Monday, April 28, 2014

So has anything been happening over the last month?


* Russia took over Crimea
* US GDP has slipped back to around 1.5%
* Stocks fell 5% then a rumor of Japanese QE sparked a 5% rally
* People have found out the markets are rigged and apparently don't care (let me know if you need a primer on the whole High Frequency Trading issue.  One of my old colleagues is the face of HFT).

Interestingly, despite all of the news markets are basically flat - Nasdaq's down 2%, the S&P500 is down 1% and the Dow is up 1%.  There have been some very interesting swings in market sentiment but I continue to see worrying signals.  Earnings this quarter have been mixed with a few bright spots.  I think the earnings outlook remains cloudy and ultimately, I believe central bank policies and geopolitical news will be the primary drivers from here on out.

Russia/Ukraine update -
It's very telling watching the Sunday talk shows.  Everyone was talking today about why the "SANCTIONS" are not having a greater impact, etc, etc. The problem that everyone seems to have a tough time grasping is that these sanctions imposed by the West were not on Russia, but on a small number of individuals and a bank.  The "second stage" of sanctions to be announced this week to great fanfare are basically going to extend to another 15 or so people and maybe another holding company.

The US has pushed for stronger sanctions but behind closed doors the rumor is that both US and European companies are pedaling their influence to prevent major sanctions.  Why do corporations care?  Well, Russia is a sizable market for some industries, but the far greater issue is access to GAS.  Europe gets about 30% of its gas from Russia and the risk of factories going idle or electricity rates going up is very worrisome for major corporations.  I also think that 2 major deals inked by Russia in the past month (one with China and the other with India) indicate that our ability to influence this situation economically is limited.

I'm not advocating this position, but here is the Russian side of this story - the Ukraine is breaking up, there are many Russian speakers that wish to rejoin Russia, let them decide if they want to be part of the Ukraine or Russia via referendum.  The Russian media is portraying this in similar terms to the reunification of East/West Germany.  After the Berlin Wall fell there was a long process of votes and negotiations to bring the people of Germany together.  The Russians believe much of East Ukraine should have the right to make the same decision after their elected government was toppled.

So, what happens next?  I don't expect a major armed conflict, but the satellite imagery from Slavyansk is worrisome.  It appears that about 15,000 troops from both sides are lined up.  I do not believe Russia wants to have a war over this land, but I can't say the same for the Ukrainians.  If you read foreign press on this matter you'll see time and again it appears as though the government is Kiev is trying to instigate something.  I don't know what their rationale for provoking Russia would be (maybe speeding up NATO admittance??) but at every turn, the Ukrainians seem to be trying to escalate the situation.

In a totally unrelated story, did anyone see that 60 Minutes piece on our nuclear arsenal?  How about those sweet 8" floppy disks that were running some of the command and controls?  Sleep tight :)

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