Ukraine War... How much will S&P drop this week?

[Jaqen Haghar MD]

If you know how Putin got elected, you get a little insight into who he is and what he is willing to do. It’s not controversial to point out that he organized an operation to blow up several big apartment buildings in Russia, killing hundreds of Russians in fake terrorist attacks, so he could appear the “strong hand” that could take on the terrorists. This turned polls 180 degrees and got him elected . Brutal, savage, risky…. And smart. He then poisoned, assassinated, and jailed (those too popular to kill outright) to stay in, and consolidate power. Journalists, political opponents and critics, protestors, all fell….

Now that is a man who thinks nothing of mass killing to obtain and sustain power. Techniques he learned from studying Hitler and Stalin, and others, while learning their application during his KGB training. He also appears to apply a healthy dose of mystical thinking and views himself as the great gatherer of the Slavic people, who must rebuild and reunite the old Soviet satellites at a time of weakness in the West.
He possesses a lot of the characteristics and thinking seen in Hitler.

It’s a tricky thing, “bluffing” such a man. You have to be willing to actually go through with the threats and risk terrible consequences. The painless solutions of the West won’t cut it, and just makes us look weak in his eyes, unwilling to bear terrible costs and suffering, as he can, and his Slavic people in general can.

This is a good time to review history around the time of WWII. History tends to be cyclical, around a series of themes. I don’t envy he people who have to make the big decisions right now…. Choosing between two bad choices, trying to pick what might be the least bad option.

[Hatton]

People seemed shocked in Germany when Hitler starting doing the things he had talked about. Putin has talked about putting the Soviet Union back together for years. No one should be surprised that he is attempting to do this.

[Zaphod]

People seemed shocked in Germany when Hitler starting doing the things he had talked about. Putin has talked about putting the Soviet Union back together for years. No one should be surprised that he is attempting to do this.

This 100%.

This is literally in line with stated goals and desires he's been extremely forthcoming about for decades. 1997 speech to his July 2021 manifesto. He simply had the tactical upper hand with divided west and reliance on his gas/oil, and nearly a decade of trying to sanction proof his country. This was a long long term plan.

[Tim]

Good point. Main question for me will be when a recession might occur and when to lighten up on the resource and risk exposure. The current bias of most CB's may be to be to keep interest rates low and let the supply issues iron themselves out. So it's hard to know how far commodity prices could run, maybe to $200 oil before there is sufficient demand destruction.

Question: How does inflation get addressed with oil going to $200/barrel? Sky high oil and high interest rates seems like an intentional storm to wreck the US economy. And then to say more government spending is the solution?

Demand destruction has been an objective, fossil fuels are evil. There is no clear path to clean energy. The results political instability and standard of living reduction. Things are a mess.

[CordMcNally]

Question: How does inflation get addressed with oil going to $200/barrel? Sky high oil and high interest rates seems like an intentional storm to wreck the US economy. And then to say more government spending is the solution?

Demand destruction has been an objective, fossil fuels are evil. There is no clear path to clean energy. The results political instability and standard of living reduction. Things are a mess.

Something about laying in the bed you’ve made comes to mind. Unfortunately, it’s going to really hurt a lot of already vulnerable people. My guess is that they try to expand government programs and try to spend even more. Not many politicians routinely look past the present, or at least their actions don’t seem to suggest it.

[Tim]

Something about laying in the bed you’ve made comes to mind. Unfortunately, it’s going to really hurt a lot of already vulnerable people. My guess is that they try to expand government programs and try to spend even more. Not many politicians routinely look past the present, or at least their actions don’t seem to suggest it.

"It takes 20 years to build a reputation and five minutes to ruin it.”
Make no mistake, in one year many short sighted mistakes have been made. Haven’t done the math, not many here would live that long. Democracy is messy. Better than any alternatives. The sad part is the consequences are predictable, not unintended,

[Zaphod]

Question: How does inflation get addressed with oil going to $200/barrel? Sky high oil and high interest rates seems like an intentional storm to wreck the US economy. And then to say more government spending is the solution?

Demand destruction has been an objective, fossil fuels are evil. There is no clear path to clean energy. The results political instability and standard of living reduction. Things are a mess.

recession

[Zaphod]

Something about laying in the bed you’ve made comes to mind. Unfortunately, it’s going to really hurt a lot of already vulnerable people. My guess is that they try to expand government programs and try to spend even more. Not many politicians routinely look past the present, or at least their actions don’t seem to suggest it.

Never, they cant and wont. Dems dont realize how lucky they are Manchin kept inflation from being drastically worse.

We will hike until we have a recession, in the 80s there were 2 back to back recessions before inflation was tamed. Interesting times upon us.

[Max Power]

Really??? Don’t know you, but from your posts you seem like you are making bank. Maybe now is a time to let that go for a minute and donate a little to those that are suffering beyond what I can imagine.

I bought a high-end motorcycle jacket from a Ukraine seller today. I would have typically offered 10 or 20% less than the eBay ask, but I just bought it full price. I don't care if it doesn't arrive a la the Air BnB thing... but I kinda hope that it does. Does that count?

