Dangerous Predators Roam Europe's Streets

With the twin attacks on Brussels. authorities admit they are and were woefully ill-prepared for the challenge the terrorists once again brought to the center of Western Europe's very governance. Every side is acknowledging that despite almost all of the police detectives and intelligence apparatus chasing-down leads, including a capture of three key terrorists just a week earlier, they were basically clueless in event of the attack. 

Worse, a couple sources suggest they knew an attack was coming; knew that at least hundreds of the thousands who had gone to Syria to fight with or for ISIS, were back and freely roaming the streets of Brussels (Paris and perhaps others too), with the authorities not having the resources to track them down, even as it was known 'something' was afoot. That's highly disturbing, and goes beyond the obvious need to assist Belgium (as the U.S. and France are increasingly doing); but has wider implications. 

Those include perhaps a little less of the 'bravado' that we usually commend; of course being going about our lives normally, with a little situational awareness. If or as this continues, and the threat level increase this evening (even a warning from the U.S. State Dept. about probable attacks on public venues in Europe on a broader basis, and near-term at that), the impact on FX and equity markets in Europe and the U.S. will not be so mild as they were on Tuesday. 

What may happen is the West settles into (as it has before) a sort of resignation, which transcends the complacency and 'will' to go about daily lives as normal of course; but indeed starts impacting travel, tourism in general and overall growth of business activity. That puts a 'cap' on how much upside can reasonably then be expected, and a revisiting of the obvious central bank efforts to hold matters in a reasonable steed, which despite our bearishness for the period of time after this late-Quarter phase, we understand the reasons governments would do so. 

Meanwhile, this points again to a 'cap' to potential upside here, rather than what most pundits saw today, an absorption of supply and a 'bid' being created. That part was not surprising (called for it intraday); nor the also-expected late fade. In essence this was a 'brave face day' for the markets (Europe was up at the end); and likely is not quite the encouraging shot in the arm some make it out to be. 

This evening we see citizens in Europe concerned that they're in 'mortal danger' and going beyond the factoring of 'odds' as to how risky it is to them personally. I heard from three friends in Brussels (we were all on the same cruise last year in the Mediterranean), one of whom represents part of the German Government at the European Parliament. The others are in accounting and travel businesses. I make that point because all were 'not that far' from the metro attack; and all are keenly aware of the risk (shaken but not stirred if you wish). Expressing calm as well as 'going about routine once the transport is up and running', the admirably brave facades were slightly toned down when two mentioned a major event on Easter weekend that they might not attend due to risk of large gathered crowds. 

That automatically would mean an economic impact especially if this alert stays on for some time (the U.S. says until June 26th for now); and business slows. It also confirms what we had just noted the other day (sorry to mention); but here I'm referring to French President Hollande saying late Friday the 'terror networks are much wider across many European countries, and also involving lots more people than authorities had previously believed'. He was spot-on with that, and it is the opposite of 'downplay' U.S. leadership suggesting these things are rogue or 'lone wolves' (enough lone wolves and you have a wolf-pack). I point this out as it seems there is concern of a spate of terror coming; and not just because of a few bad guys who figured they might as well move as their colleagues had just been nabbed last week. The sad part is that authorities essentially knew much it seems, and couldn't apprehend them in time; even after last week's lucky break.

Yes of course we think there's a market message (including for the BREXIT vote incidentally, which will shift a bit toward leaving the EU presumably), and even a stronger Dollar message (because both the Euro and Pound can ease slightly in all the uncertainty.. remember all kinds of markets dislike uncertainty when you get past the short-covering the almost always follows selling on initial shocks). I will add one other I already mentioned in a video; the same cruise this Summer had planned stops in the Greek Islands and a Turkish port too. The itinerary has changed to include only Spain, with several ships hurriedly limiting cruises to the less complicated (safer) areas of Spain, France and the Italian Amalfi Coast. At the same time, Europe's most-financially-pressed nation, Greece, is also having to deal with the largest influx of migrants. Clearly many terrorists were smuggled in mixed amid legitimate refugees; a topic about which there is no question. Also there is apparently no coherent answer in Europe about how to handle this year as we had mentioned they had until about now for a cohesive plan. No plan yet.

Bottom-line: the alert is real; the knowledge of what's coming next is lacking. A hollow shell of NATO needs bolstering big time; but the threat's external (ISIS in the Middle East), while mostly essentially within due to allowing radicalization. It is not a point to talk of assimilation or de-Islamitization at this point; too late for either perhaps. If it is 'war' (as the French have said and everyone tries to forget as they go on with daily lives, which they must), then temporarily some freedom has to be restricted, and some travel from certain countries as well; not so much in the way some domestic political candidates debate; but simply because that's what you do in 'wartime' when you've identified the enemy. 

In the longer-run the pressure ought to increase on those who fomented the sick twisted ideology that underpins this malignant attack on civilization; which is Wahhabi Islam promoted by Saudi Arabia, or similar variations promulgated by others. Most politicians do not even take the time to differentiate the sources of radical versus normal Islam (which may not be tolerant or secular but isn't so vehemently barbarous). If it's a war, accept that; practice more preparedness, fewer admissions and clearly a lot better border control. In Europe and here the model might be how Ben Gurion Airport in Tel Aviv handles matters; screen the passengers and transport vehicles 'before' they enter the airport (by computer; by checkpoints; and then surprisingly the in-airport screening is actually faster).   

In-sum: this week is actually following the outline pretty well; despite the attack; and despite 'some' stocks finding a 'bid', which didn't hold for long (and likely is not going to). The 'light short' approach on rallies seems particularly appropriate as we work towards not just month-end, but the actual Quarter's-end