How the Mumbai Militants Will Affect Financial Markets

As has been widely reported by the international media, there were recently attacks by militants in Mumbai. Here are some thoughts on how this will affect financial markets:

1. Gold. The proliferation of militant networks around the world has coincided with the emergence of a bull market in gold. The more unexpected attacks by organizations that are not nation-states we see, the more we can see a rise in gold -- and likely silver as well.

2. Defense ETFs. US President-elect Barack Obama has already declared Pakistan a threat and has suggested he may order troops into Pakistan. Moreover, in light of these recent attacks, India has already requested Pakistan take action. In the event of US entry into Pakistan, this would be a bullish sign for US defense ETFs, like ITA and PPA. It is crucial to note, however, that we are in a bear market in US equities; personally, I don't see this bear market ending soon, and thus would be reluctant to go buy ETFs and stocks that are dependent on the US macroeconomy.

3. India ETFs. ETFs that track the Indian economy on US exchanges -- namely EPI and PIN -- may see additional downward movements. These markets were already in a bear trend prior to the attacks, similar to how US markets were already in a bear trend prior to 9/11. This would be an additional bearish argument for India ETFs.

Disclosure: Long gold and silver. No positions in Defense or India ETFs.