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

[Max Power]

This guy is actually pretty smart... saying today that 'unfriendly' nations have to convert their money into Rubles to buy Russian oil/gas. That obviously means the dozens of countries supporting Ukraine and sanctioning Russia.

Saddam did the same thing a couple decades ago (only taking Euros for their oil, not USD). Well, it was smart until we smacked Iraq pretty hard and killed him.

But really, if we are going to trash their money and exchange rate, they will just demand real a different currency and lower the currency value right back. Front page of WSJ a week ago was that Saudi Arabia was considering Yuan instead of USD for oil...
https://www.wsj.com/articles/saudi-a...es-11647351541

Seriously, though: why should they have to take our fake printed money for their real goods? It makes no sense (unless the answer is "because USA and NATO have the most guns"). It never made any sense for thousands of years of human trade (commodities for commodities), so why is it 'normal' now to get something for little or nothing?

[bovie]

This guy is actually pretty smart... saying today that 'unfriendly' nations have to convert their money into Rubles to buy Russian oil/gas. That obviously means the dozens of countries supporting Ukraine and sanctioning Russia.

Saddam did the same thing a couple decades ago (only taking Euros for their oil, not USD). Well, it was smart until we smacked Iraq pretty hard and killed him.

But really, if we are going to trash their money and exchange rate, they will just demand real a different currency and lower the currency value right back. Front page of WSJ a week ago was that Saudi Arabia was considering Yuan instead of USD for oil...
https://www.wsj.com/articles/saudi-a...es-11647351541

Seriously, though: why should they have to take our fake printed money for their real goods? It makes no sense (unless the answer is "because USA and NATO have the most guns"). It never made any sense for thousands of years of human trade (commodities for commodities), so why is it 'normal' now to get something for little or nothing?

They don't. OPEC de facto official currency is USD, as their oil is indexed and priced in USD/barrel, but Russia is not a part of OPEC so they can do whatever they want.

Not sure why they'd want to be paid in rubles compared to a more stable currency that is not significantly devalued (USD, Euro, GBP, etc.) at the moment, other than to specifically try to hurt USA. Which that will not accomplish, at least in the long-term. Sort of like a little kid throwing a tantrum.

Regarding the Saudis pricing and selling oil to China in yuan instead of USD, this would be a serious problem for us considering China is the largest importer of oil across the globe and it's not even close, and our ability to sell debt and run at a net loss is governed primarily by USD being the de facto global currency.

The petrodollar is essential to this.

[Zaphod]

You mean a frontier market ETF? Because I believe it is not as efficient as tracking the underlying companies - due to poor transparency, bureaucracy, corruption. Hence much more difficult to pursue alpha.

We're so used to the consistently vetted and regulated public equity market in the US, it's sometimes easy to forget developing/3rd world countries are not always analogous.

this cannot be overemphasized for emerging markets, let alone frontier markets, US investors always project their home market bias where it doesnt belong.

like getting the ski clothing out to go to the beach, just very unfit.

[Zaphod]

This guy is actually pretty smart... saying today that 'unfriendly' nations have to convert their money into Rubles to buy Russian oil/gas. That obviously means the dozens of countries supporting Ukraine and sanctioning Russia.

Saddam did the same thing a couple decades ago (only taking Euros for their oil, not USD). Well, it was smart until we smacked Iraq pretty hard and killed him.

But really, if we are going to trash their money and exchange rate, they will just demand real a different currency and lower the currency value right back. Front page of WSJ a week ago was that Saudi Arabia was considering Yuan instead of USD for oil...
https://www.wsj.com/articles/saudi-a...es-11647351541

Seriously, though: why should they have to take our fake printed money for their real goods? It makes no sense (unless the answer is "because USA and NATO have the most guns"). It never made any sense for thousands of years of human trade (commodities for commodities), so why is it 'normal' now to get something for little or nothing?

Its dumb because he basically placed a tariff on himself as no one wants to inventory rubles.

[Tim]

This guy is actually pretty smart... saying today that 'unfriendly' nations have to convert their money into Rubles to buy Russian oil/gas. That obviously means the dozens of countries supporting Ukraine and sanctioning Russia.

Saddam did the same thing a couple decades ago (only taking Euros for their oil, not USD). Well, it was smart until we smacked Iraq pretty hard and killed him.

But really, if we are going to trash their money and exchange rate, they will just demand real a different currency and lower the currency value right back. Front page of WSJ a week ago was that Saudi Arabia was considering Yuan instead of USD for oil...
https://www.wsj.com/articles/saudi-a...es-11647351541

Seriously, though: why should they have to take our fake printed money for their real goods? It makes no sense (unless the answer is "because USA and NATO have the most guns"). It never made any sense for thousands of years of human trade (commodities for commodities), so why is it 'normal' now to get something for little or nothing?

