After watching and reading the news in the last couple of days, I am beginning to think that the financial markets are betting on some kind of military action in the Middle East. The high price of oil is not just about concerns about shortages as energy consumption goes up in China and India, but it is a result of future expectations of shortages. Speculators are betting on something happening.
I have to admit that I am a bit influenced by Niall Ferguson's recent book (War of the World) on the era between 1900 and 1950 which involved two world wars. He did some pre-war market analysis with regard to what was happening with stocks and bonds. Investment markets aren't perfect, but I left thinking that the markets were more predictive than what politicians were saying or doing. I will be watching to see if this proves true in the next year or two.
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