USA and Russia on a confrontation course with dangerous “red lines
Is a Cuban Missile Crisis Imminent? –
On 12/13 December, so-called “stability talks” took place between Russia and the USA or NATO first in Geneva and then in the Russia-NATO Council and subsequently at the OSCE. Before that, however, Putin and Biden spoke on the phone. All the talks so far have not led to any détente or positive outcome. Russia is obviously demanding unfulfillable security guarantees from the West. Is Russia now planning missile sites in Venezuela and Cuba? Investors are also worried about the future monetary policy of the FED due to too high inflation as well as the rapid spread of the Omicron variant.
Investors are therefore now very unsettled. Share prices fell on the world’s stock exchanges last week. In contrast, 7 stock exchanges from Eastern Europe clearly outperformed the DAX again. It is regrettable that the Eastern European stock markets are still treated very stepmotherly in the media and that even bank advisors hardly have the know-how to give competent advice here. Andreas Männicke also gives his assessments of future opportunities in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 193 at www.YouTube.com .
Russia Demands Unfulfillable “Security Guarantees”
The talks between the USA and Russia last week were as fruitless as the talks in the Russia-NATO Council or subsequently with the OSCE. Russia wants “security guarantees” from the USA and NATO. Russia feels more and more encircled by NATO. Russia also wants Ukraine never to join NATO. But Russia also does not want NATO or US missile systems to be built on Eastern European soil, as Russia sees this as a threat to its own security. Russia has thus marked dangerous “red lines”, which the USA and NATO, however, do not accept. However, Russia is also disturbed by the large number of manoeuvres in the Black Sea and the arms deliveries by the USA to Ukraine, which are being used offensively to attack separatist positions.
Is a new Cuban Missile Crisis looming?
If the demands are not met, Russia wants to be advised by its military advisors and then take appropriate measures. The stationing of its own missile systems in Venezuela or on Cuba would be conceivable. Does this soon threaten a new Cuban crisis like the one in 1962, where a nuclear war between the two nuclear powers could only be avoided by a hair’s breadth?
There was a hacker attack on Ukrainian government facilities last week. Ukraine and the USA suspect that it was Russian hackers. The EU reacted immediately and offered help and support to Ukraine. Something seems to be building up that could become very uncomfortable and dangerous.
USA and EU threaten tough sanctions
The US and the EU, on the other hand, are threatening Russia with harsh political and economic sanctions if Russia were to attack Ukraine militarily. The US suspects a “false flag attack” by Russia, i.e. a disguised attack on itself under a false flag, i.e. that the Russian military is being attacked by an explosive device, but which Russia itself initiated in order to justify an attack against Ukraine. There is still the threat of over 100,000 troops and many tanks near the Ukrainian border. So the sabre-rattling goes into the next round in an intensified form. The bloody uprising in Kazakhstan with over 200 dead was nipped in the bud with the help of the Russian military. The Russian military is already being withdrawn. Who is behind the armed uprising is still uncertain.
Investors arbitrarily unsettled – also because of inflation
But it is not only the mutual drawing of “red lines” and the sabre-rattling on the Ukrainian border that worries investors, but also the constantly rising inflation, which in December rose to over 5 percent in Europe and to over 7 percent in the USA, which is the highest inflation level in over 40 years. The FED will respond by ending its securities purchases in March and raising interest rates at least 3 times. The question is who will then buy the US government bonds in the volume of more than 1 trillion US dollars if the FED ceases to be a buyer altogether. It is possible that US yields on US government bonds will then also rise at the long end. This is because the FED will then no longer be able to control the yield curve. It will be dangerous above all if the FED announces a reduction in the balance sheet total. What could happen then can be seen in the fourth quarter of 2018, when the S&P index lost 25 percent of its value. The ECB is also worried about inflation, but has not yet announced any concrete measures. However, that may still come.
Is Omikron a curse or a blessing?
