I’ve explained before that I don’t like trading when it comes to war scenarios, and it looks like a lot of other people have rushed to take their remaining risk off the table – unless, of course, they’re dyed-in-the-wool, Gung-ho oil speculators.
Last week, before the attacks, we touched on the potential for a decent rally in oil prices. A few days later It didn’t just rally – it rocketed through the target level, and then some. In the current environment, these markets are for those with tomatoes of steel.
But if we look across capital markets more broadly, what we’re seeing feels more like confirmation of what many of us expected was coming, rather than a complete restructuring of the landscape, it just happened very quickly. That said, unless you work out of the White House, I doubt that many saw when these moves coming – and most definitely not as violently as they have.
I’m not going to comment on the rights and wrongs of what is currently happening; it’s way above my pay grade. But the Trump machine is rolling on, and it’s becoming increasingly obvious that while Trump is playing chess, everyone else is playing chequers – with the exception of the UK and Spain, which, unlike the mad mullahs, and indeed Donald Trump himself, appear to be countries run by gutless, fence-sitting politicians.
Anyway, I digress.
What we saw this week was a dollar rally, with both the euro and sterling taking a bath. You could argue that, since they weren’t getting their hands dirty, they should have held up better against the dollar. But let’s be fair: both currencies have been overvalued for months. It just took a moment of political hesitation or possibly cowardice, to expose how poor European technocrats are at making tough – but, dare I say, necessary – important decisions.
And let’s not forget how Europe has spent decades undermining its own industries by heavily taxing imported fossil fuels. Make of that what you will. “Drill, baby, drill!” Trump loves fossil fuel, and now he is positioning himself with significant control or influence over the global supply – not only to Europe, but also to his main adversary, China. As I mentioned earlier, he’s playing chess – a game invented in India but perfected in Persia. Oh, the irony.
Elsewhere, as expected, gold initially experienced some speculative buying. But that demand failed to push prices into new highs. Perhaps serious buyers have already filled their vaults. Perhaps they’re wary that this war might end sooner than many expect. Whatever the reason, recent volatility is, seems to be keeping a lot of players on the sidelines, when under normal circumstances we might have expected them to be more active and the markets to post a much stronger rally.
And while we’re on the subject of hedging instruments, BTC didn’t experience a flood of new buying when the shit hit the fan- if it saw any at all. Sooner or later, someone will provide a serious explanation of what BTC truly is or has become. (If you know, send me a postcard?)
Finally, defence and energy stocks may have picked up, but everything else went to hell. Quite possibly, we’ve now put a lid on equity indices – at least for the time being.
We’ve spent most of this year discussing the need to reduce risk and re-evaluate exposures. That advice has proved useful. No one expected a war. No one wanted a war. And please God, may it be over much sooner than the talking heads in the Trump-hating, Western media suggest.
There will be opportunities – there always are. But make sure you don’t put too much capital on the line until the dust settles. When this war is over, the markets will still be there. And we’ll all need as much dry powder as possible to exploit these markets when the future becomes clearer.
Please note the political opinions expressed above are those of the author himself, and do not necessarily reflect the opinions of JP Fund Services AS.
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