The assumption is all purchase are spot rate straight out cash. Unfortunately that is now how international business works. You has a purchase commitment with a stated functional settlement currency.

Prior to Euro, the EU was a mess. Basically it opens up much more complicated currency risks and a timeline that needs to be hedged. Talk is cheap, implementing a purchase in a different currency has always been an option.
Basically it is lowest common denominator. Someone will get burnt.

[Dont_know_mind]

You mean a frontier market ETF? Because I believe it is not as efficient as tracking the underlying companies - due to poor transparency, bureaucracy, corruption. Hence much more difficult to pursue alpha.

We're so used to the consistently vetted and regulated public equity market in the US, it's sometimes easy to forget developing/3rd world countries are not always analogous.

It’s an ongoing debate about whether indexing is worse than active in EM. Surprisingly, what I’ve read indicates indexing works as well in EM as DM.

Not sure about frontier markets. I wouldn’t invest in them unless they were incredibly cheap.

[Dont_know_mind]

Its dumb because he basically placed a tariff on himself as no one wants to inventory rubles.

The sanctions are meant to facilitate regime change, but Russia actually has a large current account surplus. I don’t know how it will turn out.

OMG though with China sentiment. It is through the floor. The other part of the narrative is the story that we are on the cusp of a US recession. If you take a step back though, it’s bizarre how a recession is likely when unemployment rate is heading to 3% range and FFR 0.25%.

If there isn’t a recession soon, it seems like there is a a risk of mispricing in bonds that seems to not really see wage growth as a significant risk next.

It’s a fascinating economic backdrop.

[Tim]

“It’s a fascinating economic backdrop.”
It is fascinating to hear and read the messaging:
Sanctions- which is it?
*“The sanctions are meant to facilitate regime change, ”
* sanctions deter
* sanctions never deter
What are sanctions? I am confused.

[xraygoggles]

The sanctions are meant to facilitate regime change, but Russia actually has a large current account surplus. I don’t know how it will turn out.

OMG though with China sentiment. It is through the floor. The other part of the narrative is the story that we are on the cusp of a US recession. If you take a step back though, it’s bizarre how a recession is likely when unemployment rate is heading to 3% range and FFR 0.25%.

If there isn’t a recession soon, it seems like there is a a risk of mispricing in bonds that seems to not really see wage growth as a significant risk next.

It’s a fascinating economic backdrop.

The most jarring part of this year so far in the financial markets is the fact that bonds/bond yields & curves are all over the place ALONG with the expected equity volatility. If it was just the latter, no biggie.

[Zaphod]

The sanctions are meant to facilitate regime change, but Russia actually has a large current account surplus. I don’t know how it will turn out.

OMG though with China sentiment. It is through the floor. The other part of the narrative is the story that we are on the cusp of a US recession. If you take a step back though, it’s bizarre how a recession is likely when unemployment rate is heading to 3% range and FFR 0.25%.

If there isn’t a recession soon, it seems like there is a a risk of mispricing in bonds that seems to not really see wage growth as a significant risk next.

It’s a fascinating economic backdrop.

you mean bonds are terribly expensive? i agree with that. also agree there isnt a big risk of recession either, but letting inflation spiral would risk that ofc. still would be a while most likely. all dependent on data changes. we are still negative real rates nearly across the curve, its crazy.

[Dusn]

So Putin’s now ranting about being a victim of “cancel culture” and comparing himself to jk Rowling?

This wackadoodle can order the launch of nuclear weapons that could kill all of us within 30 minutes?

[Dont_know_mind]

The most jarring part of this year so far in the financial markets is the fact that bonds/bond yields & curves are all over the place ALONG with the expected equity volatility. If it was just the latter, no biggie.

It’s not been the best environment to be long bonds and long equity that’s heavy tech.

[Dont_know_mind]

you mean bonds are terribly expensive? i agree with that. also agree there isnt a big risk of recession either, but letting inflation spiral would risk that ofc. still would be a while most likely. all dependent on data changes. we are still negative real rates nearly across the curve, its crazy.

Yes, bonds just seem expensive here compared to stocks. So I think there is a developing move to bail out of bonds. I think there is still a bit more to go in terms of commodities. The sentiment about China is still really negative. I feel quite positive and I think we may have seen the low point for the Chinese economy for the next 3 years. I would have bought some Chinese exposure if I wasn’t already quite exposed to China indirectly through current investments. It seems they will be like other countries and have a large covid outbreak, which in most countries has been a positive for the stockmarket 6-12 months out.

