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Strategy Update : From Extreme Greed to Extreme Fear

June, 09 2012

In the five days it has taken us to finalize this report, markets have swung from the “End of the World” trade to “What’s there not to like?” No doubt, in the next couple of months, we shall see equally violent swings back and forth between Extreme Fear and Extreme Greed – trading it is a bit akin to juggling knives, though, for those who have some fingers to spare, we see some interesting opportunities. See :

Emerging markets Strategy Update



 Roadbook to China – Uncertainty’s Rainbow

Markets are paralyzed by fears arising out of two corners – the collapse in the European financial montage (with the US fiscal pyramid a far worse accident waiting to happen) and the fear of a hard landing in China. While the first is a justifiable worry, with the outcome literally unknowable, we are delighted to report that the second is a paper tiger – the Dragon is doing quite well, thank you. The present issue is taken up largely with our visions of China.

Perhaps we were born innocent, taking far longer than we should have to realize that the constant stream of disinformation in the Western press was attributable not to some honest misunderstanding nor to any lack of insight or data, but rather to the corrupt manipulation of the media by the powers-that-be – a proud tradition dating back to the 18th-century rise of the periodical press which lent governments and financial interests a vital tool for the manipulation of public opinion, rendered necessary by the rise of democratic forms of governance.

One need only think back upon the cynical manipulation of public opinion in the run-up to wars – from the Opium Wars (where the same British Press that now slanders  Putin raged indignantly against the degenerate Chinese for daring to forbid English merchants selling opium to the enslaved Chinese masses – see Wikipedia); the cynical PR job to justify territorial aggression in the run-up to the Spanish-American war – providing the background for Orson Welles’ classic Citizen Kane; the drum-roll leading up to the horrors of the First World War against which Karl Kraus railed in vain in Die Fackel. The Vietnam War provided perhaps the finest example of the “free press” in action – the daily repletion of the murderous lies of the Pentagon for a decade (“the village had to be destroyed to be saved”) before a select few papers belatedly turned against the war, by which time 3 million Asians already lay dead, with countless more crippled, orphaned or their lives otherwise blighted. While we have few illusions about the superiority of other media, at least the Russian press has the decency to refrain from busting our ear-drums with the constant repetition of how “free and fair and objective” it is – Russians have preserved a healthy measure of cynicism.

Meanwhile, the financial crisis reveals a Western political leadership apparently possessed of a death wish – paralyzed beyond our worst fears. As the bill comes due for decades of rolling bubbles, the increasingly desperate attempts to delay settlement would doubtless appear comical to the denizens of a nearby planet who could observe them with some measure of equanimity. Overall, one might imagine that, convinced of our ‘Decline of the West’ thesis, the Western powers were unconsciously seeking to align themselves with the direction of history, hastening their own demise.

But none of this is new, and we getting tired of our own repetition. Now, we return from another voyage around China, energized, and with some new measure of optimism. Yes, there are countries which do “get it” – which refuse to embrace their own decline – which are capable of taking bold measures to ensure future prosperity. The Dragon is rising – whether or not one likes it (and we have mixed feelings), one would be foolish indeed to ignore the single dominant theme of our new Century.

Today, despite the third global financial crisis in the four years following upon the collapse of the US financial bubble, the politics and economics appear boringly predictable and reasonably positive. And the “Facebook Revolution” has gone the way of the dodo.

In Russia where economic growth remains reasonably strong and sustainable, and the new government gives some cause for modest optimism. It is not quite China, but, equally, it’s a long way from Belgium! We see some interesting trading opportunities in much the same places as previously, though we recommend a considerable measure of caution, and only modest use of leverage.

The end of our journey coincided with President Putin’s arrival in Beijing. After more than a decade of pleading for a shift in Russia’s diplomatic orientation, away from the declining Atlantic powers to the rising star of the East, we are greatly encouraged to see this trend seriously accelerating. As decades of distrust are gradually eroded, China has become by far Russia’s main trading partner, main diplomatic ally (in the UN, the SCO, and on the global stage), with, increasingly, a significant military alliance. Given the very substantial new agreements signed during Putin’s trip (though not, alas, a gas pipeline), we now expect China to become a more important financial investor and industrial partner – it is not quite a relationship of equals, but if you can beat ‘em – join ‘em!

As always, at Investlogic we would be more than happy to be part of it and advise you for your investment solution in this part of the world.