Ignore The Geopolitical Risks – AUD, S&P 500 and Gold

Why we should ignore geopolitical risks ?

  1. Because nothing really happened in all the previous scares we had, central banks will make sure everything will be ok and globalisation has raised the stakes for everyone not to screw up.
  2. Algorithmic models cannot calculate black swan risks of pestilence and war.
  3. We could be missing out if we think big picture

Look at Iraq, North Korea, Syria and Turkey, even Greece, Cyprus, Ireland, Spain and Portugal have bounced back with the help of the IMF, FED and whoever. Today we have Goldman Sachs rescuing Argentina with a 1 billion dollar loan. http://www.reuters.com/article/2014/03/30/us-argentina-debt-goldman-idUSBREA2T0DD20140330?feedType=RSS&feedName=businessNews

Nobody worries at all these days except for poor El Erian, Goldman Sachs’ President and the rest who should be locked up in think tanks and brain washed till they have something good to say.

http://www.ft.com/intl/cms/s/0/c252434a-b022-11e3-b0d0-00144feab7de.html?siteedition=intl#axzz2xRJ7KDHg

http://www.businessweek.com/news/2014-03-28/goldman-s-cohn-says-markets-underestimating-geopolitical-risks

Otherwise they better resign, like the Bloomberg editor who did not say positive things about China. http://edition.cnn.com/2014/03/28/world/asia/china-bloomberg-editor-resigns/index.html

Which is why we did not get to read much about the Chinese seizing $14.5 billion assets (about US$10 per citizen) belonging to its former security tzar except for a short note on brave old Reuters and the Telegraph. http://www.telegraph.co.uk/news/worldnews/asia/china/10732675/China-seizes-14.5bn-assets-from-Zhou-Yongkang-family-and-associates-report.html

That really means we should not worry too much about all these geopolitical things that the governments and central banks will handle for us. To quote El Erian, “markets continue to have unshakeable faith in central banks’ ability to insulate them from weaker fundamentals, whether economic, financial or political.” And rightly we should, as Michael Lewis says that everything is rigged in his new book, Flash Boys, because if we cannot beat them, we have to follow.

And the trades for April ?

According to a BOA technical analysis report I read, we should go in for the short term gains and again, ignore the big picture. They singled out AUD, the S&P and precious metals.

  1. To buy the AUD against the GBP, EUR and CHF. GBP/AUD target 1.71
  2. To buy the S&P 500 because April has always been the strongest month of the year since 1950, averaging 2% returns
  3. To sell Silver – no target given.

And of course, to sell bonds especially 5 year US treasuries which could break above 2% (current 1.77%).

This month end has been a poignant one for me, returning from the hospital after visiting a friend’s mother on her supposed deathbed. I am incensed that her death will be primarily due to an “unforeseen circumstance” that she managed to contract gangrene because the doctors were too busy treating her pneumonia and neglected to notice that her limbs did not get much blood flow for the entire week when they kept her sedated.

Maybe we have too much blind faith in the system ?