By Alex Salomon
What a week!! I have to admit that I am somewhat relieved that it is over: time to gear up for a fun-filled 4th of July week and hopefully a break from the volatile geopolitical and financial environment.
Now I realize that the rest of the world does not stop in lieu of a US holiday, but the US financial markets almost always slow to a crawl… so this should offer some welcome respite from recent tumultuous headlines!
Here are 5 more thoughts for this week, with a fair amount of randomness and no specific order:
1. We live in a cynical world ruled by brutal interests which are only tempered by individual and organizational benevolent efforts. In this brutal, cynical world of Realpolitik and Realdiplomacy, Russia’s Vladimir Putin is likely one of the coldest masters. The former KGB star has only one agenda: a powerful regime for a powerful Russia.
In this context, an unfortunate yet serious consequence is starting to take shape: oil investments are beginning to look good again. See, Russia is rich with oil – but expensive oil (the kind that travels long distances through a lot of remote locations that are difficult to exploit, with sometimes inefficient and antiquated equipment that negates productivity). Most estimates place Russian oil break-even point at over $100 per barrel. At the current $80 level, Russia pretty much subsidizes its oil industry, waiting for better days and better prices (or a much cheaper US dollar).
While I understand that nothing is certain in the world of investing, you can make a solid bet that a cold and calculating leader like Mr. Putin is going to try everything he can to add oil to the Syrian & Iranian fires (bad pun, intended).
Russian oil benefits from geopolitical tensions such as those we have seen recently throughout the Middle East; an area they have a vested interest in. Last week’s downing of a Turkish plane by the Syrian Air Defense is a prime example. And escalating disaster in Syria, even maybe a “Serbianization” of Syria and Lebanon ruthlessly drives up oil prices. The same can be said for the ongoing Iran nuclear saga.
Couple these factors with an improvement of the financial situation in Europe and US seasonality and investments related to higher oil prices could be the “easiest” trade of the summer. Proxy investment could be through the United States Oil Fund (USO). Keep an eye out for a technical chart from Andy. I hear one is coming soon!!
2. Speaking of Europe… Nah, nothing to report, nothing happened. Wait… Maybe a couple of soccer games, but no news from Europe this week…
Are you joking??? I am just making sure you are still with me!! This week has been HUGE!
This week’s European Summit has been covered by all the news outlets and is generally considered as a breakthrough.
Here are my synthesized sub-thoughts on the topic:
(a) it seems likely that June 28, 2012 marks the first time that Europe actually decided to act and address financial concerns — instead of blaming the financial world; this is a huge shift and could actually start a multi-year process addressing structural needs for a more integrated European Union — or no Union at all;
(b) an overwhelming crowd covering the Summit indicated that Merkel and Germany were the biggest losers coming out of the agreement … yet the crowd, especially subjective, is rarely right;
(c) if indeed this is the start of a process (finally fixing issues instead of posturing and blaming), it is going to take years to finalize … so be patient!;
(d) if indeed this is the start of a process, then beware of commodity and oil reflation and thus, keep an eye on investments related to higher oil prices;
(e) sooner or later, Europe, Japan and the USA all have to address the same MONSTER issue: debt restructuring — be it via tremendous growth & reflation, disastrous hyperinflation, or renegotiation and re-alignment. In short, we have to start cleaning up the mess we are potentially leaving for future generations.
3. With its Nexus 7, Google announced its new entry in the world of tablets. While this new item has received plenty of coverage and debate as perceived vs. Apple’s (AAPL) iPad & Amazon’s (AMZN) Kindle, my creative thought of the week is that Android-powered tablets and future iterations could literally take over, seek and destroy the hardware manufacturers of industrial readers, scanners, and semi-computers. Just like Android and iOS devices have pretty much killed Nokia (NOK) and Research in Motion (RIMM) (which just announced yet another set of disastrous results), I believe that future versions of Android Tablets and Phones are going to kill companies like Psion, Intermec (IN) — or, at the very least, hit their hardware manufacturing businesses.
Just like I am sure big social networking gurus at Twitter, Facebook, BING and others read this weekly column, I sure hope that CIOs and CTOs at industrial hardware companies are finding out how to adapt and ruggedize future devices!
4. Okay, how can I avoid writing something about the Supreme Court of the United States upholding “Obamacare?” Now I understand that touching on domestic politics is a lot more touchy (!!) than writing about foreign issues. And further, the risk for incendiary comment is far higher.
Yet, I do have two “thoughts” to share on the topic.
First, Justice Roberts writing, “It is not our job to protect the people from the consequences of their political choices” was my favorite quote of the week. By far. Month? Probably. Year? Arguably. Thank you, Justice Roberts.
Second, I do believe, in my heart, that education and fair health are two pillars of a civilized Nation, along with the Bill of Rights, the Habeas Corpus, the Universal Declaration of Human Rights and a few more tenants of our core values. Thereby, I deeply, sincerely believe that regardless of the monetary burden of fair health, it is also a strong link to freedom and dignity. I would go as far as contending that if less US citizens were afraid for their health coverage, they would create more new companies, innovate more, change jobs more often, take more risks, promote growth.
5. Finally, sadly, there was enough news flow to add to my weekly rant that we are living through a period of crisis created by uncontrollable debt. And more and more, I am convinced that the debt is only the symptom: the disease is a crisis of accountability and honesty.
This week’s rant comes courtesy of Barclays Bank. It started likes this: “We have to get kicked out of the fixings tomorrow,” reads the email… “We need a 4.17 fix in 1m. We need a 4.41 fix in 3m.” And it ended with Barclays Bank agreeing to a 450 million dollar settlement for fixing Libor rates – a first step to a widespread scandal likely to hit many more banks.
Read more here in this detailed article about the scandal; it is likely to make you gasp. The disease really is a crisis of accountability and honesty.
Happy Fourth of July to all!! Have a blessed, wonderful, peaceful week!
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Twitter: @alex__salomon @seeitmarket Facebook: See It Market
Position in Google (GOOG) at the time of publication.
Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of his employer or any other person or entity.
