Rhetoric Threatens U.S. Stocks More Than Russia At This Point

Includes: DIA, IWM, QQQ, SPY
by: Markos Kaminis


Stocks and the SPDR S&P 500 started lower Wednesday when President Obama spoke strongly to EU members about Russia's recent aggression.

We recall that the market celebrated Russia's final annexation of Crimea because it became clear there would be no military confrontation.

Wall Street now appears uncertain and concerned about after-the-fact bravado and rhetoric fueling future fury between the West and Russia and destabilizing markets.

President Obama was over there in Europe Wednesday discussing Russia and energy with his European peers. The news trickling out of Brussels so far is troubling traders it seems. It's been reported that the EU and the US are currently working on tougher sanctions to impose on Russia should it go beyond its Crimea annexation into Eastern Ukraine or elsewhere. This threatens US stocks in my opinion and was not well-received by Wall Street Wednesday. Jim Cramer pointed out on his program Mad Money that stocks took their cue lower on Obama's comments. For this reason, the SPDR S&P 500 (NYSEARCA:SPY) came under pressure and dropped 0.7% on the day. Beware that the SPY remains threatened for as long as we pressure Russia in my view.

You will recall that the market celebrated Russia's final move to annex Crimea because it seemed it would not have any repercussion for invested capital here at home. Pushing Russia now only seems to ensure push back from the sometimes rough playing opponent. That's not something stock investors are going to appreciate, because stocks will depreciate on any new trouble. So I believe Wall Street would have preferred everybody just drop the rhetoric and move forward from here. But that is not possible from a geopolitical perspective, because what's best for Wall Street does not dictate what our leaders do at times like these.

For instance, yesterday my jaw dropped when I watched the video of the President saying that a nuclear bomb going off in Manhattan worried him more than Russia. First of all, if that's a real threat, I think it's best the general public not know it. Second of all, maybe now it is a real threat, since whatever the President says reaches far and wide, not like what us two-bit chumps talk about.

Don't get me wrong. I was a proponent of preempting Russia in Crimea with NATO forces, but now that we've taken another path, I (and Wall Street) would rather leave the region be. Truth be told, Russia can do a lot of damage to the American economy if we become engaged with it in old cold war games. I heard a talking head on business television yesterday say that Russia never cut off the energy to Europe during the cold war, so it was not a threat now. First of all, it was not as important a supplier of natural gas as it is now. But there's one other important difference between now and then, Vladimir Putin. However you feel about the Russian leader, you have to respect his cunning KGB background and his fearless façade, to put what I would like to say more politely.

I don't want to get too deep into politics on this forum, but I will say that I am now worried about President Obama's foreign policy strategy, because if we're not engaging Russia in defense of Ukrainian territory (prior to the full out annexation), then we should neither be punishing it after the fact. That's because if we give it too hard of a slap on the wrist, Russia will push back and it can harm our economy in my view. This is not a challenge that should be engaged in via a half-way manner, to be polite. It demands all or nothing, and at this point, we should be doing relatively nothing since that is the path that was effectively chosen when we did nothing to stop Russia from annexing Crimea.

1-Month Chart of SPY at Yahoo

The SPDR S&P 500 is indicating danger in my opinion. The first dip in the chart here represents the period in which it was yet unclear what would develop in Ukraine. The worst of possibilities was still in play. Once it became clear Russia would not be opposed by a show of military will, the stock market celebrated and bid up stocks and the SPY security here.

However, over recent days, and some will rightly say partly due to the Fed's Economic Forecasts and higher expectations for the Fed Funds Rate, trading has been choppy. In the most recent period, though, after the Fed Funds info was digested, we're seeing stocks trading lower. What's changed?

Market Security


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PowerShares QQQ (NASDAQ:QQQ)


President Obama and other global powers in the G8 have dropped Russia and reformed to a Group of Seven. The group has also snubbed Russia by canceling the upcoming meeting of the group scheduled for Sochi, Russia. Early sanctions from the States were soft, targeting wealthy individuals. However, tough talk has found new bravado and is now wandering into ignorant discussion about energy and the rendering of irrelevance upon Russia by re-sourcing European energy. Is that a smart thing to say and do publicly while the gas is still flowing from Russia through Ukraine and Belarus into Germany and Europe? No it is not!

The West is playing a rules-based game on the public field of play, while Russia is planning its responses in secret in my view. It makes for surprises, and unsavory ones for us at that. There's one thing the market despises more than anything else, uncertainty. Could there be any more uncertainty than there would be around a Russian response to critical actions against its currency, economy and its proud leader's pride? No, so this is why the SPY came under pressure Wednesday, and why it remains threatened by half-measures that could do more damage to the economy than to Putin's supposed plans. Again, lest my patriotism come under question, I believe the right move was to stop Russia when we could have, not to play with poison after the fact.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.