Regime Change Adventures: Bush, Obama, and now Trump

Emerging market shocks follow a familiar pattern in quantitative investing. When the event occurs, quantitative factor responses in stock selection get thrown out the window. As the smoke clears, top-down strategists map out the direction and magnitude of the shock, and technical analysis factors like price momentum and reversals start to work. As the magnitude of the shock becomes known, company analysts revise their earnings estimates, and estimate revision and earnings surprise factors begin to work. Finally, as the investment environment stabilizes, conventional value and growth factors gain traction.
 

The same thing is happening when U.S. forces seized Venezuelan President Maduro and his wife in a weekend raid. The smoke is starting to clear, both metaphorically and literally, and invest0ors can see the direction of the shock.
 

The raid made some sense from a Trumpian geopolitical viewpoint. Bloomberg opinion columnist Javier Blas characterized the move as Trump building his own Oil Empire. The Donroe Doctrine countries in the Western hemisphere, the U.S., Canada, Venezuela and the rest of the Americas, control roughly 40% of global oil production and this allows the White House much greater control over oil prices and production to avoid energy shocks in the future.

It all sounds good in theory. But as the recent history during the 21st Century shows, this is the third time the U.S. has attempted regime change in oil-producing countries. Bush tried it in Iraq, Obama tried it in Libya and now Trump is trying it in Venezuela. None worked out according to their pre-war textbooks. Here’s what this latest geopolitical adventure means for investors.

The full post can be found here.