Geopolitical Developments: The Russian Bear Is Alive and Mauling, And Global Investors Will Soon Feel Its Impact On Their Wealth Statements
News of Russian advances in eastern Ukraine aren’t denting global equity markets, and lend credence to the notion we are in a bear market rally, not the start of a new bull market. The volatility risk premium points to a higher market over the next few days, but my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought one positive factor for US stocks. The US yield curve is bull steepening. But there was also one negative factor across global asset classes. Oil is pointing to stagflationary conditions. Expect the S&P 500 to be range-bound over the next few days before steeply declining in early June.
Defeating Russia is critical because it’s a malevolent power, and any who align with it suffer for their myopia. To align with Russia is to accept unbounded chauvinism and the likelihood of being stabbed in the back, as Ukrainians know and Afghanis, Chinese, Spaniards and countless others learned over the 20th century. Russian chauvinism stems from the dual belief that it will be the Next Jerusalem and the Russian people possess a unique spirituality and relation to metaphysical currents. Autocratic nations naturally prefer one another but even they aren’t safe until Russia becomes a genuinely democratic republic.
Case in point is Iran. Today Iran’s autocrats finance themselves largely through sales of oil to China, but their erstwhile ally Russia is jamming that with its need to become the major source for China. Middle East Eye notes “Political allies Iran and Russia have turned into economic competitors in the global oil market since the beginning of the war in Ukraine, local media report. Following international sanctions on Russia's oil and gas exports, Moscow sold its product at a heavily discounted rate, which has affected Iran's exports of cheap oil. Since 2018, Iran has used the same strategy to bypass international sanctions, however experts said that Iran could no longer entice China without selling its oil at more of a discount…
Getting Iran to forsake Russia means agreeing on a new JCPOA and removing sanctions. But the reason Biden can’t come to terms with Iran on resuscitating the nuclear deal is Iran’s historic belief in social justice that inheres in Shia Islamic beliefs. Social justice has profundity for Iranians in dealing with other nations, but is only superficially applied by Iranians to themselves. Consequently the US has never taken Iran seriously, and this inflames them more. The boasting of American operatives that they replaced the one elected Iranian leader from the era of the Shahs (Mossadegh) lends credence to Iranian suspicions of the US and all western powers.
Getting Iran to trust the US is critical to a long term middle east solution and to an end to terrorism. Iran is the only muslim nation in central/west Asia to have made a legitimate stab at being a genuinely democratic republic. Turkey and Lebanon have tried but endured too much instability (by military coups or sectarian warfare) to have any decent history of republican virtue. But Iran has elected two reformist secular presidents who served out their full term & were freely reelected, eventually succeeded by fraudulently elected conservatives. Unfortunately a deal looks unlikely in this election year, and consequently the world suffers from a resilient Russia and the high oil prices the sanctions on Iran force on us.
High oil prices are a key reason for the stagflation gripping the world, and one reason the Fed is so hawkish. I expect that hawkishness to abate only when the US equity market falls resoundingly to new lows. That is at least 10% from current levels, and likely occurs in June.
Yesterday I sold a small portion of my UPRO holdings. Consequently my current positions include a large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), Titan Machinery (TITN) and the levered ETF UPRO.