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

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  • Originally posted by Zaphod View Post

    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.
    That's a great take. Sometimes the bond market gets it right and sometimes they don't. I think Fed was brilliant not to do yield curve control. They are not positioned where the market can take them on and the market does the lifting with setting future rates to a degree.

    One thing I knew for sure in 2020 was that I didn't want any bonds. I still do not want any bonds here. At some stage hopefully inflation will be stable, real rates better and maybe bonds will be more attractive to me. Haven't seen any posts from people worried about their bond allocation. Maybe because US stocks are still up 10% in the last year or people not worried because the nominal loss is not great. But with -4% real rates for the last 2 years, that is significant loss in purchasing power, particularly if it persists.

    Since 2020, have been allergic to US stocks and any type of bonds. To me, a US only portfolio offered little protection from moderate inflation. And there were clear indicators that inflation may have bottomed for a number of years in 2020. Bonds to me in 2020 were like stocks in 2000 - uninvestable as the real return under most scenario's I could imagine was likely to be pretty shockingly negative.

    Something I've heard a bit of recently is: "people thought that inflation was going higher in 2012 and it didn't". The majority of people thought inflation was going higher in 2012 and they were wrong. Currently the majority of people think inflation will not go up more than transiently.

    COVID was the biggest demand shock of our generation. I think after something like that, I had to invest in a way that would do well if inflation showed up and ok if it didn't.

    China, although am tempted to buy some direct exposure sometimes (recently mainly), I don't and haven't ever bought any Chinese stocks or ETF's and have stayed away from it. Have just added slightly to my current positions on the Ukraine correction.

    Comment


    • Something I read on a Bogleheads forum that dovetails with what you are saying about the Fed possibly being behind the curve:

      "I would strongly discourage readers from assuming that historic scenarios contain all scenarios that are now possible with bonds going forward. In particular, I am not sure it has ever been the case that bonds went into a period of unexpectedly high inflation with negative real expected rates even before inflation expectations increased. And if that hasn't happened before, but could happen now, then what happens now could be completely unprecedented."

      https://www.bogleheads.org/forum/vie...?f=10&t=373594

      My portfolio is very tilted to commodities and this medium term recession risk still worries me greatly. Hopefully inflation doesn't end up spiking and the current rates and QE are not seen in retrospect as like adding lighter fluid to a fire.

      Comment


      • One thing I find amazing Is making assessments of bond, equity, interest rates or inflation and completely ignoring government policies, primarily fiscal policies. These policies are so important in determining what jobs are available, what wages are paid and what if any benefits (short and long term) are the results.
        • Did not help produce housing as it claimed it would—only built 25,000 units in a span of 4 ½ years.
        • Biggest example of Roosevelt priming the economic pump, which failed.
        • The economy was not aided by the act nor did it return pre-depression activity levels as it theoretically should have.
        We have real examples of this. The Great Depression and WW2 . Government becomes the economy is the model.
        Whether it is set by a dictator, socialist, or a democracy, fiscal policies matter more than the FED. FED is only one of the Alphabet Soup in policies.
        Google “wpa wage controls”
        I just visited one project of WPA. A monument taller than the Washington Monument and a base inspired by the Lincoln Memorial. Complete with a reflection pool and a Battleship at the other end and a historical museum. All located in an isolated place on the Gulf. A great history lesson of Texas/Mexico and history. It seems that Texas provoked about 1/3 of the land of the continental US.
        The New Deal (WPA and the Alphabet Soup) was basically one job for every household.
        Politics sets the fiscal policies and risks.
        We have an unstable situation globally now, primarily in the US government’s fiscal policies.

        Comment


        • Originally posted by Dont_know_mind View Post
          Something I read on a Bogleheads forum that dovetails with what you are saying about the Fed possibly being behind the curve:

          "I would strongly discourage readers from assuming that historic scenarios contain all scenarios that are now possible with bonds going forward. In particular, I am not sure it has ever been the case that bonds went into a period of unexpectedly high inflation with negative real expected rates even before inflation expectations increased. And if that hasn't happened before, but could happen now, then what happens now could be completely unprecedented."

          https://www.bogleheads.org/forum/vie...?f=10&t=373594

          My portfolio is very tilted to commodities and this medium term recession risk still worries me greatly. Hopefully inflation doesn't end up spiking and the current rates and QE are not seen in retrospect as like adding lighter fluid to a fire.
          100%.

