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

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  • Originally posted by Zaphod View Post

    I have some broad commodity exposure but small overall. I do have a lot of energy/oil exposure XLE/XOP/PXE/PXI, and some of that was 2x up until new year, which I foolishly (in hindsight) delevered.

    Energy was getting hammered a bit end of day with rest of market and maybe "recession" fears, but hopefully if we have a small retracement I will once again sell covered calls on my holdings (leaps) I sold some a few weeks ago at recent highs and covered them monday. Hope to do a few times.
    Thinking about it more, it's very possible the Europeans hash up a basic economic fiscal stimulus plan and end up in recession.
    Resources are still doing well here because everyone is still short the commodities they require.
    The financial sanctions have had a strange effect of possibly incentivising the Chinese to hoard physical commodities.

    I think though, if there is a recession, resources would usually get crushed. So I have to try to get rid of leverage before a recession. But the commodity cycle is still young, no one is developing mines, even at current prices (maybe because the unprecedented current geopolitical turmoil makes current prices very possibly transient and elevated recession risk), years of underinvestment/regulatory ESG make depletion a real issue.

    Commodities should be much lower now, with the China lockdown issues (it is a surprise they are fighting COVID this much and scary). Maybe it is government stockpiling commodities in the event of further geopolitical turmoil, Maybe the Chinese and others are spooked about US confiscation of financial reserves.

    I tend to think that commodities are having a dual function - the demand function in terms of their usual role in industrial production and correlated with economic growth (and hence caned in recessions) and another function that has been more recently reactivated and not important at all in the last 20 years except very recently - as scarce collateral. It is as if they are as prized as US treasuries as collateral recently. It is very odd to see the current move in the US dollar and commodities, as usually they are very reliably negatively correlated.

    That would be very different if there was a liquidity event and commodities didn't go down much, or are seen as more valuable collateral than UST's. I'm not sure where that leaves commodity producers (which i mainly have) - probably same as recently - treading water or going down a bit, but not as much as other equities.

    It's a very interesting situation and the level of geopolitical uncertainty is about as high as I recall since 2000. It's quite scary and I would not be surprised to see VIX peak in the low 40's in the next month or 2, even if there is no recession.

    Comment


    • Originally posted by nastle View Post
      Right I don’t see any better options but people suggest Bitcoin gold cash REITs etc
      Short-term T-bills. Slightly above zero yield with no loss of principal. Better than cash.

      Comment


      • Originally posted by nastle View Post

        Would you put the other 30% in treasuries? Mid to long term ?
        20% real estate/REIT index fund and 10% bonds

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        • Originally posted by Dont_know_mind View Post

          Thinking about it more, it's very possible the Europeans hash up a basic economic fiscal stimulus plan and end up in recession.
          Resources are still doing well here because everyone is still short the commodities they require.
          The financial sanctions have had a strange effect of possibly incentivising the Chinese to hoard physical commodities.

          I think though, if there is a recession, resources would usually get crushed. So I have to try to get rid of leverage before a recession. But the commodity cycle is still young, no one is developing mines, even at current prices (maybe because the unprecedented current geopolitical turmoil makes current prices very possibly transient and elevated recession risk), years of underinvestment/regulatory ESG make depletion a real issue.

          Commodities should be much lower now, with the China lockdown issues (it is a surprise they are fighting COVID this much and scary). Maybe it is government stockpiling commodities in the event of further geopolitical turmoil, Maybe the Chinese and others are spooked about US confiscation of financial reserves.

          I tend to think that commodities are having a dual function - the demand function in terms of their usual role in industrial production and correlated with economic growth (and hence caned in recessions) and another function that has been more recently reactivated and not important at all in the last 20 years except very recently - as scarce collateral. It is as if they are as prized as US treasuries as collateral recently. It is very odd to see the current move in the US dollar and commodities, as usually they are very reliably negatively correlated.

          That would be very different if there was a liquidity event and commodities didn't go down much, or are seen as more valuable collateral than UST's. I'm not sure where that leaves commodity producers (which i mainly have) - probably same as recently - treading water or going down a bit, but not as much as other equities.

          It's a very interesting situation and the level of geopolitical uncertainty is about as high as I recall since 2000. It's quite scary and I would not be surprised to see VIX peak in the low 40's in the next month or 2, even if there is no recession.
          agree, but i am not too high on probability for near term recession, think thats just people getting scared with the market drop, we'll see with jobs friday how thats going, but seems decent still, will take quite a while before the rate hikes kick in.

          markets were disconnected from reality of one time stimulus, now burning off excess.

          commodity space while could be a little hot seems fine, energy cos are decent valuations and not even priced to this level of crude, AND there is a chance of a scarcity spike and seems we arent appreciating how close we are riding to low inventories and issues, fragility. which happened after ww2, in the 70s prior to the embargo, etc....history rhyming

          Comment


          • “It's a very interesting situation and the level of geopolitical uncertainty is about as high as I recall since 2000. It's quite scary and I would not be surprised to see VIX peak in the low 40's in the next month or 2, even if there is no recession.”

