Brussels And Minsk: Tales Of Two Cities

by: Enzio von Pfeil
  1. Brussels: plus ca la meme chose.
    1. Current negotiations between Greece and the Troika are just a game of chicken: who will clear the road first? We think: the Greeks.
    2. Fin. Min. Varoufakis is a smart guy, having taught game theory at over three universities.
    3. Nevertheless, the Troika won't give in. This gets me back to my "Helmut Schmidt" thesis put forth a couple of weeks ago.
    4. Here is a link to Thursday's Bloomberg interview on the charades in Brussels.
  2. Minsk. Another game of chicken.
    1. What's at stake: either NATO expands east, or Russia expands west.
    2. Here are a couple of points gleaned from today's German press:
      1. OVERALL GOAL: the stated goal of this quadruped is the practical implementation of 5th September's cease-fire accord reached in Minsk, Belarus.
      2. RUSSIA says that it is unrealistic to restore Ukrainian control along its border with Russia; further, Pres. Putin wants Pres. Poroshenko's Ukraine to become a federation, and
      3. UKRAINE accepts de-centralization, but rejects Russia's demand for a formal federation.
    3. "Good guy/ bad guy". My hunch is that Chancellor Merkel wants to play the "good guy", aka "if you don't conform with our more peaceful stance, your only option is to deal with the pugnacious Americans (i.e. the bad guys)."
  3. Investment implications.
    1. Keep buying Europe's stock market in to the run-up of 1st March, when the water-hosing (aka QE) begins.
    2. Thus, stay tactically long of the Euro: if Thursday's Financial Times is correct, there is a tactical asset allocation tilting towards Europe. So the demand for Euros rises, as will its price.
    3. Go long Ukrainian bonds. Yielding over 20%, rest assured that the IMF will stand behind them. Indeed, the IMF plans to announce a rescue passage shortly. This idea is for hedge funds, NOT for our preferred "buy and hold" strategic investor.
    4. Go long of select American defense stocks. Having recently read Lessig's marvelous "Republic, Lost" about America's legalized corruption: in the run up to the 2016 elections, it is not inconceivable that the US defense industry is just dying to get "lethal weapons" sold to the Ukrainian patriots. All purely for the good of democracy in Ukraine, of course....