          Absolutely agree, that bonds basically topped during covid, you were essentially at the floor and it made no sense to touch them with a ten foot pole, soon they may be very attractive again, but as noted, rates are mostly NEGATIVE, with high inflation. No one understands inflation and to think its going to simply go away (should go down) is crazy, fed barely stopped pouring jef fuel onto the situation in early march when they ended QE finally. Thats crazy. should have ended by q421 latest.

          Now just regular gas getting poured by neg rates and fed being slow to react. Market finally taking rate hikes seriously, but they still dont see neutral rate higher than 2-2.25%, if that breaks bonds will have a nice one, which it probably will.

          Also agree absurd to try to cram current sitch into some historical analog when its different or say its not like the 70s when that was a full decade that didnt start like the 70s either.

          US valuations still a bit high for now, but commods are a nice helper here.

          Comment


          • Originally posted by Tim View Post
            One thing I find amazing Is making assessments of bond, equity, interest rates or inflation and completely ignoring government policies, primarily fiscal policies.
            The monetary policy naval gazing is mainly to while away the time.
            Fiscal policy packs the biggest punch and can solve most economic problems in the short term. I guess in the long term it can be seen as a sugar hit, but it solves the crisis at the time.
            That is another reason I'm not that bullish US stocks, the fiscal stimulus is, I tend to think, exhausted this cycle. Like the Chinese after 2010. They did a massive fiscal stimulus in 2009-10 and their market peaked around 2012, for other reasons also.



            Comment


            • Originally posted by Zaphod View Post

              100%.

              Absolutely agree, that bonds basically topped during covid, you were essentially at the floor and it made no sense to touch them with a ten foot pole, soon they may be very attractive again, but as noted, rates are mostly NEGATIVE, with high inflation. No one understands inflation and to think its going to simply go away (should go down) is crazy, fed barely stopped pouring jef fuel onto the situation in early march when they ended QE finally. Thats crazy. should have ended by q421 latest.

              Now just regular gas getting poured by neg rates and fed being slow to react. Market finally taking rate hikes seriously, but they still dont see neutral rate higher than 2-2.25%, if that breaks bonds will have a nice one, which it probably will.

              Also agree absurd to try to cram current sitch into some historical analog when its different or say its not like the 70s when that was a full decade that didnt start like the 70s either.

              US valuations still a bit high for now, but commods are a nice helper here.
              I've been thinking over the last week about the reducing spread between 2-10's. Some people interpret this as some sort of YC inversion. I think the bond market has this priced ok. I don't think the yield curve is inverted. The reduced spread is just that the short end is reacting more than the long end because some of the inflation is in all likelihood transitory (but maybe not all of it). So I think this is just a function of the environment and not that ominous for stocks.

              Twitter is such an amazing platform. Sometimes I wonder whether I should buy a few shares just because I get so much value from it. Same with WCI (have bought at least 2 copies of your book for the cause Jim)

              Comment


              • Originally posted by Dont_know_mind View Post
                ...That is another reason I'm not that bullish US stocks, the fiscal stimulus is, I tend to think, exhausted this cycle. Like the Chinese after 2010. They did a massive fiscal stimulus in 2009-10 and their market peaked around 2012, for other reasons also.
                I just don't think people did consider or even now realize how long this war will go on... and how long it'll affect the world economy and energy prices.

                This is one of the only "both sides of the coin" articles I have seen on CNN (and on April Fool's day, no doubt):
                https://www.cnn.com/2022/04/01/polit...war/index.html

                We keep hearing Ukraine is pushing back, we keep seeing destroyed Russin vehicles, we keep hearing their president talking tough.
                Well, if that's so, then why do Ukrainians keep fleeing and why does the map keep showing Russian-control territory advancing and new cities being attacked?

                -Barring bona fide military intervention by NATO, Ukraine will be taken. All of their leaders who dig in will be dead by year's end. There is no question (besides how long it'll take and how much NATO keeps sending weapons and supplies and intel to delay that same result).
                -Energy prices will continue to be crazy and unstable.
                -Tensions in Europe will continue to be high. Energy conflicts will arise from the Russia oil/gas dependent countries who are now 'unfriendly' due to the invasion.
                -USA will continue to print and print money to give to Europe and to domestic 'easement.'
                -Inflation is a certainty. Inflation may get crazy if only the Ruble must be exchanged for Russian commodities.
                -Interest rates are anyone's guess (as usual)... no appreciable room to lower them (they are already net negative with inflation factored), so that means record printing.

                No market is very safe right now (since virtually all depend on energy). These are interesting times. I would actually think China should be the best since they are the least involved (aren't sending much in supplies, aren't having to pay more for energy). You can basically take stocks if you are counting on inflation. You can take commodities if you are counting on logic. Bonds are interesting with net negative interest rates that are basically unprescidented. Most folks will do a blend.
                Last edited by Max Power; 04-01-2022, 12:06 PM.

