Annals Of Overblown Stories: Ukraine And The Russia Meltdown
The events surrounding the political instability of Ukraine, and Russian exploitation of that instability, is a perfect example of the kind of event-driven (rather than principle-driven) approach of so much investment commentary which pushes people towards buying assets which have already gone up (such as gold), and towards selling assets which have already gone down (like Russia’s MICEX exchange), at the height of a crisis.
As the dust clears we see that the crisis took gold prices from a level which, according to our models, was at the low end of valuation in the 1,290 range and pushed the price up to levels which, according our models, would be at the high end of valuation at almost 1,400, and then all the way back down again.
The Russian MICEX fell precipitously very early in the crisis, but from the peak of the crisis and up to this writing has performed very well, and has more than recaptured its crisis losses. Buying or holding Russia at the height of this crisis is exactly the sort of thing that event-driven investing would tend to reject and principle-driven investing would tend to embrace. It’s the kind of thing which makes clients call after the annexation of Crimea and ask whether they should buy gold, just before its peak.
None of this means that things can’t be so mishandled by our respective ruling classes that they can’t spin out of control. Feckless Western elites can bungle things so badly (they’ve made a good start of it already), and even the heralded tiger-hunting-Judo-and-chess-mater Putin could blow it already in a testosterone frenzy. But barring that, the secession of Crimea and its ascension, and annexation, to Russia has turned out not be the market disaster which we were led to believe.
Article originally published on Forbes.com.