What a guy. His continued saber rattlin’/pistol packin’ stance over the Ukraine, plus continued worries about a Chinese debt crises and, voila, you have a mini market meltdown. It always amazes me how quickly the market can turn tail and run on little or no new news. On the other hand, yesterday may have been more about a long, overbought market in need of a good thumping correction.
As we go into the weekend with the market on pins and needles, I thought you might like a little perspective.
Ukraine: A big country with a small economy
The Ukraine’s land mass is about the size of Texas(Ukraine=233,820, sq. miles Texas 268,000 sq. miles). The population is about 44 million, most of those Ukrainian with about 17% ethnic Russians and most of those live in the Crimean Peninsula at the Southern end of the country. GDP is about $180 billion (less than the GDP of Connecticut). Economically, the troubles in the Ukraine should have little or no impact on the West.
Even though the U.S. has been talking tough with regards to a potential annexation of Crimea by the Russian Federation (which could happen), this talk appears to relate to economic sanctions and not military action. Think about it, we have had it up to our gills with foreign military action (Iraq and Afghanistan), plus we have the ongoing issues of Iran, Syria and our friends in North Korea).
The capitalist genie is out of the bottle in Russia and it will hard to get it back in. Putin has to be getting tremendous pressure from business interests in Russia, and he has to be aware of the effect his macho routine is having on the equity markets in his country (“Russia stocks tumble ahead of weekend vote”). His actions in this crisis could have a very chilling effect on foreign investment in the Federation, as well as trade. This becomes very problematic for Vlad at home.
China: The New Eurozone
Okay, so the Ukraine may not be the start of a new U.S. military conflict. What about China?
I believe China has become the media’s new Eurozone. You remember the Eurozone. Every day there was some new crisis afoot. We waited with baited breath for the results of the next Italian, Spanish or Greek debt sales. Would Germany, the de facto central banker for Europe, go for the terms of the next Greek bailout? What a soap opera. They muddled through, even though their union was only monetary and not fiscal.
China has become the new Eurozone with a potential big credit bubble on the verge of busting. China was in the news over the past week, posting less-than-stellar economic results…ergo, the bubble talk begins to boil again. The important difference between China and the Eurozone is that, like the United States, they are a fiscal/monetary union. They, like the U.S., can print their way out of a tight spot. They can inflate. My bet is that, to insure the ‘domestic tranquility’, they will resort to these methods.
So, as we go into the weekend, we have Russian troops back massing on the Eastern Ukrainian border, Asian stocks under pressure on a weak U.S. market (as traders hit the exits versus potential bad outcomes this weekend–the Crimean referendum) and continued China fears.
Exit Question: If you were the sole owner/ proprietor of any company stock you owned, would you even be thinking about selling, as a result of the geopolitical/ world economic backdrop posted here?
P.S. Four days after our post “10 things the gun industry won’t tell you”, the article continues to rank in the top five searched titles on MarketWatch.com. Unbelievable!!!
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