Notes From Underground

The above reference is from the wonderful cult movie, Putney’s Swope. The CEO of a major advertising firm has a heart attack during a board meeting and the sycophants don’t realize it as they continue peppering him with questions. When he’s unable to respond they ask, “How Many Syllables, Mario?”

On Thursday, we will listen as the ECB holds its regular post-meeting press conference. You know, the one where President Mario Draghi pretends to answer questions about ECB policy. There will be NO CHANGE, especially since the EURO has recently rallied in response to a sharp drop in U.S. yields.

Also, on Tuesday the Reserve Bank of Australia lowered its overnight cash rate by 25 basis points to 1.25%, citing trade disputes and the increased uncertainty “affecting investment intentions in a number of countries.” The RBA was actually optimistic about the Aussie economy as they noted that employment has been strong and labor force participation improving but they chose to cut rates regardless of some positive domestic forces.

The recent slowdown in Germany and the continued rancor between Rome and Brussels is more than enough to keep Mario Draghi on hold. The press conference will be about trade issues, Italian debt, the idea of increased fiscal stimulus out of Brussels and Berlin. The absurd question will be whether Draghi has a preferred choice for his successor. It is a game of charades. HOW MANY SYLLABLES, MARIO?

***There has been strange movement in a stock I have discussed for quite awhile, the Russian ETF RSX. This stock has traded higher even as the overall market has been weak. In defiance of recent correlative properties RSX has rallied with a $10 drop in crude oil prices. When oil prices were trading close to $75 in October, RSX was trading $21.80. But today OIL is $52 and the ETF is trading above $22. Something positive is developing in the state of Russia. This is important for my analysis of global events as it MAY portend that U.S. sanctions may be coming off the Russian economy. Last week. President Putin pulled back on some of his support for Maduro in Venezuela. And this was after Secretary of State Mike Pompeo went to Moscow on May 12.

Furthermore, there are rumors that Russia is pushing hard on Iran to curb its activities in Syria as Israeli strikes on Iranian ammo depots have increased. Has Putin leveraged his ability to foment discord in the Middle East to get relief from the sanctions that have burdened the Russian economy? If so, then RSX and its 4.5% dividend (and low P/E) may be an interesting investment. (Note: I currently have a position and bought more Wednesday. I’m not touting, but merely observing price action that is diverging from recent correlations.) When algorithmic relationships break down it’s time to pay attention.

***On Tuesday, presidential candidate Elizabeth Warren put forth a suggestion for “actively managing” the value of the dollar. A Bloomberg story said Warren’s plan “would promote exports and domestic manufacturing” making her economic views similar to Trump. Look for Senator Warren to use the DOLLAR as a tool to woo voters in blue collar states in which Trump was so successful.

The dollar has been an issue for Trump as Commerce Secretary Wilbur Ross has raised it as an issue in the trade wars. Former Ford CEO Mark Fields called the manipulation of currency the “mother of all trade barriers.” Watch to see if this issue results in positive traction for Warren. If so, look for President Trump to raise the issue of dollar strength with an ever louder voice.

Tags: ECB, EU, Euro, Germany, Mario Draghi, Reserve Bank of Australia, RSX, Russia, U.S. Dollar

This entry was posted on June 5, 2019 at 5:48 pm and is filed under Currency, ECB, Russia, United States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.