Wall Street Frets Over Cuban Missile Crisis Scenario

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The New York Sun

While Russia and Georgia have agreed to a truce, albeit an uneasy one at best, the rapidly deteriorating relations between America and the Kremlin are adding a frightening new worry: speculation in financial circles both here and overseas that Russian missiles could reappear in Cuba, just 40 miles from Florida’s shores.

Addressing himself to these reports, Mark Leibovit, a veteran analyst and Internet commentator on events that could affect the financial markets, took note of the missile speculation, warning clients on Friday that such an action would surely represent an additional threat to a market already saddled with a slew of worries.

Indeed, the Washington Post reported last month that Russian bombers capable of carrying nuclear bombs could be deployed in Cuba in response to American plans to install a missile defense system in Europe.

Russian missiles last appeared in Cuba in 1962, during the Cuban missile crisis, in what was the closest the world ever came to nuclear war.

Mr. Leibovit, the head of VRTrader.com, an online investment service for traders, told me during the weekend that he thought the installation of such missiles in Cuba — if indeed such an event were to come to pass — could lead to a significant market shellacking. He estimated that the Dow Jones Industrial Average could be vulnerable to falling back to 10,800, and possibly even to the low reached in 2003 of around 7,000. The Dow closed Friday at 11,659.

Mr. Leibovit was negative on the market a few months ago, but recently switched to a more positive view in the wake of the falling price of oil.

Now, though, given Russia’s invasion of Georgia and speculation about the return of Russian missiles in Cuba, he’s getting a lot more concerned.

“The rhetoric between America and Russia is getting downright scary,” he says. “The Russians seem to have gone crazy. Are we in for a replay of the Cuban missile crisis? Who knows what they’ll do next? They’re already threatening to nuke Poland.”

Mr. Leibovit is referencing a declaration Friday by a top Russian general that the Kremlin was prepared to launch a nuclear attack against Poland if it persisted in participating in a deal with America, under which we would provide Poland with Patriot missiles in exchange for locating a missile interceptor base there.

The Cuban missile crisis arose in April 1962, when the Soviet leader, Nikita Khrushchev, conceived the idea of placing intermediate-range missiles in Cuba. He theorized that deployment in Cuba would double the Soviets’ strategic arsenal and provide a real deterrent to a potential American attack against the Soviet Union.

At the time, the Cuban leader, Fidel Castro, was looking for a way to defend his island from an American attack following the failed Bay of Pigs invasion in 1961, an effort by American-trained Cuban exiles to overthrow the Cuban government. Consequently, he approved Khrushchev’s plan, which secretly went into effect in the summer of 1962.

In mid-October, reconnaissance photographs disclosed the Soviet missiles. On October 22, President Kennedy announced the discovery of the missile installations to the public and his decision to quarantine the island. At the same time, he proclaimed that any missile attack launched from Cuba would be regarded as an attack on America by the Soviet Union and demanded that the Soviets remove all their offensive weapons from Cuba. Negotiations ensued and on October 28 an agreement was reached whereby the Soviets removed their missiles and light bombers in return for assurances America would not invade Cuba.

Presumably, this agreement, which in theory is still in effect, would be scrapped if Russia were to place missiles there again, a former Merrill Lynch strategist, Bill Rhodes, says.

Interestingly, the market reaction to the Cuban missile crisis, in the first day of trading after the public learned of the situation, saw the Dow drop just 10.5 points, or less than 2%. At the time, though, the Dow was trading in the 500s.

The chief investment strategist of Standard & Poor’s, Sam Stovall, figures the market would react negatively to a reinstallation of the missiles, but he thinks, unlike Mr. Leibovit, that the decline would be minimal, no more than a couple of percentage points. Why so little? Because he believes cooler heads would prevail and such an action would be reversed quickly.

An obvious question is why investors are taking the prospect of missile installations so close to America so lightly.

“Because they’re not realistically relating to the events of 1962, and don’t understand the gravity of the situation,” Mr. Rhodes says. “The real story is we’re getting a steady and dangerous buildup of bellicose activities.”

dandordan@aol.com


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