Good morning, aloha and greetings, fellow market wizards.
This fine autumnal morning I’m joined once again by Dario, Spot Markets Live’s resident geopolitical expert and Zoomer
Howdy, y’all!
Some phatic communion… agreeable weekend?
As agreeable as it could be.
Less so here. I went back to Liverpool for the weekend to attend a dinner for the old boys’ association of my former school.
The guest speaker was a pastor and evangelised for twenty minutes while the anti-christ here prayed for deliverance – then Saturday, I spent large swathes of the day watching first Everton then England struggle manfully against superior opposition, holding out for the longest while, then ultimately capitulating at the end
It seemed like a perfect metaphor for life itself:
a valiant struggle and then you die.
On that positive note, what do we have to lay before our readers like a dog sets down a bone before its master?
Lots today, Julian
Venezuela? Are bondholders happy? They just doubled their money after the agreement with America
Yes – one of the interesting turns of 2023’s geopolitics is the American-Venezuelan rapprochement
Ah yes, the imperatives of realpolitik
But some things have been flying below the radar, as usual
Everything is below my radar
State-on-state squabbles are not the most common of Latin American events these days
But we’re seeing some potentially worrying – but certainly curious – events regarding Venezuela and Guyana
Maduro has been recently sabre-rattling over the Venezuelan territorial claim over the Guyanan region of Esquibo
This region makes up 2/3rds of the former British colony, and though it is sparsely populated, is extraordinarily resource-rich.
And gee – I wonder why?
In 2022, Exxon made a world-class oil discovery in Guyanese territorial waters just outside of Esquibo – squarely in Venezuela’s territorial claim
How serendipitous.
Indeed.
This recent uptick in Maduro’s language coincided with Guyana’s very first oil auction on September 13
They offered 14 offshore blocks and received eight promising bids from Exxon and TotalEnergies
More interestingly still, Madruo claimed the American military planned to create a base in Esquibo to safeguard these oil resources
Now – I don’t know about you – but even if Maduro is a tinpot dictator – this claim doesn’t exactly seem far fetched
No, there is always an element of truth in the extremes.
This issue is quite long-running, actually.
The squabble dates back to Venezuelan independence in 1830.
And though both parties agreed to ratify the borders as they currently stand in the Arbitral Award of 1899 – it is a deal Venezuelan officials have been trying to weasel out of since 1962
Now – nobody’s talking about an invasion
Such things are exceedingly rare in this oddly peaceful region (at least where state-on-state matters are concerned)
BUT
If Venezuela should invade – it would be a piece of cake. One of Latin America’s strongest militaries against one of its poorest.
Let’s hope nothing comes of it.
I note Biden copped some flak for this deal with Maduro with the usual handwringing about consistency
but consistency is the hobgoblin of small minds
(can’t remember who said that)
Ralph Waldo Emerson!
The US is firefighting at present and can do without an oil price spike to dent consumer confidence before an election. being the world’s policeman occasionally involves doing deals and shaking hands with people with whom you’d rather not transact = Maduro.
Of all of Biden’s policies and geopolitics, this one seems very sound
One criterion by which US presidents are judged is the price of gas (especially when the Angry Dorito always tells you it was cheaper under his administration) and despite the worst violence in ME since 1973, Brent is still 2.5% below YTD highs.
Behind the scenes, the US, Blinken esp, is doing a good job of firefighting so far.
One of the reasons why oil prices are so high is that, according to my theory of oil production,
everywhere you find oil, you tend to find a whackjob sitting atop it and he (for it is never a she in a petro-state) has a vested interest in behaving like a whackjob because that’s what bakes a risk premium into the oil price.
Sounds eminently reasonable
The nuttier you are, the higher it goes.
The chief headhacker in Iran knows if he jumps up and down, and sets a Stars and Stripes alight while shouting allu akbar, he can always give the price of his main export a substantial fillip.
Of course, not everyone is a nutjob:
did you see the Pope’s interjection?
No?
His contribution, during a speech, the leader of the Catholic church, had this to say:
‘STOP! ‘
Then he said ‘STOP!’ again to get his point across.
How inspiring
So, yes, not everyone with oil resources is a nutjob.
