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The Sandy Spring Way

April Observations

April 1st, 2014 | By Beau Mercer

FredericBurke“Listen, my children, and you shall hear of the midnight ride of Paul Revere, on the eighteenth of April, in Seventy-Five: Hardly a man is now alive who remembers that famous day and year.” 

—Longfellow

The 117 year old Boston Marathon is always held on Patriots Day—a holiday set aside to commemorate the opening of events of the Revolutionary War. The Revolutionary War was fought for the freedom to make one’s own decisions and to advocate for what one thinks and the contribution to the whole. “The secret of happiness is freedom and the secret of freedom is courage.”  Freedom cannot be won without a consensus. The Boston Marathon, a celebration of freedom, attracts nearly 500,000 spectators each year, making it New England’s most widely viewed sporting event. However, just as Paul Revere rode through the night, the Tsarnaev brothers chose the 2013 race as a ‘target of opportunity’. The Tsarnaev brothers selfishly chose to ignore the blessings of freedom won by the American democracy. Ironically, the Tsarnaev family came to the US from Russia and were granted asylum because of a fear of persecution. During the 2013 Marathon, two explosions set off by the Tsarnaev brothers killed 3 and injured more than 200 spectators. The 2014 Boston Marathon will be run with the celebration of our democracy and the ability of an increasingly diverse group of people to reach a consensus on what is best for ALL. Nevertheless, the expectations of the 2014 entrants will be tempered by concerns but they will dissipate as they reach Heartbreak Hill. “History does not repeat itself, but it rhymes.”

Globalization and a loose common culture lead Europe to expect that Russia, the land of Tolstoy and Dostoevsky, would join the Council of Europe and absorb Western values. Russia, however, is an anti-Western power with a dark vision of global politics. Russia has little interest ‘in being on the right side of history’. Might  does not provide the map but it does establish the direction. Ukraine is the largest European country and the lynchpin for Vladimir Putin’s dream of a renewed, though flawed, imperial Russia. The presence of Russian money or energy in the new economic order negates the influence of western sanctions. In what may be a token response, the United States is helping the Ukraine cut its Russian gas imports with a plan to dispense with them entirely by 2020. Russia takes money laundering, corruption, and provocation to limitless extremes with nominal success. Putin now believes that Russia can establish and enforce the new rule of world order. The world order has changed drastically and is driven by capital flows. At this time it is unlikely that investors will consider additional Russian investments with the chaotic ruble exchange rate. Economic indicators evidence that Russia is a declining power and a flight of capital will inevitably take place with destabilizing effects. Those responsible for enforcing the global order must step forward now. The US and Western Europe need to raise or fold.

Ayn Rand wrote: “You can ignore reality but, you cannot ignore the consequences of ignoring reality.” Trees don’t grow thru the sky! The media perpetuates ignorance with a narrative of doom and gloom. The market is in the sixth year of the latest bull market, and of the last twelve bull markets, only four have made it into the sixth year. The short term risk of the Russia-US crisis is remarkably clear and cannot be ignored. Nevertheless, there continues to be a steady as you go feel to the US markets. Historical market data would suggest that events similar to the recent events in Russia would lead the investor to assume the markets would tumble.  The globalization of the financial markets over the past 15-20 years has changed the way markets react.  For instance, the S&P 500 gained 1% during the first quarter. The markets have integrated a low inflation, modest growth economy into their pricing. The global turmoil supports US asset prices. Foreigners fearful of deteriorating conditions in their home countries move assets to the US for safety reasons. There are signals which cannot be ignored but they are not blinking at the present time.

“Everywhere around the world They’re coming to America Ev’ry time that flag’s unfurled They’re coming to America Got a dream they’ve come to share They’re coming to America”

Neil Diamond – America

—Fred