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Gimme a 'U'!

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Gimme a 'U'!

On Thursday we said in this portion of the newsletter:


Continued uncertainty in Ukraine, Venezuela and Thailand should be considered favorable to bullish sentiment. 


That turns out to be the understatement of the last 30 days or so.


Now the U.S. and E.U. are moving closer to imposing sanctions on Russia. Russia will no doubt rattle their fuel can at Europe, China will equivocate and some people will say that the U.S. does this sort of thing all the time.


We shouldn't give a fig about most of that, unless a real shooting war breaks out.


What is actually driving the price of gold, the dollar, the yen and crude dramatically higher today is the precariousness of Russia's economic position.


Even with a $5 loss from the dollar's appreciation, gold is up at 4PM in New York by over $22.


The ruble has fallen to its lowest all-time levels, 42.63/$1.00 for those who are tracking it. Worse for the Russians, the central bank in Moscow raised interest rates 1.5 points to 7%. On top of it all, the Russian equities exchange is down today by 11.5%. 


The Russian energy sector is essentially state owned, however, and a lower ruble in effect raises the price of crude oil. So there is a bit of a natural hedge right there. Russia's biggest customer is Europe, and while higher prices or a slowdown in delivery as a response from Moscow to western sanctions seems remote, it doesn't seem out of the question. Anyway, Europe can buy energy elsewhere and supplies in general can shift around globally. Aside from energy, Russia has little in the way of earning hard currency. 


Equities' losses are not affected in this ruble-oil-export calculus. And once investment money begins flowing out of a country, it tends to be a cumulative process that gains momentum. Spooked, you could say. And, in an extreme scenario, should Russia need new loans, the only country it can ask is - China.


The unfortunate aspect of this politically, and possibly militarily, is that Russia has made an enemy where it didn't need to. A simple phone call to the new government would have reassured Russia that Ukraine had no designs on their (useless) warm weather port. We say useless because without the cooperation of the Turks, Russia cannot move through the Dardanelles or the Bosporus, two narrow straits. 


But why are the U.S. and europe taking this so seriously, you might ask? During the break up of the Soviet Union, the West persuaded Ukraine to give up its share of the Soviet nuclear arsenal for a "guarantee" of territorial integrity.


So, the move leaves egg on the West's face. Like a whole dozen eggs. But, the counterbalance to that is that Russia looks like a cheat.


We're not in the upper echelons of western governing circles, but, if we were reading the entrails of the ram on the altar of the oracle, we'd say this is a pretty good time to detach Syria from the Russian orbit. 


All that said, no one can predict what will happen next, so this is an excellent, if not crucial moment to be paying particularly close attention to technical signals.



As always, wishing you good trading,


Gary S. Wagner - Executive Producer