Shell, for example, is now the largest stock in the FTSE (almost 10% weighting) and has rallied 170% in the last 3 yrs
despite the drive for decarbonisation, COP21, the principles of ESG investing, Greta and so on, the stock’s rallied 170%, and accounts for 10% of the FTSE
Well, if you wanna hear more about whackjobs and oil.
The general nuttery in the Middle East has attracted another military power – China.
Who moved a group of 6 frigates and destroyers (and some resupply vessels) into an undisclosed location there.
Permission to be less than reassured of their peaceful intentions?
Permission granted
Now the news is a teeny bit misleading
Most of these destroyers and frigates were in Muscat, Oman, ahead of a planned military training with the country – and were simply redirected after the Israel/Hamas confrontation
And it clearly forms a part of China’s moseying into the traditional American role of peace arbiter.
Though – having seen absolutely 0 evidence of any meaningfully substantive Chinese engagement with Israel – I’m not sure how well that’s going
But speaking of Chinese moseying into former American territory, guess who just applied to join the Belt and Road?
Afghanistan!
That wouldn’t have been my first pick
It wouldn’t have been mine either
We should have guessed it when China was the first country to officially appoint an ambassador there
There is no regime so appalling that China will not do business with them
And Afghanistan’s planned entry would be apparently related to the China-Pakistan economic corridor – which actually preceded the original Belt and Road project.
The potential for China in Afghanistan is significant and already being exploited somewhat
The country hosts large reserves of lithium, copper and iron, and some Chinese entities like the Metallurgical Corporation of China have been operating there for years – even before the strong-headed chaps who recently took over.
But there’s even more to this Pakistan-Afghanistan relationship
As the Blind Spot has been commenting on for the past few months – last week saw the Taliban announce their plan to finalise land purchases for the Turkmenistan-Afghanistan-Pakistan-India gas pipeline
Also known as TAPI:
“The TAPI project calls for building a gas pipeline with capacity to carry 33 billion cubic meters per year from the Galkynysh field in Turkmenistan, through the cities of Herat and Kandahar in Afghanistan and Quetta and Multan in Pakistan, to Fazilka in western India. The pipeline would stretch 1,814 km, including 214 km in Turkmenistan, 774 km in Afghanistan and 826 km in Pakistan to the border with India. The preliminary cost estimate for the project is $10 billion.”
This rounded off a series of – at least on the face of it – good news for Afghanistan. The country has the best-performing currency – with a 40% rise YTD and a 10% rise in the last quarter
It strikes me that there’s no easy way to play the Afghan currency or its equity market, even if there were one. We are some way off an Afghan ETF
Unfortunately so.
Circling back to China’s inroads in the Middle East, however, I’ve spotted an interesting factoid that flew below my radar
Directly countering Chinese influence there, India’s Adani Group had purchased a controlling stake in Israel’s Haifa port in early 2023
This takeover pushed China’s Shanghai International Port Group’s influence in the port out of the window – under reported pressure from the United States
Now – Haifa port used to be a big nothing,
But recently, it’s become the region’s most significant trading hub – especially since the explosion in the Beirut port
Especially as a hub for the production and distribution of petroleum products
And now think about this Julian, When India muscles in somewhere
Who are they gonna be messing over?
Pakistan by chance?
That’s right
BUT
big but
As you can see – the plan relies heavily on Saudi-Israeli cooperation. The extent to which that can continue going ahead will be a very thorny topic for Saudi’s MBS.
So – all’s in the air for now.
So we have the Chinese navy in the Gulf of Aden, very close to the Americans so what could go wrong?
well, if the excrement really does come into contact with the ventilation system, what do we do?
I saw forwarded a note by UBS with the enticing title ‘How to hedge threats to your portfolio’.
Seeking consolation and reassurance.
Unfortunately, nothing ground-breaking here
The UBS base case is similar to mine: diplomacy, and an inability on behalf of Iran, Hamas and Russia to ignite a wider regional conflagration, will contain the crisis but if it isn’t contained…
‘Long futures positions on Brent crude oil—or options structures that gain when oil prices climb— are the best means of hedging such a scenario, in our view’.
Seems so obvious to me, I’m not sure it provides consolation.
The next most preferable hedge would be gold. Funny ole world. They also see limited scope for longer-dated US yields to overshoot 5% so they advise
‘In Treasuries, the current volatility leads us to prefer five-year duration relative to ten-year duration to earn yield and to mitigate the risk that ten-year yields continue to rise.