            Domestic politics just heated up,
            https://www.politico.com/news/2022/0...inion-00029473

            The concern is not with the ruling or that this would return abortion rights to the states.
            It is the political leaks and pressures spreading to the Supreme Court. This is dangerous. No doubt, packing the court will be brought up.

            Last weekend a partisan group from Congress made a trip to Ukraine. Highly unusual. Statements made were along the lines that a return to status quo was unacceptable, “in it to win it”. 100% support whatever is needed. The problem here is it was not a bipartisan committee and the US foreign policy is the responsibility of the Executive Branch.

            Have we reached a point of manufacturing political issues, just to change the narratives?
            Not to mention our new “Misinformation” powers in DHS. Last gasp political maneuvering?

            Significant “misbehavior” and breaches for what purpose? Political, only.

            Comment


            • Originally posted by Zaphod View Post

              agree, but i am not too high on probability for near term recession, think thats just people getting scared with the market drop, we'll see with jobs friday how thats going, but seems decent still, will take quite a while before the rate hikes kick in.

              markets were disconnected from reality of one time stimulus, now burning off excess.

              commodity space while could be a little hot seems fine, energy cos are decent valuations and not even priced to this level of crude, AND there is a chance of a scarcity spike and seems we arent appreciating how close we are riding to low inventories and issues, fragility. which happened after ww2, in the 70s prior to the embargo, etc....history rhyming
              There could well be a recession in some parts of Europe and energy dependent Asian countries.

              I tend to think the current period is a bit like post 2010 in terms of recession fears.

              I take the other side here and think:
              - probably anemic growth in US in 22, maybe 1%, but there maybe no recession
              - the Fed will keep increasing rates, but may lag inflation
              - bonds may continue to suffer
              - some risk of further fiscal stimulus to reduce recession risk in 22-23 (if they can get it through)
              - government crowding out of private investment at higher rates. Negative environment for US stocks
              - have no idea where the USD inflows are going, maybe repatriation of US investments from overseas to pay for the hole left by capital destruction in tech and crypto. Maybe some going to USD cash
              - to some degree this is a drag on resource valuations (general market sell off and USD strength), but ultimately if you own resource companies the dividend is the key. I feel comfortable with resource dividends in the next 5 years, so have not reduced my exposure
              - China is getting weirder and weirder with their COVID policy and I think maybe they pivot or turn into North Korea. I tend to think the former more likely and the effect will be interesting on resource prices if they do pivot. That they are in a prolonged lockdown maybe a blessing to the global economy as it may keep resource prices from spiking and elevating inflation risk.
              - I think investing in the current environment is still ok. I think the geopolitical uncertainty is a positive. It makes it more unlikely in the there will be a policy mistake. Governments and CB’s everywhere will have a bias to avoid recession due to the geopolitical risks currently. I think the risk for resources increases when the war is over and that would need to be weighed against how robust any recovery in global demand is likely to be (particularly China).

              I could be wrong about all of the above.

              The financial sanctions against Russia and freezing of their central bank assets was such an incredible change. Everyone is trying to figure out what it means if anything. To me, what happened was that the Russians exchanged years of exports for the CB reserves and 50% was frozen in an attempt to crash the Russian economy. This must have an effect on how the Chinese view their reserves. For the Russians, perhaps it means hoarding essential military and manufacturing resources instead of financial assets (other than gold which they can take delivery of). For the Chinese, at the margin, may mean they are less interested in exchanging goods for treasuries and more in delivery of resources.

              Current period reminds me of the euro crissis after the GFC. Lots to worry about, but consecutive recessions within a 3 year period are not common. The last one was 1980 with the Volker interest rates causing a mild recession, then the Iranian revolution and oil price shock causing a deeper one a year or 2 later.
              Last edited by Dont_know_mind; 05-07-2022, 06:06 AM.

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              • Our increasing involvement in this war is concerning and troubling to me. I think you can both condemn Russian aggression and also question the wisdom of getting into a proxy war with Russia. It has now leaked that we provided intelligence that assisted Ukraine in sinking the russian flagship and also locations of russian generals for targeting. We just got out of Afghanistan and now we are getting intertwined in a far more dangerous situation.

