MARKET PERSPECTIVE

By J Mulraj

June 8-14, 2024

Don’t political leaders ever learn from history?

At the risk of losing half my readers, I’d aver that history, like a woman, repeats itself!

Current, very dangerous, events, are a repeat of what transpired in 1962. Then, America, under President John F. Kennedy, unwisely provoked Russia, under President Khrushchev, by placing missiles (including nuclear ones) in Turkey, capable of hitting Moscow without enough time for interception. Khrushchev protested that this posed an existential threat to Russia, and asked for them to be removed. America didn’t.

Khruschev then adopted the tactic of Bruce Lee in the movie ‘Enter the Dragon’. Asked by a contestant what his technique was, Bruce described it as ‘the art of fighting without fighting!’.

Khruschev did a tit for tat, placing Russian nuclear missiles in Cuba, equally capable of hitting American cities. Kennedy, as is everyone else, was a proponent of NIMBY (not in my back yard) and, after a tense stand-off for ten days, agreed to withdraw his missiles in Turkey if Khruschev agreed to withdraw his from Havana.

The world heaved a sigh of relief of rescue from nuclear Armageddon. An Armageddon that should never have been reached had American missiles not been placed in Turkey, in an excessive display of jingoistic machoism,in the first place.

Well, it’s cigar time again! This time, too, an American President, Biden, has provoked Russia, by agreeing to the use by Ukraine, of American, and European arms, to be used to attack Russia, in Russian territory. Finland, a NATO member, has placed its jets in Romania, close Russia, viewed by Putin as an unnecessary  provocation.

President Putin’s protests went unheeded, as were Khruschev’s. But, unlike Biden, Putin knows history. So Russian warship and a nuclear submarine have reached Cuba, laden with cigars or missiles (you decide) in a completely avoidable déjà vu of events.

The danger is that whilst Kennedy was clear headed, somber and rational, and averted a nuclear calamity, Biden is befuddled, erratic and irrational. So investors would need to factor in the possibility of insanity in decision making.

An insanity evidenced in the decision of Biden’s Government to lift its ban on supplying arm and training to the Azov Brigade, a Ukranian neo- Nazi group that displays the Nazi swastika. Ironic that he funds a neo Nazi foreign group but calls a former US President Hitler.

Not only are Biden’s policy actions threatening a nuclear war and ending the world, by senselessly provoking Russia (he is also pushing NATO into using the income from seized Russian financial to donate to its enemy, Ukraine!) but Biden’s domestic policies are leading America into a financial collapse, one that could be worse than the 2008 crash! A panoply of factors are contributing to the impending collapse, chief amongst which are the travails of a weak Commercial Real Estate (CRE) market. These travails will spill over into lending banks that will take the hits, mostly smaller community banks. Expect a banking crisis soon.

Investors are hoping for 2 to 3 interest rate cuts by the Fed, but this is not likely; perhaps there may be one. Biden’s Government has been fudging job growth figures! (is anyone surprised?). As per this article, Fed Chair Jerome Powell admits this. The latest data on non-farm job growth in USA put the figure at an encouraging 272000. However, an analysis showed that the data counted multiple job holders multiple times! Stripping this out the actual figure was a negative 408000! A swing of 680000!

Thankfully, retail shareholders are thinking straight. They are holders of 30% of Tesla stock, and did the right thing by re-confirming and upholding an earlier pay package for founder Elon Musk, to grant him a huge chunk of shares, at the then prevailing price, incumbent upon him achieving some impossible targets. He did achieve them, and was contractually entitled to the bonus he had earned. Shareholders had benefited immensely by his achievement as the market cap of Tesla went up. Tesla is, today, the most valuable car company in the world!

The earlier agreement with Musk was upended by a Delaware court, on a suit filed by a disgruntled shareholder. It was a woke judgement. That shareholders have now reaffirmed Musk’s contractual right to get his well earned reward gives hope that all of America has not turned woke.

Last week the Indian stockmarket was flat, and the BSE Sensex ended at 76992.

The Indian retail investor, who for long invested his savings largely in fixed deposits of banks and companies, has embraced equity mutual funds in a big way. Many of them invest in the SIP (Systematic Investment Plans), investing a fixed sum each month, on a fixed date, regardless of whether the market is headed to the moon or to the bottom of the ocean. The monthly inflow into equity SIP has gone over Rs 20,000 crores ($2.4 billion), a remarkable achievement .  This is a committed sum that flows in mutual funds, and needs to be invested, as per SEBI, into Indian equity. So there is a domestic inflow of over $2 b every month that needs to be invested into equity, capable of countering institutional selling pressure.

Perhaps only a catastrophic external event can cause a sharp fall. It could be another global financial crisis, like the one in 2008 or maybe worse. The trigger for which can come from a collapse in CRE. Or it could be a geopolitical event like a game of passing-the-nuclear-parcel, with the bomb exploding when the music stops. The global polity seems loony enough to set this off.

Because they simply don’t seem to learn from history.

Picture Source: https://cigars2me.com/products/d-5-missile-with-cigar

Comments may be sent to jmulraj@asiaconverge.com