This is our preferred hedge for investors concerned that uncertainty over large US fiscal deficits and increased supply of Treasuries to the market could put further upward pressure on the “term premium”
What’s that?
A very good question, one I’m glad you asked and in the fullness of time I’ll do my best to answer it
The longer you lend, the bigger the reward you expect for the higher risk, I guess
The term premium is shorter.
The difficulties in negotiating a period of heightened equity mkt volatility is exemplified by the clear struggle UBS had to suggest much other than defensive consumer staples, diversification or a zero-coupon bond with long positions in call options on stock indices
In short, there isn’t much you can do to hedge equities at this point
I agree – I know little to nothing about stocks, but putting money into gold and long oil is just about the only thing I could’ve figured out by myself
I still like Japan, though
last night, the yen fell through the 150-level
but the Nikkei is + 21% in local terms, 8% in USD for 2023 so far.
Most economists are bearish on the yen but the extent of the decline has surprised them to such an extent that only the most bearish aren’t now too conservative.
if you can hedge out your local currency risk, Japanese equities still look to me to be a good place to be hiding right now
It’s possible the BoJ exits its yield curve control policy much sooner than had been anticipated – another big psychological level broken last week was $30,000 and I’ll bet the Zoomer in the room knows what commodity I’m discussing here.
I can take a wild guess
Bitcoin has finally been in the news positively again
+84% YTD
Though it’s still hovering around $28,000 currently – it DID spike to 30k after some rumours that the SEC had approved a Bitcoin ETF
Crypto enthusiasts have been watching this space very closely – as you can imagine – after Blackrock filed to launch a Bitcoin ETF product earlier this year
Which has led other interested parties and hedgies to follow suit
we can imagine the effects of a US-approved Bitcoin ETF: buy buy buy.
The HODlers will go nuts
Yes !!
Now, this isn’t the first Bitcoin ETF
Both Canada and the Netherlands have already introduced it
But as we all know – the US is the big daddy for valuations
More importantly – Julian – besides opening the floodgates of traditional investors and tax-efficient vehicles and pension funds, there’s the biggest plus to a Bitcoin ETF:
It is ‘boomer proof’.
Much kerfuffle is (apparently) made of Buying bitcoin – requiring wallets, and keys, etc.
ETF – it would be click and buy. So easy
Ha, that’s what you think
(and thank you Peter! 🙂 )
Even clicking and buying isn’t necessarily boomer-proof for a generation whose collective heartbeat rises dangerously and palpitations begin to beat like a tom-tom drum, at the mere appearance of the three most intimidating words in the English language:
‘Please log in’
LOL
Although ‘reset your password’ pushes it a close second in terms of making my spirit sink. Walking into a shop and paying cash for a Bitcoin (I know this defeats the whole point of digital currency) would be the most boomer-proof strategy of all. Maybe instead of selling overpriced belly wash wine to the unsuspecting good burghers of Kew, I could diversify into the Bitcoins I keep under my counter.
Cash for Bitcoin is more popular than you’d imagine – amongst Bitcoin’s second-largest fandom: criminals
Now
Despite the latest spike being induced by a fake rumour – the SEC has not announced anything like an approval yet – industry experts and stakeholders are clearly VERy optimistic
Paul Grewal, Coinbase’s legal officer:
““I’m quite hopeful that these [ETF] applications will be granted, if only because they should be granted under the law”
And JPMorgan expects a spot Bitcoin ETF approval to rapidly create a competitive environment, with hedgies fighting each other over offering these products
And it follows increasingly bullish notes on Bitcoin’s trajectory, most notably from BlackRock CEO Larry Fink, who claimed that Bitcoin alongside treasuries and gold are a “flight to quality” amidst geopolitical and equity turmoil
BUT
There is some TERRIBLE news in all this
Ark Invest CEO Cathie Wood has said that she expects the SEC to approve the Bitcoin ETF proposal, and to approve more than one at once
Now, I wasn’t skeptical of the SEC’s approval. But now I am.
Everything she touches turns to… brown
With only a 1/4 hours remaining, it would be remiss of the former broker within me to fail to mention this week is a big week for earnings and elections
US, AMZN MSFT GOOG are all out this week.