                Comment


                • The Ukrainians have done better than anyone could have imagined. True heros.

                  Eventually Russia will wear them down. They have superior resources. They will blow every shelter up and kill everything that breathes, while we sit here and do almost nothing. The only way out is a miracle… regime change in Russia…. Which is close to impossible.

                  The world is entering a new dark age. America has indoctrinated its young, that we are the world’s biggest problem. We have given away our ability to build tangible things. As we have weakened, our adversaries have strengthened and become emboldened. At the same time mysticism and tribalism is growing in popularity. Now we get to see the alternative path.

                  The default state of human society is not democracy and freedom, it’s totalitarianism enforced by violence and murder. Without great effort and sacrifice, we return to this system of existence. There is no hiding or running away from it.

                  Comment


                  • It’s interesting that Russia is using the same tactics and strategies that they used on the Eastern bloc after WW2.

                    As a child, I was told the stories of how local grade school teachers, healthcare workers, low-level government officials and their families were targeted for liquidation. Civilians were lined up and executed in the streets. Women were raped and tortured. Fighting-aged men and boys were singled out and shot. And large groups were rounded up and sent to camps, never to be seen again. How, as bad as the Germans were, the Russians were even worse.

                    Now I see that there was no exaggeration in these relayed experiences. All of these things are now happening, just as I was warned as a child they would, if war ever followed here someday. Tens of thousands of Ukrainians have been rounded up and sent to “filtration camps” in Russia. Hospitals are targeted for bombing, kindergarten teachers are executed, people are shot in the streets on their knees, with their hands tied behind their backs. Tanks roll down the streets, blowing up residential homes indiscriminately. Civilians are executed at check points, trying to evacuate.

                    It appears that we get to watch a clear “good versus evil” battle playing out. Kind of makes the trivial things we argue over in this country look silly by comparison.

                    In Ukraine, when taken, your phone is opened, your accounts are searched, and what you have posted online often determines if you and your family are executed. Keep that in mind depending on your travel situation and the conditions here in the future.

                    Many college students today are taught about the shortcomings of one of the worst men to ever hold office in the United States. He could give a pretty good speech though…..



                    But that was a long time ago.




                    Comment


                    • Originally posted by Jaqen Haghar MD View Post
                      It appears that we get to watch a clear “good versus evil” battle playing out. Kind of makes the trivial things we argue over in this country look silly by comparison.
                      It also makes it clear that we (as a world) are going to have to figure out how to keep nukes out of the hands of totalitarian governments. The ONLY reason the war in Ukraine is still going on is because Russia has nuclear weapons, so direct action on the part of the US and the EU in Ukraine is just too dangerous. We've have kicked Vlad's troops all the way into Siberia by now without that threat hanging over everyone.

                      Comment


                      • Originally posted by Jaqen Haghar MD View Post
                        It’s interesting that Russia is using the same tactics and strategies that they used on the Eastern bloc after WW2.

                        As a child, I was told the stories of how local grade school teachers, healthcare workers, low-level government officials and their families were targeted for liquidation. Civilians were lined up and executed in the streets. Women were raped and tortured. Fighting-aged men and boys were singled out and shot. And large groups were rounded up and sent to camps, never to be seen again. How, as bad as the Germans were, the Russians were even worse.

                        Now I see that there was no exaggeration in these relayed experiences. All of these things are now happening, just as I was warned as a child they would, if war ever followed here someday. Tens of thousands of Ukrainians have been rounded up and sent to “filtration camps” in Russia. Hospitals are targeted for bombing, kindergarten teachers are executed, people are shot in the streets on their knees, with their hands tied behind their backs. Tanks roll down the streets, blowing up residential homes indiscriminately. Civilians are executed at check points, trying to evacuate.

                        It appears that we get to watch a clear “good versus evil” battle playing out. Kind of makes the trivial things we argue over in this country look silly by comparison.

                        In Ukraine, when taken, your phone is opened, your accounts are searched, and what you have posted online often determines if you and your family are executed. Keep that in mind depending on your travel situation and the conditions here in the future.

                        Many college students today are taught about the shortcomings of one of the worst men to ever hold office in the United States. He could give a pretty good speech though…..



                        But that was a long time ago.
                        I think it is likely the Germans and Europeans will get around to banning Russia gas and oil. I read somewhere the modelled effect on the German economy was estimated at -0.3 to -3% GDP. So a mild recession in Europe might be priced in.

