic of the Crown Prince Salam. As the details of story pointed back to Salam, on October 3, U.S. bond markets got hit (to the hour of news hitting the wires) and stocks topped that day, and have proceeded to drop by more than 8%.

Clearly, the destabilization in Saudi Arabia has put considerable assets in jeopardy. With that, those in control of those assets have likely been scrambling to protect them, as U.S. Congress pushes for sanctions, which could include freezing Saudi assets.”

Now, over the past few weeks, we’ve seen some back and forth onwhether or not the Saudi Crown Prince would be implicated in the Khashoggi murder and/or, most importantly, sanctioned.  And the moves in stocks have been reflecting that whipsaw.  Remember, the Saudi sovereign wealth fund is worth more than half a trillion dollars.  They’ve been heavily invested in the tech giants.  And those (the tech giants) have led the way down.  Any uptick in the probability that we see more U.S.-based Saudi assets frozen or threatened, has created selling in stocks.

But as we said yesterday, Trump seems to be settled on the sanctions that have already been levied (excluding the Crown Prince and broader government).  That’s a positive for stocks.

And he’s leveraging the Saudi crisis to get oil prices lower.  Remember, we talked about the oil bargaining chip earlier this month.  Here’s an excerpt from my November 9 note:  “It’s probably no coincidence that the slide in oil prices started the day that the Saudi Crown Prince was implicated in journalist Jamal Khashoggi’s disappearance. Remember, the bond market got hit, to the hour, of this headline hitting …
Stocks topped a few hours later, and that was the top for oil prices too.
When Trump spoke with the Saudi Crown Prince on the phone on October 16, oil was trading above $71. We haven’t seen that level since.
Trump‘s position on high oil prices is no secret. He doesn’t like it. And Saudi Arabia is well aware. Is it possible that Trump has leverage and is using it? Likely. Is it possible that the Crown Prince is willing play ball with U.S. demands (on oil production) in order to avoid sanctions (or worse).“
Interestingly, Trump is now confirming the above with his statements over the past couple of days.
Bottom line:  When stocks decline for non-fundamental reasons, it’s a huge buying opportunity.  This is one of those moments.
What stocks do you buy?  Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.
Have a great Thanksgiving!
This Market Correction Is Driven By Saudi Liquidation

October 22, 5:00 pm EST

As the events surrounding Saudi Arabia continue to unfold, it is beginning to look more and more like the market shakeup of the past three weeks was triggered by Saudi selling.

The top in stocks and the heavy selling came just as news was hitting wires that Khashoggi never exited the Saudi consulate in Turkey – disputing the story of the Saudi government.

Stocks put in a top that day.

 
And that was the day the bond market also made it’s move — the 10-year yield spiked from 3.08% to 3.18%.
Here’s what hit the news wires that triggered the selling in bonds/rise in market rates – to the hour.

So, was the catalyst for this market correction triggered by money from Saudi Arabia moving to escape a potential asset freeze?  It looks possible.

We constantly hear predictions of impending corrections, pointing to all of the clear evidence that should drive it, but corrections are often caused by events that are less pervasive in the market psyche. The Saudi story would qualify.

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