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                • Originally posted by fatlittlepig View Post
                  Our increasing involvement in this war is concerning and troubling to me. I think you can both condemn Russian aggression and also question the wisdom of getting into a proxy war with Russia. It has now leaked that we provided intelligence that assisted Ukraine in sinking the russian flagship and also locations of russian generals for targeting. We just got out of Afghanistan and now we are getting intertwined in a far more dangerous situation.
                  I am not advocating for it but proxy wars are attractive for nations to weaken and defeat their opponents. It costs them significantly less than a direct conflict and they don't have to worry about having to answer for body bags coming back. "Leaks" generally are for public consumption. Those in the arena probably know the kind of support being provided. I would assume intelligence sharing precedes weapons supplies.

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                  • Originally posted by fatlittlepig View Post
                    Our increasing involvement in this war is concerning and troubling to me. I think you can both condemn Russian aggression and also question the wisdom of getting into a proxy war with Russia. It has now leaked that we provided intelligence that assisted Ukraine in sinking the russian flagship and also locations of russian generals for targeting. We just got out of Afghanistan and now we are getting intertwined in a far more dangerous situation.
                    I didn’t think it was a secret that we were providing this kind of intelligence the entire time.

                    Comment


                    • Originally posted by fatlittlepig View Post
                      Our increasing involvement in this war is concerning and troubling to me. I think you can both condemn Russian aggression and also question the wisdom of getting into a proxy war with Russia. It has now leaked that we provided intelligence that assisted Ukraine in sinking the russian flagship and also locations of russian generals for targeting. We just got out of Afghanistan and now we are getting intertwined in a far more dangerous situation.
                      Cheaper and no boots on the ground. Also helps a lot of those defence contractor’s bottom line and share holders portfolios. We have to be involved in some type of conflict wether directly or by proxy to keep the $s flowing in. Plus it’s opening the door to Western EU’s energy needs to be filled by someone other than Gazprom.

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                      • I would rather we didn’t get into a indirect or direct military conflict with a nuclear power. I would limit our involvement to humanitarian aid and isolation. Funneling weapons seems to me to be fueling the fire, and sanctions and destruction of the Russian economy seems to me to hurt Russian civilians rather than Putin. Also I’m not quite sure the purpose and rationale of seizing and sale of Russian oligarch assets. Also I’m concerned that we are in a situation where our elected officials may feel compelled to support these initiatives lest they appear to be pro Russian or not sympathetic to the Ukranian people.

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                        • Originally posted by fatlittlepig View Post
                          I would rather we didn’t get into a indirect or direct military conflict with a nuclear power. I would limit our involvement to humanitarian aid and isolation. Funneling weapons seems to me to be fueling the fire, and sanctions and destruction of the Russian economy seems to me to hurt Russian civilians rather than Putin. Also I’m not quite sure the purpose and rationale of seizing and sale of Russian oligarch assets. Also I’m concerned that we are in a situation where our elected officials may feel compelled to support these initiatives lest they appear to be pro Russian or not sympathetic to the Ukranian people.
                          does that mean putin just does whatever he wants since he has nukes? finland?

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                          • Originally posted by Turf Doc View Post

                            does that mean putin just does whatever he wants since he has nukes? finland?
                            I would say no, but the Russians may see an important distinction between us providing aid to the Ukrainians in the form of supplies, humanitarian or military, on the one hand and in effect actually targeting the Russian leadership for the Ukrainians on the other. Regarding nukes, it is well to bear in mind that the Russian military doctrine is to use tactical nukes if they are invaded. Helping the Ukrainians drive out invaders is probably fine. Helping them target and attack Russia may be too close to the line.

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                            • Originally posted by fatlittlepig View Post
                              I would rather we didn’t get into a indirect or direct military conflict with a nuclear power. I would limit our involvement to humanitarian aid and isolation. Funneling weapons seems to me to be fueling the fire, and sanctions and destruction of the Russian economy seems to me to hurt Russian civilians rather than Putin. Also I’m not quite sure the purpose and rationale of seizing and sale of Russian oligarch assets. Also I’m concerned that we are in a situation where our elected officials may feel compelled to support these initiatives lest they appear to be pro Russian or not sympathetic to the Ukranian people.
                              I can’t say I approve of the $33B Ukraine package that has been talked about but there’s no way Ukraine can do what they’re doing without significant outside support.

                              It’s all meant to put pressure on Putin/his inner circle. I’m honestly surprised there hasn’t been a coup in Russia and I don’t really currently see an outcome where Putin remains in his current position (or even alive). He’s got to be the most nervous man on Earth.

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                              • We have to get involved to some extent. I think our involvement is appropriate. Putting your head in the sand means he does whatever he wants and gets more powerful. A weak nuclear power isn’t as much of a threat as you think. As long as you don’t attempt to directly overthrow the putin regime or launch attacks on moscow, this will eventually just weaken putin and make him less of a threat longterm. The bigger risk is letting him throw his weight around unchecked and then he gets bold enough to attack a nato country. That would be far more dangerous in terms of starting a nuclear war. Currently they can’t even manage the war in ukraine let alone attack a nato country.

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