WASHINGTON, Nov. 19 (UPI) -- President Bush swept Ohio by more than 1 percent -- enough to avoid the regime crisis feared in this space and wreck what would have been a good short on U.S. stocks. (See "U.S. equities in a crise de regime," October 29.) Any readers who followed the advice, shorting the week before but covering early November 3 -- when it became clear that the election was decisive enough to avoid litigation purgatory -- lost a few percentage points on the trade. The buck stops here.
Politicians can demand a recount; investors can't. Then again, "Bottom Line" gladly takes credit for a pair of items in July and August predicting a fall rally as markets got used to the idea of a more moderate John Kerry. Better than 10 percent later, we flubbed it on election eve; but 10 up and 2 down is still a plus.
A review of (and update on) some of our recent calls shows some gainers and some losers, but, on balance, a 70 to 75 percent batting average. So far, so good.
The U.S. dollar
Uncle Sam's money is still in a slump. But our investors continue to take profits on a short position opened over the spring and summer. The greenback's decline is old news. A turn may have been reached in gold at close to $450, and is coming for the yen and the euro.
Treasury Secretary John Snow hasn't left Treasury, but doesn't seem to be fully "there," either. Meanwhile he has continued to play suicide chicken with the euro, blandly telling the French and German central bankers that if they can stand having their exports clobbered, the United States can too. You can't run a decaying socialist society on a strong currency.
Europe will allow the euro exchange rate to reach 1.32 or so, and the Japanese, a penny yen at 100. But they won't allow much more, and in fact, according to a reliable source at the International Monetary Fund, are merely waiting until some kind of extreme is reached in the market -- so they can intervene with certainty of success, and "pile on" in the opposite direction. Keep that small dollar long position, and expand them if the dollar appears to be breaking down in the coming weeks.
"Likely to be the best emerging market over the next six to nine months," we wrote in April. Not quite, but Indonesian stocks are up nearly 25 percent in dollar terms.
It's time to lighten up and sell off perhaps a quarter of that position, only because some of the extreme pre-election uncertainty in Indonesia has, as in the United States, given way to post-election relief. But Susilo Bambang Yudhoyono is off to a fast start on both domestic and foreign policy.
SBY is likely to emerge as a leading Asian statesman and much-needed moderate Muslim, his sail full of wind from restructuring the country's crony-capitalist economy around lower tax rates, honest capital markets, and an end to or easing of insane energy subsidies. Stay in.
Pay no attention to that debt restructuring deal with some of Argentina's more vulnerable creditors; a partial bond swap is no bond swap at all.
This week's meeting between Argentine and Chinese officials was meant to highlight an emerging trade deal between the countries. But it was also a powwow between the two largest current debt defaulters in the world (in a close race with Iraq.)
Chinese officials, who have reportedly been feeling the heat for China's stiffing of U.S. bondholders, reportedly promised to back Argentina's bid in U.S. and Italian courts to get out of its debt squeeze. As a result, President Nestor Kirchner is all the more determined to fight to the death -- prolonging the country's pariah status in capital markets for months. Still short.
(Editor's note: "Bottom Line" will not appear during the week of November 22-26, but will return the first week of December.)
Gregory Fossedal manages international investment research for Emerging Markets Group. His clients may (and usually do) hold long and short positions in many of the investment securities and opportunities mentioned in his reports. "The Bottom Line" is compiled from sources we believe to be reliable, but no representation is made that they are necessarily accurate or complete. Investors should perform their own due diligence and consult their own professional advisor before buying or selling any securities. Mr. Fossedal's opinions are entirely his own, and are not necessarily those of UPI or EMG. Furthermore, they are subject to change without notice.