Financial markets are once again having to focus on a number of events around the globe that could further unsettle investors already worried about the fiscal cliff in the U.S.
Stocks in Europe initially fell following Moody's downgrade of France's debt to one notch below the top AAA rating, but recovered slightly ahead of a decision by European finance ministers on whether to release more bailout funds to Greece.
Related: Why Austerity May Be Over in Europe
Meanwhile, in the Middle East, Israeli air strikes and Palestinian rocket fire continued in and around Gaza, raising pressure on the international community to defuse the week-long conflict. Egypt's president Mohamed Morsi, who's been trying to broker a ceasefire, announced earlier that the Israel offensive would end today, according to the state news agency. (Subsequent reports continued to suggest the combat might wane, but a formal stop to the fighting hasn't yet been confirmed.) Elsewhere, United Nations Secretary General Ban Ki-moon has been calling for an immediate ceasefire, and both he and U.S. Secretary of State Hillary Clinton were separately on their way to the region. Crude oil prices were up more than $1 a barrel after gaining $2 Monday.
Jim Rickards, partner at JAC Capital and author of "Currency Wars," is much more optimistic about the situation in Europe than the Mideast. He sees three main reasons to be hopeful about Europe:
- China is eager to invest in Europe and diversify its foreign exchange holdings.
- Young people in Europe are willing to work for less than their older counterparts.
- Germany, an export powerhouse for more than 40 years, has finally accepted the necessity of slightly higher inflation.
"The U.S., Europe and China all have to go through major structural adjustments," Rickards says. "The difference is Europe is stepping up to the plate and doing it. The U.S. and China are still in denial."
Rickards isn't concerned with Moody's downgrade of French debt, despite the fact that it concerns one of Europe's stronger nations. "Ratings agencies don't know anything about sovereign credit," he says. "They're using corporate finance metrics and completely ignore fact that these are sovereign countries with armies, weapons ... that you can't put into a financial model."
Related: U.S. to Pass Saudi Arabia in Energy Production, IEA Says: Huge Foreign Policy, Economic Implications
At the same time, Rickards seems as pessimistic about the Mideast as he is optimistic about Europe. He says the Israeli-Gaza conflict could be the beginning of a much bigger conflict between Israel and Iran, which is he calls "the main event." That may be one reason oil prices have risen a few dollars in the past few days, but haven't surged, he says.
"The countdown has begun," says Rickards. He believes Israel's tensions with Iran could escalate into war as early as March unless Iran "verifiably" gives up its uranium enrichment program.
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