There are plenty of charitable things you can do for the town you live in, the people you work with, your friends and family, etc. There is also no reason to donate any significant amount unless you are debt free yourself, and I see even less reason to donate to people who will never affect my life. People donate for selfish reasons... to feel better, to brag of it, to gain standing, etc. I do the last one, but I also enjoy seeing my neighborhoods better for it. Ergo, I have bought many a YMCA sponsorship, little league team, B&G club, donated to scholarship funds, local animal shelters, etc and refused to take any offered plaques or banners or other credit for it (only since it would do me no good as my hospital markets itself fine).

In my eyes, you don't need to go to the ends of the Earth or give money to foreign nations to be a good person (and you sure don't need to post about giving either, or do you? ). Those international charities are often the most corrupt of all due to many layers of money changing hands; that is common knowledge. I concede say that those dang Operation Smile commercials used to get me, though... I have almost pulled the trigger on that a few times, but there is just so much more impact and benefit for me locally.

[Tim]

recession

There is a difference between a couple of quarters and years.
“Depression vs. Recession
A recession is a normal part of the business cycle that generally occurs whenGDP contracts for at least two quarters. A depression, on the other hand, is an extreme fall in economic activity that lasts for years, rather than just several quarters.”

The impact of the changes are potentially not several quarters. The reality is a depression impacts generations. Just not in the way intended.
Not easy to contemplate a depression.

[Dont_know_mind]

Question: How does inflation get addressed with oil going to $200/barrel? Sky high oil and high interest rates seems like an intentional storm to wreck the US economy. And then to say more government spending is the solution?

Demand destruction has been an objective, fossil fuels are evil. There is no clear path to clean energy. The results political instability and standard of living reduction. Things are a mess.

I don't think they will raise interest rates much due to commodity inflation. I think they are more likely to sacrifice bondholders instead. If you are a bondholder, you should check your tolerances. An intermediate bond fund should not suffer much in a rising rates environment 9unless it is steep) as new bonds are taken in at the higher coupon rate. But you will be losing to inflation.

Commodities prices are related to the capital cycle for commodity investment. Everyone was bullish commodities in 2007 (me included). A crapeload of large mining projects were started then and they were only completed around 2012, which is when the commodity bear market started. Capital allocators have PTSD from that. So there was not very much investment from 2015-2021.

I think the capital allocation cycle has only begun for commodities. It doesn't matter what interest rates are, the nuclear power plant you decide to build today is not going to be built for 10 years. And that does not make up for the the one that was not built in the last 6 years. The capital cycle for mining operations is usually at least 3-5 years, except for Shale drilling. The Fed knows this.

I think though in the coming weeks there will be escalating hysteria about commodity prices causing a recession. Maybe it will, but i doubt it. After that I would guess competition about who can have the highest inflation forecast. Anyway, you should be able to hold the bonds when people start forecasting 6 or 7 or 8% inflation. I doubt inflation will happen quickly, but those high scary forecasts will be out there.

Sentiment wise, I think we are still a long way from peak oil. Remember peak oil ? COVID was possibly the largest demand shock to resources of our lifetimes. The futures price went to below zero. It was remarkable. There was always going to be a very large, prolonged bounce back after that and the underinvestment in 2014-2020. The Russia thing has just accentuated it. I maybe very off base, but I imagine the current period like 2005, but instead of the Iraq invasion in 2003, it occurred in 2005, after the recession. What would the cycle have been if a war had started in 2005 ? I guess it depends on what happens with the war too.

I like your questions Tim. That one really made me think.

[Dont_know_mind]

There is a difference between a couple of quarters and years.
“Depression vs. Recession
A recession is a normal part of the business cycle that generally occurs whenGDP contracts for at least two quarters. A depression, on the other hand, is an extreme fall in economic activity that lasts for years, rather than just several quarters.”

The impact of the changes are potentially not several quarters. The reality is a depression impacts generations. Just not in the way intended.
Not easy to contemplate a depression.

I guess that's why people jump from equities to bonds or cash.
I tend to think in an inflationary environment, that could be like the Russian investor losing 50% moving from rubles to Bitcoin, then another 20% by the time they get out of Bitcoin.
But maybe it will be the next depression. Who knows.

[Dont_know_mind]

People seemed shocked in Germany when Hitler starting doing the things he had talked about. Putin has talked about putting the Soviet Union back together for years. No one should be surprised that he is attempting to do this.

It's hard not to have some wishful thinking, like somehow it could have been avoided. But I guess if that was in his heart from the start and that was the plan.
Seems odd though that he didn't try to enact it earlier.

[Max Power]

I exited short positions today around lunch... good way to stop the hemorrhage but now adjusting to a more long-term approach of nipping at good stocks as the market slides. We are now down 11% and over halfway to a veritable bear market.

I picked up a lot of DBC, some IAU and GLD... and more BX (down 9% today!) and SPY and GOOG.
I don't know much about oil stocks or ETFs, so DBC will have to do.

Now at 30% cash + gold/ 40 index or similar / 30 single stocks.

[CordMcNally]

Energy looks strong in the short term but oil majority companies, specifically, are in quite the pickle, I think. They can’t just turn the spigot and increase production. It takes significant resources that are now in short supply and more expensive. New production would take close to a year to bring on board. This administration has been very anti-oil in its stance. Why should they take this risk for an administration that would pull the rug out from under them as soon as they could? Do they bet there will be a more industry-friendly administration in the future? Tough, tough decisions.