US bonds are at a really interesting point. I heard someone say that the long end is still tethered and since the bond traders are the smartest guys in the room, it means bonds are predicting recession. I'm not sure that’s how it works. The bond guys are thought of as the smartest guys in the room as they are the first to see a change. They are going to be the first to be selling longer maturities if they break out. I think people are extrapolating too much from the current yield curve into recession calls. I suspect that when QE tapering accelerates, there will be a significant steepening and backup of yields in longer maturities.

Taking a step back, a higher price for oil is a negative for consumption, but this is offset by increased income (and consumption) from a sub 4% unemployment rate and the current very negative real rates. I suspect the current negative real rates will result in another bubble somewhere (real estate or commodities would be my guess) before the next recession.

There was a very interesting period in 2000-2001 when tech peaked and the Dow outperformed and did a double top. I wonder if we have got to that yet. Or maybe we haven’t even reached a cycle peak for tech or the SP500 yet. Or maybe the recession has already started!

[Tim]

Yes, bonds just seem expensive here compared to stocks. So I think there is a developing move to bail out of bonds. I think there is still a bit more to go in terms of commodities. The sentiment about China is still really negative. I feel quite positive and I think we may have seen the low point for the Chinese economy for the next 3 years. I would have bought some Chinese exposure if I wasn’t already quite exposed to China indirectly through current investments. It seems they will be like other countries and have a large covid outbreak, which in most countries has been a positive for the stockmarket 6-12 months out.

US bonds are at a really interesting point. I heard someone say that the long end is still tethered and since the bond traders are the smartest guys in the room, it means bonds are predicting recession. I'm not sure that’s how it works. The bond guys are thought of as the smartest guys in the room as they are the first to see a change. They are going to be the first to be selling longer maturities if they break out. I think people are extrapolating too much from the current yield curve into recession calls. I suspect that when QE tapering accelerates, there will be a significant steepening and backup of yields in longer maturities.

Taking a step back, a higher price for oil is a negative for consumption, but this is offset by increased income (and consumption) from a sub 4% unemployment rate and the current very negative real rates. I suspect the current negative real rates will result in another bubble somewhere (real estate or commodities would be my guess) before the next recession.

There was a very interesting period in 2000-2001 when tech peaked and the Dow outperformed and did a double top. I wonder if we have got to that yet. Or maybe we haven’t even reached a cycle peak for tech or the SP500 yet. Or maybe the recession has already started!

https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/?sh=7fb2aeff630a

I have no clue what will happen or when it will occur. Clearly monkeys have an edge.

[Zaphod]

Yes, bonds just seem expensive here compared to stocks. So I think there is a developing move to bail out of bonds. I think there is still a bit more to go in terms of commodities. The sentiment about China is still really negative. I feel quite positive and I think we may have seen the low point for the Chinese economy for the next 3 years. I would have bought some Chinese exposure if I wasn’t already quite exposed to China indirectly through current investments. It seems they will be like other countries and have a large covid outbreak, which in most countries has been a positive for the stockmarket 6-12 months out.

US bonds are at a really interesting point. I heard someone say that the long end is still tethered and since the bond traders are the smartest guys in the room, it means bonds are predicting recession. I'm not sure that’s how it works. The bond guys are thought of as the smartest guys in the room as they are the first to see a change. They are going to be the first to be selling longer maturities if they break out. I think people are extrapolating too much from the current yield curve into recession calls. I suspect that when QE tapering accelerates, there will be a significant steepening and backup of yields in longer maturities.

Taking a step back, a higher price for oil is a negative for consumption, but this is offset by increased income (and consumption) from a sub 4% unemployment rate and the current very negative real rates. I suspect the current negative real rates will result in another bubble somewhere (real estate or commodities would be my guess) before the next recession.

There was a very interesting period in 2000-2001 when tech peaked and the Dow outperformed and did a double top. I wonder if we have got to that yet. Or maybe we haven’t even reached a cycle peak for tech or the SP500 yet. Or maybe the recession has already started!

My take was basically bonds just frankly didnt believe, for decent reasons at first inflation, and then are playing way too much multidimensional chess and trying to predict not only how hard the fed will go but that it will cause a recession, so its "fed will hike, bonds up, but theyll cause recession, so....its really down".

But to me, its insane that its been vacillating within a few bps cuz the real rate to inflation or even neutral is frankly a massive gap.

Could be right about china. i dont mess with them though.

Recession is harder and ofc unlikely in soon time period and depends on so much incoming data, we'll see.

The biggest recession risk is ofc fed being too far behind and having to come in heavy handed and crush economy. Further they get behind the more likely that becomes but dont think we're there yet.