Geo-Financial Politics: The Nexus Between GDP And Eurasian-US Antagonism

The Thucydides Trap enveloping US-Eurasian relations is playing out in today’s bearish feel to global financial markets. While the volatility risk premium points to a higher market over the next few days my technical reading of key stocks in the S&P 500 is neutral. There are several negative factors across global asset classes. Oil has turned from mild bullishness to portending stagflationary conditions for the US, Europe, China and most of East Asia. Complicating this is the US yield curve rising and steepening, which in the current context is bearish. Adding to these economic developments are the political reverberations from American gridlock to Chinese bombast; taken together, expect the S&P 500 to be range-bound over the next few days.

America has an antagonist in Russia and a frenemy in China, and recent geopolitical actions are directly reducing expectations for global GDP growth. Sanctions against Russia led by the US and somewhat reluctantly supported by the unwieldy concert of Europe are moving Putin to squeeze European markets for energy, leading to the prospect of a cold winter on top of fears of a seasonal rise in COVID. The fact that the US has officially lost Afghanistan and both Pakistan and India are gravitating toward deeper Russian relations means Russia is confident enough to bully Europe and try to divide the alliance. Since Europe is vulnerable to sclerosis and especially uncertain now because of Sunday’s inconclusive German election, global investors have to consider the potential for a strategic break in the alliance towards greater autonomy for Europe. And Western Europe is of course closer to Eurasia than America.

America has also infuriated China with its striking take down of the Chinese jewel Huawei which has shrunk considerably because of Trump and now Biden’s efforts to discredit it and limit its integration with American companies. The logic of China itself taking down its jewels owing to their potential power to mediate or even support popular revolt against the Communist Party cannot be disentangled from the irony of the CCP now doing what America started a few years ago. The result is an economic slowdown that puts MNC revenues in jeopardy at the same time rising oil prices courtest of OPEC+Russia is boosting interest rates. This all spells doom and gloom for investors, which explains the turn from all-time highs earlier in the month.

My current market positions are in Activision (ATVI), Amgen (AMGN), Apple (AAPL), Gibraltar Industries (ROCK), Johnson & Johnson (JNJ), 3M (MMM), Pfizer (PFE) and a hedged position in the S&P 500 (UPRO and SPXU).