                        It could be similar to the 1920’s, but with the Russians being the Germans paying crippling reparations post war and possibly having to deal with ultra high inflation for a period.

                        Comment


                        • Originally posted by Max Power View Post
                          I just don't think people did consider or even now realize how long this war will go on... and how long it'll affect the world economy and energy prices.

                          This is one of the only "both sides of the coin" articles I have seen on CNN (and on April Fool's day, no doubt):
                          https://www.cnn.com/2022/04/01/polit...war/index.html

                          We keep hearing Ukraine is pushing back, we keep seeing destroyed Russin vehicles, we keep hearing their president talking tough.
                          Well, if that's so, then why do Ukrainians keep fleeing and why does the map keep showing Russian-control territory advancing and new cities being attacked?

                          -Barring bona fide military intervention by NATO, Ukraine will be taken. All of their leaders who dig in will be dead by year's end. There is no question (besides how long it'll take and how much NATO keeps sending weapons and supplies and intel to delay that same result).
                          -Energy prices will continue to be crazy and unstable.
                          -Tensions in Europe will continue to be high. Energy conflicts will arise from the Russia oil/gas dependent countries who are now 'unfriendly' due to the invasion.
                          -USA will continue to print and print money to give to Europe and to domestic 'easement.'
                          -Inflation is a certainty. Inflation may get crazy if only the Ruble must be exchanged for Russian commodities.
                          -Interest rates are anyone's guess (as usual)... no appreciable room to lower them (they are already net negative with inflation factored), so that means record printing.

                          No market is very safe right now (since virtually all depend on energy). These are interesting times. I would actually think China should be the best since they are the least involved (aren't sending much in supplies, aren't having to pay more for energy). You can basically take stocks if you are counting on inflation. You can take commodities if you are counting on logic. Bonds are interesting with net negative interest rates that are basically unprescidented. Most folks will do a blend.
                          China may benefit from cheaper oil/gas from Russia for a period. I guess there might be a lot of pressure on them if the Europeans ban Russian oil/gas, maybe in the form of threats of tarriffs if they continue to buy from the Russians. But I guess this would also have to be applied to India and other countries still trading with Russia.

                          I find bonds a terrible risk here. IMO, although CB’s will be talking tough on inflation, they are incentivised to increase monetary repression. They may be more interested in preparing for war, nursing domestic demand and mitigating an energy inflation shock than fighting inflation.
                          I guess if there is a recession then bonds would work out, but otherwise get whipped in other scenarios.

                          I tend to think the bottom is in on Chinese equities, but don’t invest in them directly. The COVID outbreak there maybe a major positive for Chinese equities 6-12 months out.

                          Comment


                          • Originally posted by Dont_know_mind View Post

                            I think it is likely the Germans and Europeans will get around to banning Russia gas and oil. I read somewhere the modelled effect on the German economy was estimated at -0.3 to -3% GDP. So a mild recession in Europe might be priced in.

                            It could be similar to the 1920’s, but with the Russians being the Germans paying crippling reparations post war and possibly having to deal with ultra high inflation for a period.
                            I don't think there will be a permanent ban any time soon. They just can't. Maybe they'll do a temporary 'ban' when the weather gets warmer and their gas need goes down but they're years away from having the infrastructure in place to bring gas in from other areas (or use other forms of energy production) to meet their current needs. I believe I read where Shell's work around was to basically use products that contained 49.99% Russian oil or less so they can say it isn't a Russian product. They'll use similar kind of work arounds or get Russian oil/products indirectly but they'll still get them. It took years for them to get this reliant on Russian products and it'll take years to get less reliant.

                            Comment


                            • Originally posted by Dont_know_mind View Post
                              China may benefit from cheaper oil/gas from Russia for a period. I guess there might be a lot of pressure on them if the Europeans ban Russian oil/gas, maybe in the form of threats of tariffs if they continue to buy from the Russians. But I guess this would also have to be applied to India and other countries still trading with Russia.
                              Tariffs never work. Once you do it the other side has to reciprocate. The common man suffers. Did we not learn that with the Airbus / Boeing tariffs and the China /USA tariffs that happened recently.

                              We have plenty of issues in this country with rising inflation, unaffordable housing, COVID, inability of workplace to find workers, energy crisis and so on. Why don't we address those and bring it under control instead of bullying and threatening tariffs with other countries, which is far down the list of importance to us.

                              Comment


                              • Originally posted by Kamban View Post

                                Why don't we address those and bring it under control instead of bullying and threatening tariffs with other countries, which is far down the list of importance to us.
                                We are the leading member of NATO. Russian wars of aggression in Eastern Europe are of critical importance to the US.
                                Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

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