Murphy ’s Law states that the Universe sides with the hidden fault. Things fall apart, the centre will not hold (but these days, ‘the periphery’ has it even worse!). No sooner had we hit the ‘send’ button on our last, relatively ebullient opus, then the market was sent sprawling into risk-off mode on the back of a recrudescence of the European debt crisis. We are buying the dip. Gazing into the abyss focuses the mind most wondrously, and we suspect that, having exhausted the alternatives, the global financial shepherds will drive the flock back from the cliff-edge.
In short, we remain long, reiterating the views repeatedly expressed herein: there shall be NO European country-wide defaults or restructurings, and the current pricing of peripheral European debt constitutes a buying opportunity – though perhaps, not quite yet. The Euro will survive, but we find better value in Asia. Our main investment drivers remain the secular rise of Asia, the political paralysis of the US, the commodity super-cycle, “lower-for-longer”, market hypercorrelation (risk-on/risk-off), and thus, the compelling opportunities in the carry trades, Russian equities and global resources, and emerging fixed income. We are short Treasury duration. We continue to hedge dollar exposure – and can be patient with this one.
As regards Russia, it has been neither the best of years nor the worst. Russia remains the cheapest major emerging equities market, but it is finally getting less cheap by the day, as the international investors begrudgingly come to acknowledge the improving fundamentals. On the fixed-income side, on the other hand, Russia now trades several hundred basis points inside of several European Union members and should continue to tighten; it very certainly deserves the A/AA-ratings lost by some of its peers. Debt markets are simply “smarter” than equity markets – i.e. they react faster to fundamental economic change, far less to scare stories.
The RTS remains one of our top picks in the GEMs. Growth is improving but a bit slower than we had hoped – Russia’s recovery from the catastrophic first post-Soviet period was impressive, but a huge amount of reform is required before Russia becomes a fully modern state. In fact, on the ground in Moscow, Reform is happening every day – often frustrating when viewed up close, if one takes a couple of steps back, the transformation over the past decade has been amazing. Not, alas, compared with China (where Russia is the Tortoise) but certainly compared to Europe or the US, (where it is the Hare). Macroeconomic stability is less good than before the crisis, but compared with any other G8 country, Russia remains a veritable haven of safety in a very dangerous world… takes some getting used to, doesn’t it?
We are looking forward to Khodorkovsky suffering the full rigours of Russian law, putting this tiresome story behind us for seven years, and have given up expecting anything resembling truth from the Western press – we congratulate our many Russian friends upon the World Cup! Viva Vladimir Vladimirovich!
Our friend Marc Faber, of Doom and Gloom fame, often digresses… among his less controversial digressions being his travel logs – frequently probing deep into places no man ventures without trepidation – Mongolia, Cambodia, Darkest Africa, even fly-over country deep in the US heartland.
After almost a month cruising Raja Ampat, West Papua, arguably the single most magnificent cruising grounds this planet has to offer, T&B spent a highly inspirational week in the Celestial Shopping Mall – Singapore.
As regards Raja Ampat, we left grasping for words to express how beautiful, how rich, how diverse our planet can be. Pristine coral reefs teaming with a million species of fish; mangrove forests inhabited by gaudily plumed birds and crocodiles, rain-forests as yet untouched by the axe. Paradise regained.
And yet we live in a time where innocence has been lost – and who, fully conscious, can look upon the unimaginably intricate and beautiful workings of nature without regret – without a silent apology? As viewers of the Discovery Channel will recognize, nature is a finite resource. Once extending from pole to pole, this magnificence is now confined to a handful of places so remote as to have survived the constant extension of mankind – of human population spreading out exponentially over the face of a finite world. We would urge our readers to go and have a look at the few corners of our planet while they still can.
On a more cheerful note, a trip to Singapore invites profound reflection. It is the anti-Moscow. Such a clean, orderly, functional place. Singapore is the ultimate happy country. It is well-governed with the full consent and support of the governed, there is no crime, disorder or chewing gum. People pay their taxes happily. The national sports are eating and shopping. People naturally queue up – not smug like the English, nor anal like the Germans, but cheerfully – indeed, the whole damned country is cheerful, polite, alert and helpful. T&B literally could not wait to get back home to grim Moscow!
Is this man’s ultimate goal? Is this the summit of human happiness? To shop contentedly for global brands? Apparently so. And that is what keeps T&B on the move, looking for places not yet swept up into the globalization trade – like the faces on the Moscow Metro, each one telling its unique story. Our next report shall be from Havana!
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