Escalating Russian tensions yet to hit market: Fannie, Freddie, meet Vladimir

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from MarketWatch:



Escalating Russian tensions yet to hit market
Commentary: Fannie, Freddie, meet Vladimir
By David Callaway, MarketWatch



SAN FRANCISCO (MarketWatch) -- One of oddest things about financial markets is how they can overreact to a rainstorm in the Gulf or the earnings forecast of a tech company yet completely overlook something like the beginnings of a global political crisis.

The Russian siege of Georgia provoked yawns on Wall Street in its first few days last week, overshadowed by the Olympics in China and a brief summer rally in financial stocks. Since South Ossetia isn't sitting directly on a pool of oil, even crude futures failed to react, a reflection of the seriousness in the commodities sell-off of the past few weeks.

Even as the occupation of Georgia has escalated daily, to the point now where there is a standoff with NATO, global markets have largely stayed focused on the oil/financials trades, preferring to worry more about how the inevitable bailout of Fannie Mae and Freddie Mac will be structured instead of how our next president -- and Europe's leaders -- will restructure their broken-down relations with a hostile Vladimir Putin.

Russia's own stock market is falling and is off more than 20% this year, largely on the back of falling oil markets but in part due to the Georgia crisis. Still, the feeling in global markets seems to be that this is an August dust-up that will quickly dissipate. As my colleague Darrell Delamaide points out in his political column this week, that's because many global investors see Russia as an emerging market, where Russia sees itself as an aggrieved superpower. Read Delamaide's column.

A similar reaction happened back in August 1991, when the coup against Mikhail Gorbachev was overshadowed by the Salomon Brothers Treasury bond scandal and a hurricane on the East Coast. By the end of that year, Salomon had recovered, as had New England, but Gorbachev and the Soviet Union were gone.

Make no mistake. The hostilities in Georgia might soon come to an end. But a major fault has opened up in relations between East and West that threatens not just global securities markets, but the economic health of Europe and the foreign policies of the major industrialized countries. .....(more)

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