The Fear Issue

We live in interesting times... 300x200 The Fear Issue

Something of a novelty – an issue of T&B running somewhat shorter than ‘War and Peace’ (and with far fewer characters, most of whom have only one name…).

Whilst we had initially set out to keep it to 10 pages, little items kept cropping up for our ‘myth-busters’ section: all the insanity of the surrounding world – the blatant absurdities recounted by tame journalist and mainstream strategists, the usual mendacious misconceptions about Russia, the steadfast inability of the Western Commentariat to come to terms with the fundamental shift in the global balance of power, as well as the seemingly inexhaustible supply of idiocy as regards the likely consequences of a break-up of the Euro (in fact, Germany would be the main victim, Italy the primary beneficiary; alas – and not for the first time – our German friends are apparently in denial as regards their mutual dependency upon the rest of Europe).

Meanwhile, and despite a track record that would get even the most mediocre fund manager sacked on the spot, the Commentariat continues to warn of an incipient Chinese economic crisis, of crude oil cheaper than Pepsi-Cola, the Death of History, and the ultimate triumph of the Washington Consensus.

After 12 years of Putin, we still read stories of how the Kremlin trembles with fear at the sight of Nationalists/Liberals/Washington – indeed, of whomever, provided that is, that it trembles… frankly delusional. For a finance jockey, the good news is that we can continue to trade very profitably against the ambient idiocy…

In short, each time we sat down to finalize this issue we were literally ganged by a disorderly flock of absurdities, all demanding their place in our narrative. T&B feels like one trekking through the Amazonian rainforest armed with only a fly-swatter – so many flying, biting insects we hardly know where to start – swatting left then right, almost at random – with no longer any illusion that we can arrest the swarm… and yet we keep swatting – thus, ‘the Human Condition’.

We have frankly struggled to define the overall theme for the present issue.

We may be missing a subtext to the increasingly disjointed and contradictory official statements regarding the Eurozone crisis; the fact that Germany is demanding greater control over fiscal policy of the peripheral countries, themselves struggling desperately to break out of a debt trap which they cannot conceivably evade absent substantial assistance from the core – gives both sides ample reason to bluff; the problem is, of course, that this would not be the first European game of chicken to end up at the morgue.

Given how difficult it is for even professional economists to predict the magnitude of the havoc a breakup of the Euro would wreak, the popular electorate is singularly ignorant and susceptible to manipulation by the media, where we are seeing increasingly ugly calls to nationalism and scorn for one’s neighbours. As a rule of thumb – any paper that purports to allocate blame to any one country for the crisis should be publicly burned – if at all possible, along with its author. While a catastrophic outcome is not preordained, it is certainly within the realm of the possible – and the obvious failings of the Democratic model are becoming painfully manifest.

This is a crisis of “The West” – not of Europe. The US finds itself in an equally parlous situation, having maintained the illusion of growth for the past 20 years by the expedient of ever-increasing leverage – with deleveraging now ineluctable we expect a long, painful deflationary slump.

Indeed, it is an exercise in futility to argue whether or not the current situation meets the statistical definition for “recession” – it is obviously upon us, with most Western societies growing poorer and less secure, the young excluded from any productive activity, the middle-classes gradually impoverished, leading to a substantial loss of productive capacity and a decline in social stability. A generation ago – everyone in the rich countries assumed that their children would have a far better life than they had had – now, at best, when polled, the middle-class expresses the forlorn hope that perhaps they will have it as good. Meanwhile, a subset of the “emergings” is doing precisely that – as the New Asian Century gets underway in earnest.

Like every Russo-centric strategist, T&B can only lament the loss of relevance of Russian fundamentals. Indeed, Russia has managed to render herself “uninteresting” – stable, predictable, with modest, sustainable growth… yes, for us veterans, it does take some getting used to.

Alas, given the carnage in Europe, specifically Russian factors are currently about as relevant to the fate of the local equity market as are the rings of Saturn; at least in the near-term, performance is entirely a function of global risk tolerance.

We thus reiterate our long-standing trading strategy: we shall avoid equities, leveraging up EM corporate fixed income, in particular, the second-tier Russian banks, and for the more adventurous, our “Axis of Evil” trade (Belarus, Venezuela, serviced Cuba, and we might add – Russia) – which have performed admirably, but where still see some upside in selected assets.

Happy trading,


For the latest newsletter – in FULL (the above was just the entrée) – click on the link below:

T&B – The Fear Issue

This entry was posted in Global Macro, Newsletter. Bookmark the permalink.

One Response to The Fear Issue

  1. Pingback: A smart expatriate, Eric Kraus, gives a rant about the decline of the West « Fabius Maximus

Leave a Reply

Your email address will not be published. Required fields are marked *