“I’ll study and get ready, and then the chance will come.” –Abraham Lincoln
That’s always been a favorite of quote of mine. From playing on the ice of Northern Canadian outdoor rinks, to driving up highway 95 these days in the early mornings – preparation has always trumped all else.
I often wonder how Vladimir Putin thinks on this front. One of my investment themes in 2008 has been to have an “Eye On Putin Power” - his recent attacks on Georgia remind me that preparing for the geopolitical tail risk associated with his ambitions to revive Russia as a dominant world power is paramount. After seeing oil prices correct for a -22% down move, I hardly believe that we can chalk up the timing of his “being at war” to irony. To the prepared, timing is everything.
You’d be hard pressed to convince me that the Chinese weren’t as prepared for their masterful opening ceremonies as any nation has been in world history. At times, the Olympic “bird’s nest” was borderline intimidating. China is not America. Russia clearly is neither. Understanding where global equity markets are headed next will require a healthy level of preparation. Of that, I am certain.
China’s stock market got crushed by a wider margin than its basketball team did yesterday by Team USA. The Shanghai Composite Index closed down another -5.2% overnight and has lost -9.7% of its value in and out of its Olympic launch. Suffice to say, this has to be more alarming than the 2,008 synchronized Chinese men banging on electric war drums Friday night.
The other side of commodity inflation deflating (CRB Index down another -7% last week, Oil down -8%, and corn hitting 4 month lows), is that Asian economic growth is slowing to a halt. No, the word “halt” is not my exaggerating. After printing a horrible GDP growth number for Q2 last night at +2.1% (which is down from Q1’s +6.9%), the Government of Singapore guided the world to NEGATIVE EXPORT GROWTH expectations for the balance of 2008. No, this has not happened in Asia’s most relevant port country since 9/11. This is not good.
Although I bought the S&P 500 via SPY’s on Friday morning (see timing of note on our Portal), this should be understood for what it is – a “Trade”. July was one of the worst months for US hedge funds on record. Energy and fertilizer stocks can indeed go down at the same time that fund of funds demand weekly performance. Plenty of PM’s are getting bounced around the Olympic rings here and, as a result, the deflating inflation “Trade” still has legs. I am moving my immediate term topside target in the S&P 500 to 1303 this morning (I was at 1299 prior).
I wrote a note this weekend on TED spreads remaining ominously wide (3 month LIBOR versus 3 month Treasuries). That negative “Trend” has not changed this morning; neither has Putin’s rhetoric. Russian tanks are moving deeper into Georgian territory; war planes have not calmed their attacks.
The US Dollar’s +3.4% melt-up from last week may have a lot more to do with what’s going to happen to the geo-political landscape next. Global Peace has been as positive a global “Trend” as any in the past few decades. It has undoubtedly contributed to falling risk premiums, globally, and unprecedented cross border trade. I pray that this doesn’t change, but I am preparing for the tail risks nevertheless.
Good luck out there this week,
KM
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