By now you know quite a bit about what is happening between Georgia and Russia. You probably also know that the Russian stock market and the currency have both been hit pretty hard and Konstantin Igropulo (number 35) on the Russian Handball team looks pretty worked up about the whole thing as his team went down to Iceland 33-31.The Market Vectors Russia (RSX) dropped almost 10% this past week. The dollar went up about 3/4 of a ruble, which is a big move, during the same time period.
This will be a great example to learn from. This is a panic caused by what might be a black swan (anyone know if tensions between Georgia and Russia have been an ongoing thing making this conflict inevitable? if so, then no black swan).
This sort of thing has happened countless times before. Some sort of military something or other that catches the market by surprise causing a swift decline followed by the inevitable snapback.
The reason why this is a great example to learn from is the most people are not going to chase heat in Russia. It is not the ideal destination for most volatility tolerances and so as jumping into something that is not right for you as an investment destination is not smart you can pay close attention and watch it unfold.
This sort of thing, albeit with different particulars, has happened countless times and the result seems to always be the same; big, fast decline followed by a snapback. While any single episode could be different, different doesn't happen very often. This kind of event is likely to happen with something that is suitable for you, it has before, and even if chasing it with more money is the wrong trade for you, knowing that you have seen this movie before might prevent you from a panic sale.
If so, mission accomplished.
6 comments:
(anyone know if tensions between Georgia and Russia have been an ongoing thing making this conflict inevitable? if so, then no black swan).
Long time as this "break-away" province declared independence some years ago.
Maybe a red swan event, then?
South Ossetia declared independence from Georgia, and has won a couple of conflicts with Georgia over this. South Ossetia has been bankrolled by Russia, which also gave Russian citizenship to the South Ossetians. Russia wanted to use the example of Kosovo to allow South Ossetia full nationhood. In the meantime, South Ossetia was skirmishing with Georgia.
It seems that Georgia let itself be provoked into attacking (in contravention of an OSCE agreement) and hoped that the US would support it. The problem is that the US needs Russia more than it needs Georgia.
Anyway, as a manager at a hedge fund focussed on Russia, we are feeling all the pain on this one. Russia has been hit by the conflict between the owners of TNK-BP (NOT a state-led attack, but the Russian side is using corrupt bits of the state to help it), the attacks on Mechel, and now this. All of these can be quite easily resolved over time. Mechel should be done this week, TNK-BP is an ongoing story, but the sides are negotiating, and there should be peace in South Ossetia by the end of the week.
All of these could provoke a spike upwards in Russia, so it's best not to be too short. On the other hand, in the past these rebounds occurred against the backdrop of a benign global liquidity and risk environment. When things are less positive, the market can take more time to recover, so I'm more inclined towards a long-short position.
thanks Larry
Red swan, great one liner.
Tom, thank you for your candor and your info.
I think this downdraft may have happened even without the Georgia conflict (though it certainly didn't help). But any time the Western media starts bad-mouthing Russia, due to ignorance or intent, it usually results in a great buying opportunity. The only thing that keeps me from jumping back into Russia here is the global economic slowdown. So I would agree that caution is prudent. I just hope I don't miss the boat.
i know this is uber conspiracy theory...but might Russia be ruffling the feathers, causing international tension near oil pipelines, trying to boost its' own oil profits amidst the diving oil prices? I mean, $140 barrel oil is so much more delicious than $110 for Russia!?!!
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