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The Army, Islamists or War Lords

Sigma Investment Counselors

January 3, 2014

These seem to be the choices for many citizens in the Middle East. Over the last few years the world has seen numerous instances of bullets trumping ballots, leaving a trail of human misery.
Investors are not well positioned to address these issues. However, while hoping for the best, investing, particularly by fiduciaries, requires an awareness of economic reality and an assessment of how “conditions on the ground” could drive investment decisions.

Historically, turmoil in the Middle East has been accompanied by increases, sometimes significant, in the price of oil. More recently, oil price movements have been relatively muted. While there are a number of factors involved in relatively more stable oil prices, two may be critical. First, OPEC controls a much smaller percentage of the world’s oil reserves and production and, second, the U.S., a major oil consumer, is very close to becoming energy self sufficient.

While it is likely that the U.S. will continue to import some of its oil requirements, new production technologies have materially increased domestic energy production, particularly natural gas. Over the next several years, the U.S. is expected to increase exports of natural gas and refined products, more than offsetting net oil imports.

Energy is one of the key components of business costs. Price and supply stability in the U. S. are likely to encourage increased business investment, by both foreign and U. S. owned entities, which in turn, adds jobs, increases tax collections and boosts consumer spending.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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