While seeing our financial elite try to scapegoat Russia, I recall a movie about forced honesty. Remember the 1997 Jim Carrey movie “Liar, Liar,” where an attorney was “cursed” with the inability to lie for an entire day? I wish we could see the same thing in the actual halls of finance and political power for at least 24 hours—I bet if we could do it for a week we’d have massive popular revolutions all over the globe.
Speaking of global conflagrations, here is a JPMorgan prediction about the financial system, helpfully reprinted by ZeroHedge:
Lehman moment. We believe that with the significant deterioration in the Ukrainian situation, markets may treat this as a Lehman-style shock. We note there are substantial fundamental differences between the current situation and the 2008/09 crisis; the oil price is now holding up relatively well and the economic contraction may not be that deep. On the other hand, for traded stocks, the challenges and risks to investability presented by sanctions could be practically open-ended. We demonstrate that revisiting the post-Lehman lows would imply downside of 50% from an index perspective, and ~40% from the forward P/E perspective
Poor visibility. With several false dawns since the start of the conflict, the markets may no longer assume a quick and easy resolution of the conflict and ‘worse before better’ seems a likely sequence to us; we thus recommend reducing exposure to Russia and differentiating carefully among the sectors and names.
Exposure and defenses. We see Financials as particularly badly exposed – both from the sanctions perspective and from the macro perspective. We also highlight the acute pressure on economically sensitive consumers, exposed to the escalating trade wars. We again stress that the best defensive trade comprises exporters with no unwanted political affiliations as these also benefit fundamentally from the weaker ruble.
Let me cut through the PR flak-ishness of this JPMorgan “analysis” for a bit of truth:
“We in the major banking arena have so screwed up the world economic system—with the helpful participation of Central banks and political leaders—that the whole thing is a giant house of cards, ready to come crashing down at any moment.
“Given that it would be incredibly damaging to ourselves and our allies in the halls of power, we cannot let people dig around to find the roots that have produced this rotten fruit, and therefore, we need a scapegoat. Vladimir Putin will do nicely.
“Just remember, when things collapse, it’s all Vlad’s fault, and don’t look at those men behind the curtain.”