"They seek him here, they seek him there....that darned elusive Pimpernel"
Investing globally requires a far greater degree of due diligence and homework than local investing, and the more global the assets in one’s portfolio, whether direct ownership of foreign assets or owning domestic companies with large foreign business components, the more one’s portfolio is exposed to “geopolitical” risks.
Let’s shine the spotlight on the political end of that word. More specifically, “Political Will” (P W).
Whatever the micro financial analysis of a particular company suggests about its stock-price valuation, if the PW does not exist to guide macro-economic policies in a way that promotes sound economic growth, then the micro analysis becomes nothing more than an assessment in isolation, or vacuum as it were.
Some would argue that PW is only relevant in times of economic stress. I would agree with that sentence if the word “only“ was replaced with “more”….in my view, political will is never irrelevant.
Where are we today on this front?
Is PW front and center, steering the markets through twisting and turning roads?
Or is it absent, and in turn, is its void reflective of a clear and present danger?
But when you do, consider some of the following:
When the US, and in fact, the world, was blowing up in 2008, did the US government in all its forms, get up on their big white horses and come charging in to the rescue with hundreds of billions in TARP and related funds? Did the white knights of DC save the banks? The car companies? The insurance companies?
We can debate the right and wrong of each of the issues above, especially in terms of their respective long term economic impacts on our children’s generation, if not for sure on our grandchildren’s generation, but for today’s investment decisions, one would have to give the nod to PW being front and center.
How about Europe? When the so-called PIIGS were choking in mud, or at least the market’s perceived them as such, back in the Spring, did Monsieur Trichet & Co. come galloping in with a €750+Bn ($1Tr+) bailout safety net? When the same group of financial stewards reiterate time and again that the breakup of the Euro is not an option, whether you agree with that or not, do you have to give the nod, yet again, to PW at the fore?
How about Japan? In a recent piece, I asked, with regard to their currency intervention, “Kan” it work? It’s clear from history that a one-off currency move by a single central bank aimed at stopping market forces is like trying to block a hurricane force wind with an umbrella! But the rhetoric from various corners within the BOJ and MOF and Diet should have made last night’s move on rates and introduction of "QE-san" not nearly the surprise that markets seemed to have felt. They say they’re going to fight a strong Yen, and again, you’d have to give the nod to PW as keeping their word!
Let’s return to this hemisphere and head south to Brazil. When the Finance Minister, Guido Mantega, recently described the global market situation as being nearly in a state of ‘currency war’, were we to ignore that and assume that PW wouldn't manifest itself in some way? If so, then the rise to 4% on the transaction tax on foreign capital investing in fixed income securities that was just announced last night surely must have come as a total surprise!
Let me be clear…..this is in NO way an attempt to say that predicting PW is an easy thing, nor that in each of the cases above that we should have had the same foresight as was revealed in hindsight. But it is a warning to investors to remove local blinders and view the markets globally. It’s also a reminder that investing requires distinguishing between what is ‘likely’ as opposed to what is ‘right’. You may not agree that any of the moves mentioned above are sound policies, and in fact, you may feel strongly that they’re adding fuel to an already hot fire. If that’s the case, select investments that express those views, but be careful to include a dispassionate assessment of what PW may still emerge that could make your investments right in the long run, but dead right now!
Keep in mind that in terms of economics and markets, what is PW is not necessarily EC...economically correct!
Remain vigilant in the hunt for PW: "...that darned elusive Pimpernel".....
Soos Global Capital Advisors, LLC
This article is meant to contain thought provoking views and is NOT investment advice. As always, please read IMPORTANT DISCLOSURE INFORMATION by hitting the following link to the "Soos Global Capital's Company" section of the Profile page seekingalpha.com/user/686137/profile .
Disclosure: Long ETF's in Asia ex-Japan, China, Brazil, EWZ, BRXX, FXI, EEM, and stocks in SPX and Europe, EWG