With Indian cricket dominated more by politicians than batsmen, the cricket team is mercilessly being thrashed by the Australians, and many a kid, and several more adults, are left disgusted. For us purists, maybe baseball represents a cleaner alternative.
At least if we lose, it wouldn't feel so bad -- we have just started to play the game. And unlike cricket, in baseball you have three outs (strikes) before you are out. Now with that rule applying to us and not the Australians, surely we won't lose. Or will we?
Best to take pointers from the Test series going on in the US. There, two ostensibly equal teams, led by President Bush and challenger Kerry, are involved in a race to the finish. Normally, elections are quite uninteresting, indeed are often silly, as the choice involves two non-alternatives.
But as has been emphasised by several pundits, the US Presidential election involves all of us, and the choice between Kerry and Bush is non-trivial. And given that the opinion polls are again forecasting a dead heat, all one can do is wait.
But money managers are not paid to wait like other sensible beings. They are supposed to anticipate (and anticipate correctly!) and place huge bets on a future random event. Given this mandate, money managers try and rely on tea leaves, or derivatives thereof. In this article, we point to three pointers to the US election on Tuesday.
Parent Speak
The first revealing pointer is provided by an online poll conducted by Nickelodeon. This poll surveyed 400,000 children and teens i.e. exactly those Americans who are not eligible to vote on Tuesday.
The score: Kerry 57 per cent, Bush 43 per cent. Now before this score is dismissed as frivolous, think twice. Where do the children get their views and ideas: from their parents.
They are too young to rebel (just yet), and young enough to listen, process information, and make up their own mind. And the result is not even close -- maybe the parents are trying to tell us something.
Dollar speak
The second pointer is from the currency market, a market well known for being trigger happy before the fact (the currency traders are paid more than "normal" equity traders who are not expected to be so perspicacious).
Just before the first debate, President Bush had a lead of 13 per centage points in the polls, and the US dollar was trading at above 111 yen to the dollar. Then came the debates, and the wedge in the back of Bush's suit.
This square 3"x3" outline suggested that the leader of the most powerful nation in the world needed help [from an electronic (robotic?) adviser] to discuss issues on which this very same person/leader had ostensibly firmly decided upon! Whether it was the back-seat pecking that lost Bush the lead, or his own display of the facts, we will never know.
The fact remains, however, that the 13-point lead evaporated. So much so that currency traders started to dump the dollar in the expectation that if Kerry were to be President, he would seek not a devaluation of the dollar, but a revaluation of its competitor countries.
Top of that list is likely to be China, but the yuan is not tradeable. So the currency traders started to buy the next best alternatives, e.g. the yen, the euro, and even the Indian rupee.
So strike 2 has been delivered by the currency traders. Today, $/yen is trading below 106 yen, and the euro is within kissing distance of its all-time high above 1.29. These guys are clearly expecting a Kerry win, and not by a razor-thin margin either. Kids and currency traders think alike.
Oil speak
If you needed proof that just who is the US President matters, look at the price of a commodity we all consume -- oil. Its price has increased by a huge 70 per cent from end 2002 to its present $50 levels (Brent Crude). Not so co-incidentally, Bush's misadventures in Iraq started around then (March 2003, yes 17 months ago, is just how long the Bush war has gone on for).
But surely we are not paying 70 per cent extra for the Iraq war? No we are not -- to say so, would be equivalent to stating that the US intervened in Iraq because of its innate love for freedom. There are economic fundamentals at play -- primarily in the form of China becoming a major consumer.
The pattern of world oil consumption during the last decade or so (since 1990) is revealing. North American consumption has increased by 20 per cent, while European consumption has declined by 20 per cent.
Indian consumption has doubled, and China's has tripled. Today, Asia accounts for 29 per cent of world consumption, second only to the 50 per cent North American share. In 1990, Asia's share was 21 per cent.
These fundamentals are well known to the market, and it should be noted that the price of oil started rising in 1998 (from its oversold $13 levels). In 2000, the average price of oil was $28/barrel, and in 2002, the average price was $25.
The doubling of the price of oil is composed of (a) economic fundamentals (the role of the new Asia) and (b) Bush's war premium.
Our model at Oxus suggests that the fair price of oil for 2004 is $30, compared to the average realised price of $38. In other words, political uncertainty about what America will do to itself and the oil market (i.e. does it re-elect Bush or not) has added about 20 per cent to the average price of oil.
Just in the last week, oil has lost 10 per cent of its value. Mr Bush is widely seen as a person who is friendly to Middle East geo-politics and pricing of oil. And if oil price is falling rapidly, it must mean that at least the oil traders, and natural oil bulls (e.g. the Saudis friendly to President Bush) see a reasonable chance that their happy days may be ending.
Strike 3 and Bush is out. That is what different markets are signalling. Will they all be wrong? Unlikely -- but let's wait for the American voter who, always ex post, always makes the right choice. Well, almost always.
