Thursday offered up two great alternatives to the wise investor. Either one sat on one’s hands or one sat on one’s hands. Markets were in a miserable mood and the price action benefited few. Both principal US indices, the Dow Jones and the S&P 500 are now back in negative territory, year to date and I have found that the month of March has not seen the Dow enjoy two consecutive up-days.
Investors have good reason to be uncertain. In its post-meeting statement, the FOMC did make a big shift in its language when it replaced “economic activity has been expanding at a solid pace” with “economic growth has moderated somewhat”. The committee will not have done this lightly and markets have seemingly not yet decided whether to celebrate the weakness in the hope that loose monetary policy will persist or to become fearful that we are at the beginning of a natural cyclical downturn but one where the Fed’s quiver is rather short of stimulative arrows.
As if that was not enough, the geo-political situation has also taken another turn with Saudi wheeling out some of its very expensive weaponry and pointing it towards the Yemeni deserts of the southern Arabian peninsula. As far back as the beginning of the Arab Spring I have been more concerned with the Shia/Sunni internecine conflict than I was with the clash between modernists and traditionalists.
Yesterday I picked up the phone to a friend I hold in very high esteem and who is a now retired senior officer in the British Army. I wanted to canvass his opinion on the spat between Russia and the West and was looking for his opinion as to whether this will blow out or whether there is a risk of further escalation.
I think we agreed – his brain moves faster on this stuff than does mine – that the West made a bit of a mess of the Crimean affair. There is no doubt that Russia has a greater claim on Crimea than does the Ukraine which has none at all but the West might have done a lot better than simply to throw its toys out of the pram and to demand that Russia withdraws. They might as well have asked their dog to spit out the sausage it has just nicked off the table. Have they never heard that one should only ever enter into a fight one knows one can win?
Proxies
Anyhow, he very soon drew in the situation in the Middle East and argued that there are currently many similarities to the period of the Cold War in the 1950s and 1960s where the Soviet Union and the United States pushed each other on all fronts without a shot being fired between the two. The former did, however, rattle the West’s cage on many occasion, the most serious of which concerned the positioning of Soviet missiles in Cuba. The proposed supply of Russian long range bombers to Argentina is not dissimilar. It’s about testing the boundaries.
It did not take long for my chum to weave the Middle East back into the Russian/American rivalry as the two main forces in the area, Saudi, the Sunnis, and Iran, the Shia, neatly align themselves. It would be fatuous to treat events in Arabia as another one of those endless proxy wars which beset the world in the 70s and 80s but it would be equally wrong not to acknowledge the similarities. I don’t think he was suggesting that some major military conflagration is waiting for us around the next corner but he did warn of the risks of complacency in the West. He also suggested that Vladimir “put me in” Putin would continue to push against a West which the Russian President seems to think is not morally strong enough to put up any meaningful resistance.
Inevitably, oil has been reacting with WTI yesterday pushing back north of US$51.00 although it has fallen back to the mid-US$50s this morning. It is of course still pretty cheap at exactly half the price is was this time last year – it closed on March 27 2014 at US$101.28 – but stock prices have been rallying on the dual positives of lower input costs and consumers with more disposable cash. Thus, any back-up in oil prices, irrespective the cause, will rattle equities and hence also credit spreads which have also spent the month of March going nowhere in a hurry.
Have asset prices just stopped for a breather or has the zenith been reached and even passed? The prevailing mood amongst investors seems to be that this is a good time to take a few chips off the table. A Scottish CIO I spoke to yesterday confirmed that. There is no need to go into head-long flight but a modest reduction in risk might well be the way to go. No return on cash is still better than a negative return on investments.
March is frequently a difficult month. The excitement of the New Year wall of cash has worn off, dealers are trying to establish what the equilibrium price of their products should be and investors, having part-taken in the early year frenzy, are happy to sit back and to see what happens. Next week brings us into the two back-to-back four-day weeks wrapped around the Easter festival along with Japanese year end. I’d not get too excited today but be prepared to pick up some cheap stock early next week.
There will be some bargains out there.
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Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful week-end. Last night saw the first face-to face TV encounter between David “call me Dave” Cameron and Ed Miliboy. It was more or less a draw with a few extra points being awarded to Miliboy. That, thankfully, clears the diary for a bit of preparation work in the vegetable patch. Time to get those potatoes in the ground. The Malaysian Grand Prix can wait.
