The last big permanents and I think money printing peak on Dec 7-8 corresponded with the black highlighted event. Coincidence?
Geopolitical Risks Are Back on the Rise
by Joe Duarte
December 10, 2004
This article originally appeared on CBS MarketWatch on 12/9/04
Editor's note: Dr. Joe Duarte's Market IQ offers daily intelligence,
analysis, and stock picks at www.joe-duarte.com.
There is a new influence on global markets: government intervention. And the two major players at this point are Russia and China.
Three major international companies have been hit hard in the last few months. Russia's Yukos was the first. But China's China Aviation Oil (Singapore), and now Russia's VimpelCom (VIP) have been hit.
China Aviation, the leading jet fuel provider to Chinese airlines, and a government owned entity for all intents and purposes, made some bad trades in the oil market, seems to have covered them up. Their parent company may have sold off 15 percent of the company to unwary investors even though they knew that something was less than right with the oil trade.
Yukos is a well known story, with major Russian politics and a power struggle between Russian President Putin and former Yukos head, and a founding oligarch, Mikhail Khodorkovsky at the center of all its problems.
Perhaps the most interesting situation is that of VimpelCom. According to a press release on Dec. 8, the company "today announced that it has received an act with preliminary conclusions of the review of VimpelCom's 2001 tax filing by its tax inspectorate, stating that the Company owes an additional 2.5 billion rubles which is approximately US$90 million in tax (plus 1.9 billion rubles or approximately US$67 million in fines and penalties)."
Vimpel quickly lost over a fourth of its value.
Set up for more trouble
There are three very hot spots in the world right now. Ukraine, China, and Iraq. All three share battles over energy, money, and the control of both, since they lead to the ultimate goal: power.
In Iraq, it's all about tribes, sects, and religion. In China, it's all about control and influence. And in Ukraine, it seems as if it's just an all out free-for-all grab bag, where rival gangs are fighting for turf, while external influences vie for the price.
But all that, in our opinion, is window dressing. It all comes down to who controls the oil, the natural gas, the pipelines, and.... Oh yes... all that money.
None of these situations can end without a significant period of disorder.
And that's why we are concerned about that one $3.3 billion dollar S&P futures trade that crossed the tape on Dec. 7, that was only reported by CBS MarketWatch, and that shook up a perfectly stable stock market. See Market Snapshot Dec. 7. Somebody with really big bucks either had a big margin call to pay, or knows something that the rest of us probably don't want to find out about.
Markets, regardless of what anyone says, are efficient. They are not always correct. And they are not always rational. But they are efficient. That means that they act on the information that they have at the particular moment in time when something happens. And when that big sale hit the tape, people sold first, and asked questions later.
The fact that the market stabilized overnight suggests that either central banks deployed a big safety net, or that the answers to the questions posed by reflex sellers were benign enough not to prevent continued selling.
The pundits and experts are telling us that the market is overbought, and that there are signs that the U.S. economy is slowing, and that those are the main reasons that the market tumbled on Dec. 7.
The evidence, as I see it, is much more complex. We are at a seasonally bullish time for stocks. The technical underpinnings of the market, before Dec. 7, were fairly solid. That is usually enough to keep stock prices at least moving sideways, with a positive bent to trading.
But, there are some major weak spots that are continuing to fester. There is the brewing scandal in China and Singapore. There is a political crisis in Ukraine, with a high stakes poker game being played between Russia and the U.S. And there is a great deal at stake in Iraq, as the U.S. pushes for elections there, in the midst of sectarian politics, and widespread criminal activity by Al-Zarqawi and presumably Al-Qaeda, as well as the remnants of Saddam's militia.
Big players with large sums of money get margin calls too. And many are still leveraged to the hilt betting on the outcome of the current political situation.
The $3 billion futures trade, when all else is examined, sure has the feel of somebody running for cover because they zigged when they should have zagged. The lack of follow through overnight in stocks suggests that for now, it may have been an isolated case, or some kind of a probing move from a major player, testing the waters.
But the selling in gold and the strengthening of the dollar on the following day, is enough to make even the most sanguine of conspiracy theorists wonder if the Federal Reserve and other central banks aren't tiptoeing through the marketplace, planting a seed here, and a seed there.
The negative side of efficiency
In an efficient market, each tick can mean a whole new ball game. And when the ticks happen because somebody decides to unload a few billion dollars worth of futures on an otherwise steady afternoon, interesting things happen.
The only problem is that politics is not efficient. And when politics, ideology, and large sums of money mix, there is never a good outcome.
Neither Russia nor China fully understand the markets. If they did, they wouldn't be doing the things that they have done in their quest for political gains.
In my opinion, their clumsiness, combined with the possibility of major speculators finding themselves in uncomfortable positions, will likely exacerbate what is already a very delicate geopolitical situation.
Few investors have factored this into their plans for the near future. I think they should. |
