The Kremlin Wall of Worry

MARKET OVERVIEW

To the many investors who have been fretting over the lack of a proverbial “wall of worry” for the stock market to climb this year, recent events in Ukraine must have come as a welcome relief. Not to make light of what is clearly a very serious situation, and one that carries with it significant geopolitical implications.

Of course, in the short term the stock market tends to penalize uncertainty as evidenced by today’s market reaction.  As would be expected, the companies most affected are those with substantial assets and/or revenue sources in Eastern Europe. But even large multinational corporations with relatively minor interests in that part of the world are taking a hit, perhaps indicative of an overall concern that there may ultimately be a domino effect rolling through most of Europe and Asia.

Barring a direct military confrontation between Russia and NATO forces, we don’t think this event really has the potential to influence global equity markets to a meaningful degree in the long term.  The immediate economic impact is minimal, with modest implications for the energy sector if Russia shuts down energy deliveries to areas it wishes to intimidate.

But even that is fairly miniscule in the overall scheme of things.  The truth of the matter is that with respect to the U.S. equity markets Russia still doesn’t matter very much on a global scale.  While it can temporarily create havoc in certain commodity and currency markets, very few portfolio managers trust the Kremlin enough to commit substantial assets to companies either domiciled there or with significant assets located within Russian influence.

So long as Russia continues to demonstrate almost complete disregard for the rule of law, it will not fully participate in the bounties of free market capitalism.  Although we tend to measure financial markets with metrics based on financial performance, perhaps the single most important ingredient for investment is trust.  Investing is an act of faith, based on the belief that the people, companies and countries with whom we entrust our money will exercise the due care necessary for it to generate enough economic impact to result in a positive return.

Whatever the Kremlin hopes to obtain by strong arming Ukraine into submission, it will more than lose in the reinforcement of its stereotype as a country incapable of governing itself effectively. The opening and closing ceremonies of the recent winter Olympics reveled in the rich history of significant accomplishments by Russia’s great artists, academics, and engineers. It’s a shame its leadership prevents its people from making an equally large contribution to the global economy.

NASDAQ Composite Index:

Friday, February 28 = 4,308.12

Year to Date = + 4.0%

Trailing 7 Days = + 1.1%

Trailing 4 Weeks = + 4.4%

PORTFOLIO UPDATE

No changes to any of our portfolios this week.

However, we note that since adding Lenovo Group (OTC: LNVGY) to our Equity Trades portfolio last week it has jumped up more than 5% as investors slowly figure out what we already knew.  It is still below our buy limit price of $22, but it may not be there for long so we suggest opening positions in Lenovo soon if you plan to at all.

In our Investments Portfolio Oracle (NSDQ: ORCL) is another stock bumping up against our buy limit price of $39, and Seagate Technologies (NSDQ: STX) has recently dipped below our buy limit price of $53 so it is now back in play for the time being.  Ricoh (OTC: RICOY), which was recently transferred from the Equity Trades portfolio into the Investments portfolio due to its high STR (Smart Tech Rating), is trading around our buy limit price of $60 so you can buy it on any weakness.  

We’d also like to add a word of clarification on the differences between our two portfolios so you know how to benefit from them.  Our Investments Portfolio is intended to be long term in nature, based on the companies that obtain the highest STR.  Although a company’s STR will move up or down over time, those changes tend to be gradual barring a transformational event (e.g., change of control) so we do not anticipate much turnover in that portfolio in the near term.

However, our Equity Trades portfolio is intended to be much shorter term in nature, and is comprised of stocks that we believe are on the verge of a fairly substantial movement in price one way or the other.  For that reason it includes both long (buy) and short (sell) recommendations for you to implement as you see fit.  More aggressive traders may consider using put or call options to leverage the outcome of these positions, while more conservative investors should probably look to our Investments portfolio for guidance

Our intent is to provide investment choices for investors of all stripes, as the technology sector includes everything from high-dividend value stocks to high-momentum growth companies. If you don’t see what you are looking for, please let us know and we will try to find it for you.