Geopolitical Developments: The Downfall Of Autocracy Is The Great Hope Of Decent People And The Markets, And Positive Signs Are Emerging

While Autocrats are considered worse for markets than democrats the global economy is now deeply entangled with a Eurasian crescent of autocratic leaders who influence asset prices both positively and negatively. Putin and Xi Jinping trumpet their autocratic power while Narendra Modi paints himself as a democrat and has the clear support of the Indian public to prove it. But the health of markets depends on faith that liberal democracy will win out and on that score the military victory of democrats against autocrats is crucial. Ukraine’s proven ability to stymie Putin has been one boon to markets since the June lows, but positive developments in other such wars are nearly as important. And for now the bulls are making a case for long-term good times out of the geopolitical morass. The volatility risk premium points to a market fall 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. Copper's chart is signifying global growth. Expect the S&P 500 to be range-bound over the next few days before falling as September arrives.

The tragedy of Myanmar ranks among the foremost humanitarian and geopolitical crises afflicting the world today, yet for most media outlets its salience pales in comparison with Ukraine or potential global food shortages. But the ability of the rebels to defeat the Tatmadaw (Myanmar military) would be an historical victory of humanity and decency over hatred. More saliently for the state of the world, the fate of Myanmar’s rebels is important for 3 reasons: 1) it would show that even a highly diverse public can defeat a cohesive military; 2) it would show the impotence of ASEAN and thus give an opening to the US to fundamentally reorient that organization against the leading Asian autocracy, namely China, and; 3) it would remove a key risk to the Indian subcontinent and allow Bangladesh to get back on its feet and more profoundly for the global economy, keep India on track for robust growth.

Its challenging to separate the hopes of media outlets for the cause of the rebels from actual news on their progress. Yet the steady newsflow since 2021 has been resilience of the rebels and evidence of defections from the Tatmadaw. To that end Peace News recently noted “Eighteen months after the coup, every day brings news of further attacks and the death or defection of more Myanmar Army soldiers. Despite some predictions that PDFs would quickly be defeated, the opposite seems to be happening. In many parts of the country (including Sagaing and Magwe Regions, which have seen no armed conflict for decades), the PDFs have inflicted significant battlefield casualties on the Myanmar Army.”

India remains one of the few bright spots for the global economy despite the often malevolent and regressive policies of its autocratic leader Narendra Modi. Averting a refugee crisis and strengthening the Asian commitment to democracy are critical both to India now and its future as a source of liberalism in a conservative region. One straw of hope for the world order is the heroic fight of the Myanmar people to reset their nation and by extension the entire region. Should this come to pass there is reason to believe global equity markets can eventually rally to new highs in 2023 or 2024.

My current positions are a moderate but relatively large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), and the levered ETFs UPRO and SPXU.