(Peter – we’ll be going into that tomorrow, actually)
Elections taking place in Argentina with the right-wing candidate, and owner of the world’s most extravagant mutton chop whiskers, worthy of Elvis in his Viva Las Vegas heyday, Javier Milei, losing out to Peronist Massa in the first round of presidential elections in a result that confounded polling expectations
Argentina is a psephologist’s nightmare.
Psephology is a division of political science that deals with the examination as well as the statistical analysis of elections and polls. People who practice psephology are called psephologists.
For the zoomers
As in Turkey this spring, it seems overseeing economic contraction, triple-digit inflation and reducing FX reserves to negative $10bn brings no guarantee of political defenestration, these days.
The kommentariat’s assessment of the Argy-bargy in Buenos Aires prompted a foam-flecked, oath-larded outburst from the normally very stable Izabella on Twitter,
‘When did it become normal to equate libertarianism with the far right? I’m confused. I read 1984. I’m pretty sure there wasn’t anything in there about laissez faire or “small government” or “tax is fraud”. Last I checked the Nazis weren’t laissez faire enthusiasts either.’
Meanwhile Peronist is used in the same context unironically as a challenger to “far right” libertarianism without any reference to Peron’s own far-right leaning and dictatorial past.
She was shocked! Shocked, I tell you.
The libertarian deep inside me was very pleased to read this rant.
My football coach at university was always forcing me onto the right wing. I’d always be trying to regain centre midfield but he’d shout at me to get out on the right. The city has been a similar experience. I came in a Centrist but was always being dragged to the right by the Goldfingers with whom I associated. Life has been a journey spent trying to recapture the centre of the pitch.
(Besides cultural marxism, John, the views you’re describing seems more ‘anti-government radical’, than belonging to a particular side of the political spectrum. Gun ownership was a left-wing point in the 19th and 20th centuries, eg. But that’s my POV)
Swiss elections also at the weekend and the far-right party did well, securing 29% of the vote, largely at the expense of the Green parties. A ‘clear slide to the right’ said someone whose name I did not take. It won’t fundamentally alter Swiss politics but it is symptomatic of the Zeitgeist.
Graham Greene: In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did that produce? The cuckoo clock.”
Last topic for the day… Uber
Uber launched an initiative, providing balloon rides in Cappadocia. It is literally Uber alles.
I have taken a balloon ride in Cappadocia and take great pride in never once having bored people with photographs of that morning.
I’ve always wondered how flying in one of those balloons is.
I have lots of practical questions about this.
It’s one thing to be stranded on a street corner in central London and have successive drivers cancel your booking because they are waiting for surge pricing to kick in, but another altogether if you’re standing in the desert.
I can’t see how this works in eastern Turkey. It’s not like balloons are just passing in front of you.
I assume you won’t need to have any arguments about having the windows open, though.
Far better for Uber to build on its 70% rally YTD by expanding into services like an Uber hearse for funerals or ambulances, especially for the crapulous banker who is flat out, drunk on a Cheapside pavement and needs strapping into a trolley, on a drip, with medical assistance for his journey back to the suburbs before being gently decanted into his porch. the ‘getting somebody home while drunk’ service would be a big hit and a welcome diversification
I also suggest an Uber hearse service – that would be useful.
And not just if you had a corpse which you were trying to dispose of. You could lie down in it and when it stops at lights, sit up, look around and ask the driver to step on it. Passers-by would be thrilled.
Lmao
What I find most absurd in all of this, is that Uber’s much-vaunted jump to near profitability has coincided with literally the worst year ever for Uber customers
I’m sure our watchers here will agree.
Two weeks ago – this is the worst of it – a friend of mine was mugged by a fake Uber driver.
The Uber driver lured my friend into a dark alleyway where a gang of individuals set upon him and stole his watch and wallet.
But even the mundane aspects of Uber’s shoddiness are annoying.
This year’s been delay after delay, surge price after surge price, unwanted cancellations galore
How many stars did he give the driver for that one?
Uber is finally “doing well,” they say. But if I can now order a black cab for almost a similar price as an Uber – and I know it will arrive on time – it is NOT doing well
And that was almost the entire reason anyone ever chose Uber in the first place!!
However, bizarrely, stock price +70% YTD
Insane
Right, my Uber is waiting outside to take me to my day job and so I bid you a fond farewell. Adios amigo
Bye bye!! Have a lovely start to the week, everyone.
