By Tim Seymour
February 21st, 10:16 am
Except in oil, markets are reacting to the spread of new violence in the Middle East with a distinct lack of concern. We cover this today on CNBC.
1. Yemen is a small piece of desert.
2. Bahrain is a very small country despite its strategic value.
3. Aside from oil production, Libya is still struggling to get noticed.
4. Unless this type of political upheaval spreads to Pakistan — where there are nuclear weapons — the larger markets will not react.
Overall, I am more concerned by the economic fallout. Every $1 that oil rises means $120 billion less that U.S. consumers have to spend.
Even though the Chinese have 18% more spending power thank to the yuan’s rise, rising oil still acts as a drag on the global economy.
But how do you play this?
The major energy importers will feel the drag: India, China, USA, Turkey, Germany. Buy the weakness — whether it comes from fear of political contagion or fear of an oil crash in the wings.
Turkey, for example, has been heavily sold despite its non-reliance on North African oil. Remember, Turkey is on the Russian supply line, so that is where it gets it energy. Buy this weakness via TUR (quote)
Speaking of Russia, in the last three meaningful supply disruptions of the last decade, Moscow stocks have outperformed global emerging stocks. Given the strong weighting of oil in RSX (quote), this is another natural play.