Will China Eat Russia's Lunch?

Charts: The S&P 500 closed at 1104, up a fraction. The index’s movements today were bracketed by the 100-day and 50-day moving averages. In fact it closed very close to the midpoint between those two moving averages. Today’s action bolsters my theory that the index is range bound.

Fundamentals: American economic data is weak, from housing to the Q4 GDP revision, it sucks. But today’s Chicago industrial PMI index was good because it is levered to the emerging world. Consumer spending of all emerging market countries combined is about 40% higher than America’s consumer spending. At the beginning of this decade American consumer spending was 3 times higher than total emerging market consumer spending. Recently emerging market stocks haven’t done very well because of the Greek debt problems. This is especially true of emerging market countries with high government debt ratios. But emerging markets without debt problems are starting to move.

Geopolitics: Sometimes geopolitics and economic fundamentals are tightly intertwined. Of all big emerging stock markets, Russia has the lowest valuation by price to book ratio and other measures. Yes, Russian stocks have soared in the past year but they are still relatively cheap because of Russia’s invasion of Georgia, Putin’s blustering talk, and fear of neo-Communist takeover. How dangerous is Russia’s army? Not very. Russia had a tough time conquering 1/3 of teeny-weeny Georgia. Because of that stupid invasion Russia’s Islamic bad guys are a lot worse. Any other foreign adventures and Islamic separatists will tear the Caucus region to shreds and send terrorists into Moscow. Russian expansionists are also being knocked back on their heels by Obama’s foreign policy. The US President says he wants to “reset” relations and act nice; but in reality he is encircling Russia with missile interceptors. As foolish dreams of recreating the USSR fade, the reality of China’s colossal military strength is taking center stage. Another realization is dawning: America does not have an old fashioned colonial empire; it has a global military empire. And joining this empire guarantees that China will not eat your lunch. Some day Russia will join NATO.
Russia’s economy is strong. It has no external debt, high savings rates, and good growth. The Russian stock market moves in synch with the price of oil, which is okay since oil is going up.

Specific Stocks: RSX is the ticker symbol for the Russian index. It is mostly materials companies.