March 1, 2015
Weekly Market Outlook
By Keith Schneider
At the close on Friday, as the US Stock market closed down marginally for the week, just a tad off new all-time highs, news came out of Moscow that the charismatic and vocal opposition leader, Boris Nemstov, was gunned down near the Kremlin while walking home with his girlfriend. It was a professional hit job, hallmarks of yet another KGB style assassination of a political rival to current Russian President Vladimir Putin. There is quite a long list of political foes either murdered, disfigured, imprisoned or arrested that have gone against Putin. Massive political rallies were held in Nemstov’s honor today in Moscow.
In spite of this dubious track record, Putin’s popularity is something like 86%, or almost double that of Obama's. The approval rating of Qaddafi (while he was alive), Mubarak, Ben Ali, and Assad were even greater before their fall from grace. Those leaders are all graduates of the KGB's continuing education courses, playing from the same old rule book (updated with new online material equipped with pdf’s and online videos). The basic core principles are the same, kill or imprison foes and voila, ratings go up as well as the grip on power, money etc.
The implications for this type of behavior for the world and its financial markets are potentially enormous. Russia is a country that still possesses the largest nuclear stockpile and has tremendous resources and power. It’s one thing if you are a relatively smaller regional player like Tunisia or Syria, but the stakes are much higher here. The power of social media and just how reactions to such events can go viral and in unforeseen ways is the thing to watch. Social Media is the catalyst of multiple sigma events.
Weighing the cost of taking out a political foe or having to deal with the fallout from damning evidence regarding Russia's direct military involvement in the Ukraine, murder was chosen.
With the US equities market on new highs, interest rates negative in some countries, the EU still on a tinderbox, and the Ukraine in turmoil, the events in Russia could be the flashpoint.
Most likely however, Nemstov’s assassination will just be another footnote in Russia’s history. On the positive side, if the underlying lurking discontent with corruption and a failing economy gets stoked, Putin could be taken out and a western leaning government re-established. A large move up in the markets is likely.
On the other hand, as the Russian economy contracts, more belligerent and desperate acts could be in order. Putin’s big plays are in energy, gold and anything that keeps the western economies on the defensive. The key tickers to watch as Russia plays out is RSX (Russian stock market), Gold (GLD), Oil (USO) and the dollar (UUP). There are two ways to get energy prices up, a robust global economy or a steady stream of global tension. Those are tough choices for Putin.
The market hit the pause button this week and is correcting through time rather than price. Utilities, normally a bellwether for defensive plays, took a big hit in February, a positive development. Let’s go to this week’s video and see what is setting up.
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