One could argue that this was the most thinly veiled military action in history. From the massing of troops on the Ukraine border, to Biden’s reference to “limited invasion”, to Putin’s “Russian manifesto” …. we saw it coming slowly and in real time. While we didn’t want to believe it could actually happen, and it was a bluff… it did. That is undoubtedly the hardest thing. Like seeing a slow-motion car wreck and being horrified the whole time.
Looking ahead is the real challenge. Doing so in an unemotional and logical way makes it harder. This writing is NOT one of those “hey it’s gonna be better” pieces. Usually, it turns out that way, but the ride is not always easy. Mentally separating the economic from the political is the challenge. With war and the raw emotional response, its much more difficult.
Looking at history, the Russian forward view was not unexpected. The latent social mistrust of “the West” coupled with their lost view of the “Russian empire” set the stage. The recent accumulation of oil wealth gave the financial means. Since January 2021, oil is up 65 percent. Being the number two global exporter puts them in a massive profit position. Profits which are necessary to pay for the military might to execute such an invasion. One other historical point to keep in mind. In many (if not most) land masses in eastern Europe, the middle east, and western Asia, political lines were drawn post military conflict. Ukraine is similar in that a large portion of the population (especially in the east) identify as Russian. The population in the west identify (primarily) as European.
Economically, the path forward will be challenging for Europe and Russia. Actions have consequences and this one will be dramatic. Europe is dependent on Soviet energy. That is clearly a problem. It’s not as simple as saying no to Russian oil and gas. The infrastructure and delivery are complex and expensive. Historically, the real risk of aggression is economic isolation. Not so sure that will be the case here. Politically, the ramping up of global oil production (especially in the US) runs counter to the political landscape.
At this point, the global equity markets would seem to believe Ukraine is the objective and it will not spin further. Were it different, the markets would be down more than 700 points. In my opinion (entertainment only…not to be wagered upon) that’s the direction. Ukraine is and will put up a fight but inevitably fall to a Russian puppet government. I suspect assimilating a territory will be tougher than taking it militarily, but that’s a separate discussion for a later time.
As I said earlier, this isn’t a “feel good, its gonna be better article”. As my kids often hear me say, “life ain’t a Disney movie”. It’s not. But, and it’s a big but…. volatility is an embedded part of the investing process. Investing has its good times and it’s not so good times. That’s why all the old adages of allocation, risk tolerance, time horizon, burn rate, and cash flow are always in vogue. I’m not saying today feels good… it doesn’t, but if you are correctly allocated and your portfolio matches your risk tolerance, it’s a side note in your long-term journey.
As always, don’t hesitate to reach out at any time and for any reason. In good times and not so good, we are here for you. Thanks, as always, for the relationship and for being a part of your financial life.