February 24, 2022
Good morning,
No, it isn’t a good morning. Putin’s Russia has launched a full-scale invasion of the Ukraine. Something the world has feared for weeks, but the majority believed wouldn’t ultimately happen. Putin’s has unveiled his near term goal – to demilitarize the Ukraine and force a regime change for the whole country. At least some uncertainty has been removed short term. His appetite for invasion across other borders likely remains high but distant for now.
Markets are reacting as one would expect, equities are not in freefall, but are off -2.5% to -3.5% on major equity indexes. Commodities are up strong with crude up over $100/brl now (+8/brl). Safe havens are up; 2yr Treasuries have rallied 10bps and sit now at 1.5%, gold is up 3% to $1970/oz and the dollar is up a full 1% (a big move for the global standard).
Now what? Markets have to wait for the global response; more severe sanctions from the global community led by the U.S. The headlines for the next few days, maybe weeks, are not going to be pretty. But before those headlines turn rosier, markets are likely to bottom and stage a recovery rally. If Putin’s near term goals are now known, and the full extent of the global response becomes known shortly, the market will have firmer ground to stand on and calculate the near term (3-6mo) economic consequences of this week’s geopolitical crisis. Normally, we learn that emotion of the unknown has a component of over-reaction to it. This is the fuel for the rally that begins while headlines are still gloomy.
From an investment perspective, our only concern at this time is how quickly we can get back to our high water marks. It means there will be no panic selling but instead a very close scrutiny of the markets, looking for the point where much of the consequences of the crisis have been fully discounted into prices.
See you tomorrow.
Be very well indeed,
Mike