But the Omikron virus variant is also causing investors great concern in case of new lockdowns and/or new supply problems. More than 30 per cent of flights worldwide have already had to be cancelled due to staff shortages. Lufthansa alone had to cancel over 30,000 flights in the winter timetable due to staff shortages. In addition, quarantine has led to staff shortages in infrastructure-relevant areas such as the police, fire brigade, hospitals, etc. all over Europe, which could get even worse. Hospitals are already having to cut beds because of a lack of staff. In Germany, there were recently more than 80,000 infected people every day, in France even more than 300,000.
Is compulsory vaccination sensible and necessary?
Nevertheless, it remains highly controversial whether compulsory vaccination is necessary and appropriate. It is well known that compulsory vaccination cannot protect people from contracting a new variant. Only the course of the disease can be mitigated. However, mortality rates are now increasing everywhere, which cannot only be due to the Corona deaths. There is a lack of reasonable data material in many areas. The number of unreported cases of vaccination deaths and side effects is very high because the damage is not always causally attributed to the vaccinations and pathologists do not conduct sufficient examinations everywhere in this regard. The many heart problems among young athletes and football players are already striking.
Many German citizens protest against the introduction of compulsory vaccination because of the relatively many side effects and vaccination deaths in relation to other vaccines, but also because of the unknown effect of Omikron or other variants. Constant boosting tends to weaken the immune system in the long run, according to the European Medicines Agency (EMA). In addition, new drugs are now coming onto the market that can also improve the course of the disease.
Nevertheless, it is likely that the German Bundestag will decide in March to introduce compulsory vaccination for people over 50, similar to Italy. In Austria, compulsory vaccination is to be introduced on 1 February. In Germany, vaccination is only compulsory for nursing homes and hospitals. It can be assumed that from 15 March onwards, some doctors and nurses or geriatric nurses will also resign and then there will be a lack of the very staff that is most urgently needed now.
On the other hand, Omikron is hopeful that the pandemic could become endemic, i.e. similar to influenza, so that the strict measures are no longer necessary because the hospital load will then be much lower. In South Africa, the number of infected people dropped rapidly and the restrictive measures were also cancelled. Despite high numbers of infected persons, Great Britain has not yet tightened the measures and has not ordered any new lockdowns. In addition, Spain, Portugal and Denmark are also loosening their lockdowns despite high numbers of infected persons. In Portugal and Spain, the relatively high vaccination rate could not prevent people from becoming infected en masse. The WHO assumes that 50 percent of the people in Europe will get the Omikron variant in the next few months. Then perhaps there might be a chance of achieving herd immunity after all.
Eastern European stock markets can already outperform again
Most of the world’s stock markets reacted to the geopolitical tensions, interest rate fears and the rapid spread of the Omikron variant with price losses last week. Only some stock exchanges from Eastern Europe remained quite stable. 7 stock exchanges from Eastern Europe remained in the plus and were thus able to clearly outperform the DAX as in the previous year. The DAX, on the other hand, slipped into the red. However, tech and IT stocks from the USA reacted particularly weakly to the FED’s announcement to raise interest rates. This year, value stocks with high earnings power seem to be more in demand than growth stocks. Already last year, one third of the best performing stock markets in the world came from Eastern Europe. Stocks from Hungary and Poland have done particularly well so far this year, while Russian stocks have also slipped into negative territory due to political tensions, even though oil and gas prices continued to rise.
Northern pipeline remains controversial and unresolved
It is still unclear whether and when Gazprom’s Northern Pipeline will be approved for operation. So far, this has failed due to the veto of the Green Party and EU law, according to which transport and production must be separate. The USA also wants to prevent the pipeline from going into operation at all costs, as do Poland and the Baltic countries. Gas prices recently rose again somewhat, despite a relatively warm winter so far. The price of crude oil rose by almost 10 per cent in 1 month to 86.44 US dollars/barrel, which was also a new high for the year.
