Home About Archives RSS Feed

The Independent Investor: Cracks in the House of Saud

By Bill Schmick
iBerkshires Columnist
Over the weekend, the government of Saudi Arabia announced multiple arrests of royal family members as well as other governmental officials. The official explanation was a new campaign to root out corruption, but many believe the raid was a power grab by the reigning Crown Prince Mohammed bin Salman.
Corruption in Saudi Arabia is as common as sand. It is what makes the wheels run so global observers discounted that excuse. The assumptions ranged from a thwarted coup against the reigning family to a consolidation of power orchestrated by the heir apparent.
As a result, gold jumped over $10 an ounce, oil spiked 3 percent and investors held their breath expecting another shoe might fall in the days ahead. Police arrested 49 people, 11 princes, four ministers and dozens of former ministers in the pre-dawn hours of Sunday. There was a fatal shootout between police and one now-dead Saudi prince, while a mysterious helicopter crash killed several other ministers and a high-ranking member of the royal house.
As the smoke clears, it appears that the 32-year-old crown prince, Mohammed bin Salman, is cleaning house, consolidating power, and eliminating any real or imagined rivals within the country. One of those arrested, billionaire Alwaleed Bin Talal, is a well-known global investor with large holdings in American companies.
King Salman elevated Prince Mohammed to heir apparent over other, more senior, princes in the royal line of succession, less than three years ago. That didn't sit well among numerous cliques or factions within and outside of the family. The grumbling grew louder when the young prince announced his "Vision 2030." A far-reaching economic policy which is pushing the Kingdom to explore new business opportunities outside of the country while seeking economic diversification away from its decades-old reliance on oil.
The prince wants to modernize the country's institutions, re-train the work force, and revamp the country's antiquated culture and attitudes to reflect more western ideals. His recent drive to liberate Saudi women from centuries of, at best, second-class citizenship has heartened his supporters, but created consternation among some traditional Saudis. 
In any other third world country, a weekend action to consolidate power would barely register among global financial markets, especially within the Middle East. What is so remarkable about the Saudi situation is that it happened at all. Saudi Arabia has long been a pillar of stability in a region where death, violence and political turmoil is an everyday occurrence.
For over 70 years, the U.S. and Saudi Arabia have had a workable agreement. In exchange for guarantees of security, the Kingdom made sure that there would always be a free-flow of oil to global markets. We believed (and still do) that the flow of oil is essential to the stability of the international economy. That pact has withstood the tests of time from the 1973 oil embargo through the attacks of 9/11, where 15 out of the 19 passenger jet hijackers turned out to be Saudi citizens. But times are changing.
The United States has relied on three assumptions in our dealings with Saudi Arabia: that the Kingdom would remain stable. This weekend's actions call that into question. Second: that despite the rampant corruption, atrocious human rights violations and its ongoing support of the war in Yemen, our government believes the House of Saud remains the optimal regime in relation to U.S. interests.  Finally, the U.S. assumed that the royal family would continue to promote stability in the regime aligned with Western interests.   
The emergence of Iran, its efforts to become the number one regional power in the Middle East, and the proliferation of various terrorists groups have altered the Saudi's response to regional geo-politics. The Saudi's new-found willingness to flex their diplomatic and military muscles in pursuit of a foreign policy that may no longer be aligned with ours has America on edge.
It is the risk that Saudi Arabia will not muddle through that has investors worried and global financial markets a bit tense this week. The sooner we know exactly what has transpired within the House of Saud, the better it will be for financial markets.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
BArT Basketball Team Opens with a Win
Veteran Spotlight: PFC Giardina Runs Out of Luck on Day 13
Climate Change Expert: Keep Heat on Banks, Insurers
Williams Women's Basketball Improves to 8-0
Monroe Leads MCLA Men Past Rivier
Williamstown Housing Trust Decides on Ask to Community Preservation Committee
Pittsfield Holds Tree Lighting Ceremony
Whiplash Weather in Store for the Berkshires
Clarksburg Gets 2-Week Vacation to Accommodate Construction
Adams Will Hire New DPW Director Next Week

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.




@theMarket (310)
Independent Investor (423)
December 2019 (1)
December 2018 (3)
November 2019 (8)
October 2019 (9)
September 2019 (7)
August 2019 (5)
July 2019 (5)
June 2019 (8)
May 2019 (10)
April 2019 (7)
March 2019 (7)
February 2019 (6)
January 2019 (6)
Rally Stimulus Crisis Euro Oil Retirement Currency Energy Metals Selloff Recession Taxes Stocks Housing Federal Reserve Jobs Interest Rates Congress Stock Market Bailout Deficit Europe Banks Pullback Election Wall Street Debt Commodities Europe Economy Greece Debt Ceiling Japan Fiscal Cliff Markets
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Truth About NATO & Defense Spending
The Independent Investor: Will Santa Satisfy Retailers?
@theMarket: Markets Broken Record
The Independent Investor: Diamonds Should Be at Top of Christmas List
@theMarket: Record Highs Again & Again
The Independent Investor: Attention Retirees!
@theMarket: Phase One Deal Keeps Markets Bullish
The Independent Investor: Fringe Benefits Important as Paycheck
@theMarket: Will Record Highs Beget Record Highs?
The Independent Investor: NCAA Up Against Ropes on College Pay for Athletes