Here in Atlanta, the weather is going crazy, again.
Two weeks ago Atlanta became the laughing stock of America when 3 inches of snow shut down the city for two days. Granted that there was some ice as well, it was the surprise element that left the people unprepared for what happened. Now we face an ice storm much more severe than last time and the city is shut down in caution to avoid gridlock and children trapped in school buses and grocery stores overnight.
While I am thinking about all the ice and watching the Sochi Olympic games, I have reconsidered my recent missive on Russia. Back on Jan. 22, I wrote to you about Russia presenting a great investment opportunity
this year. I am still committed to the macro story, but recent events have made me consider a reverse position for a short-term trade.
The emerging markets are showing signs of short-term crisis that is manifesting via currency moves in certain marginalized countries. Last week, I spoke to you from Europe
when I was visiting Poland. I mentioned the emerging markets crisis and a broad sweep, which was unwarranted in some currencies. The Polish zloty had been punished without consideration to the economic considerations. Poland's economy is doing well, but the currency had dropped dramatically. Since I wrote the article, the zloty has turned around, handing us handsome profits on the trade.
Now I see a short-term opportunity that we can capitalize on. While the overall Russian economy will do well this year, it is currently surrounded by bad news. The Ukrainian hryvna has been in free fall for quite some time, driven by the appallingly poor country fundamentals.
Further adding pressure is Kazakhstan. It is the tenge's turn to be subject to a massive exchange rate adjustment, with a drastic move to 185 against the dollar.
The conclusion I draw from this is that the Russian ruble is now surrounded.
In a world where emerging markets are going through a severe confidence/market crisis, it would be wise not to underestimate the power of financial contagion. Right or wrong, investors are not spending discriminatingly these days, which makes me think that the ruble is exposed in a major way.
Is Russia on the brink of a financial crisis? Absolutely not. But the fundamental news flow has been far from positive recently out of Russia, and more importantly, a bad neighborhood is good enough these days for a correction. Given that the Russian fundamentals will remain strong and strengthen, the ruble will bounce back, but in the recent future we may see the ruble collapse a bit.
We can use this vagrancy of the market to gain some short-term profits.
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