Gazprom remains a “political issue
Gazprom’s share price fell to around €7.6. Gazprom remains a “political issue” and therefore chronically undervalued. However, if the situation with Ukraine and the USA should ease, Russian shares should also be promising again. Last year, the RDX index, an artificial product of the Vienna Stock Exchange, rose by 30 percent. By Friday, however, the RDX index was down 9.6 per cent. So far, only the shares from Kazakhstan have trended even weaker with a minus of 15 per cent since the beginning of the year. Last year, however, the KTX index still rose by 80 per cent. This year will be much more difficult for many investors than last year because of the high risks.
Oil Price at New High for the Year – Gold Tends Sideways
Nevertheless, it is still worth looking beyond the horizon to Eastern Europe. Of course, capital preservation may be the better strategy this year than capital accumulation without hedging. But gold could also experience a renaissance this year and some scarce commodities are likely to rise further, such as nickel recently, which investors can take advantage of via BNP Paribas ETCs. The price of crude oil has already risen to a new high for the year of over 86 US dollars per barrel. The small Canadian oil company Saturn Oil & Gas, which produces more than 7000 barrels/day in Canada very cheaply, but also sustainably in compliance with ESG standards, could profit from this. The gold price fell slightly on Friday to 1817 US dollars/ounce. The price of silver also remained unchanged at 22.86 US dollars/ounce.
First inform, then invest
Inform yourself now also in detail about the background and the development of the Ukraine/Russia crisis but also the future recovery potential of the undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Romania and Ukraine, with the respective stock indices all up in 2019. For example, some Ukrainian agricultural stocks have already more than doubled in price since 2016, and in 2018 the PFTS index was already up over 70 per cent again. Kazakhstan stocks were among the top performers in the world in 2017 (+56 per cent), but not in 2018 and not in 2019, but again in 2020/21.
In 2018, 10 stock markets from Eastern Europe were already among the best-performing stock markets in the world, all of which clearly outperformed the DAX and also the US stock market. In 2019, the Moscow Stock Exchange was once again the clear outperformer among all global stock markets, with a plus of over 46 percent in euro terms. However, the Bucharest Stock Exchange (Romania) also rose by over 32 per cent in 2019. The stock markets in Southeast Europe and also in the Baltic countries remained very stable on the plus side (Croatia +13 per cent). In 2020, 6 stock exchanges from Eastern Europe were among the 30 best performing stock markets in the world and last year even 11 stock exchanges from Eastern Europe. This year, 6 stock exchanges from Eastern Europe, all of which are still up, are clearly outperforming the DAX. After the Corona crash, it is still worthwhile to look beyond the horizon to Eastern Europe.
Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock exchange letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as with a lot of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Exchange Letter.
The last EST was published on 30 December 2021, and the old EST model portfolios have already made strong gains in 2019. The “Stock of the Month” from December 2019 TCR Group already rose by 200 percent and the “Stock of the Month” from March 2021 Gazprom already by over 80 percent. Russian gold shares, on the other hand, fell a little in price due to the fall in the price of gold. Nevertheless, the “gold sample portfolio” has almost doubled in value since the end of 2018. The shares listed there all still have potential as soon as the gold price picks up again. The “Dividend Pattern Depot” with Gazprom and Kazatomprom in the boat has already risen by 58 percent since the end of 2018.
The December 2019 portfolio with turnaround candidates rose by 42 per cent. The December 2020 “Stock of the Month” TCR Group – a fast-growing fintech bank from Russia – already rose over 186 percent in 8 months. In Kazakhstan, the new IPO Kaspi.kz, a fast-growing fintech company from Kazakhstan, made a splash and was detailed in EST in April. The share has already risen by 40 percent since then. The motto therefore remains: Go East!
Interview notes: The last TV interview by Andreas Männicke on Welt TV was on 14 October 2021 and the last radio interview was on 19.10.21 on Börsen Radio Networks. The next interview will be in February on Börsen Radio Networks. Interwies are now also available regularly on Sunday Talk with Rainer Hahn. You can now download the interviews at www.eaststock.de, there under the heading “Interviews”, as well as the EastStockTV video of the same name, episode 193. In addition, a new interview on Russia is now appearing in the stock market magazine Smart Investor. By the way: have you already subscribed to the EastStockTV YouTube channel?