Global Macro Strategy

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    • #BuschUpdate Engage gets Congressman Peter Roskam

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      Engage with Andy Busch

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      The view from Washington

      May 16, 2014

      This week on Engage with Andy Busch, we turn our attention to our nation’s capital to understand current policy initiatives and the outlook for the elections in 2014 and 2016.
      First, we’ll have on Congressman Peter Roskam, (R, IL). Cong. Roskam represents the 6th district in Illinois. We’ll discuss Roskam’s current legislative push in Congress and what will be the agenda for the rest of the year in the US House of Representatives.
      Next, we’ll have on returning guest Greg Valliere, chief political strategist for Potomac Research. We’ll review the current landscape for the 2014 Midterm elections and how the Senate is shaping up. Also, we review the potential Republican candidates for the 2016 presidential election. Learn More »

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    • #BuschUpdate A potential positive from MH17

      Death is never easy to cover and this past week was truly difficult to process both as a human being and as a strategist. Does it really take this type of event to bring the decision makers together to end the turmoil or could it have been avoided? Speculation is nonproductive, but let’s hope some momentum can build to stop senseless mayhem from occurring again and bring a cessation to the hostilities that have extended well beyond the borders of the combatants. My prayers are for those that have died and will die in this conflict.

      The question remains as to what can be done to bring Russia to the table? I grow concerned that as of this writing, they have neither acknowledged their equipment or personnel were involved in the downing of MH17 when the evidence strongly points to their role (WSJ). What brings this to another level is the way the victims remains are being handled, with many left exposed in the summer heat. According to the FT, Mark Rutte, the Dutch prime minister, said he was shocked by the “disrespectful behaviour” of the rebels controlling the crash site. “In defiance of all the rules of proper investigation, people have evidently been picking through the personal and recognisable belongings of the victims. This is appalling.” Also, John Kerry, US secretary of state, described the reports as “really grotesque” and said it was clear that Russia “supports the separatists, supplies the separatists, encourages the separatists, trains the separatists”. Britain, France, and Germany have threatened additional economic sanctions on Tuesday if Russia doesn’t force the rebels to allow international access to the crash site.

      Economic sanctions that hurt Russia will also likely hurt other countries in Europe and likely the United States as well. However, this pain is completely tolerable compared to what has been felt by the passengers of MH17 and to those in the Ukraine who have died in this conflict. The Russian cudgel against Europe is and always will be energy. The US can act to deflect this economic weapon by immediately approving the export of crude oil to ease the risk of a shut off by Russia. At the same time, the US could put additional downward pressure on the price of crude via releasing a significant amount from the SPR to flood the markets. As this writer has posited many times, the place to hurt Russia is right in the economy as it is so heavily driven by commodities and specifically energy. As well, the West can cut off Russian Banks from the international payment system to further put pressure on Putin similarly how they put pressure on Iran.

      When Russian initially invaded Crimea, the markets reacted to the situation and sanctions by selling rubles/buying US dollars and sold the Micex. The graph below shows the percentage declines that totaled almost 25% at one point. Unfortunately, the chart also shows how these losses were eliminated as the world turned away from the situation in the Ukraine. The West needs to drive this wedge to cause pain to Russian business to aid in turning Putin back to the bargaining table. As an example of where Russian business stands, Bloomberg carries a story with the headline, “Russian Billionaires in ‘Horror’ as Putin Risks Isolation.”

      Screen Shot 2014 07 21 at 7.01.33 AM #BuschUpdate A potential positive from MH17

      Source Bloomberg

      All of this creates uncertainty and uncertainty is never good for risk assets. However, the negative impact of these are blunted by the global central banks and their current monetary policies. Perhaps as a safeguard against further potential downside impact to the European economy, ECB’s Mario Draghi could take extraordinary measures by acting to supply liquidity to their banks and acting to buy securities to force down interest rates like the Federal has done with QE. As former Obama White House Chief of Staff Rahm Emanuel once famously said, “You don’t want a serious crisis to go to waste.” And so Draghi should use this crisis to move his institution forward to do what it should have already been doing to stimulate growth and help the workers in countries like Spain that has at 25% unemployment rate.

      At least in this way, we may see something positive occur from a tragic event.

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