Dear clients and friends,
The market in February has so far copied January with a large amount of volatility. A new concern has taken some attention away from the Fed and that is the Russia/Ukraine conflict. It is always distressing to see conflict and our hearts go out to all those impacted. The market, however is usually pretty heartless, caring more about profits and how this will affect the global economy.
From an economic perspective, the concern over the Russia/Ukraine conflict appears to be more of a slippery slope argument. This feels very similar to the European debt crisis. If you recall, the concern was that Greece might default on their debt. The US market didn’t care about Greece’s economy since it was so small. If they defaulted the impact would be minimal. However, if they didn’t pay their debt, then Italy might not be able to pay their debt. If Italy didn’t pay their debt, then Portugal might not be able to pay theirs. This continued on and on until finally Germany and France might not be able to pay their debts, and we actually cared about that. Of course, that never happened and the whole thing blew over with minimal long term impact.
In this case, I believe the market is worried that this is a first step of a conquering tyrant and Russia will continue to progress across Europe. So far the aid provided to the Ukraine has been minimal, taking form in strong warnings and sanctions. I don’t believe that if Russia goes beyond the Ukraine that the global response will be so measured. I would expect the US and its allies to create a military wall that would prevent the campaign from continuing. Just like in the Greek crisis, the Ukraine is not very economically important to US corporate profits, but the rest of Europe is, so once again we have a slippery slope. Hopefully this conflict ends soon and does not impact too many people across the globe.
Our big worry continues to be pricing for 2022 and the actions of the Federal reserve. We are looking for dips that we can buy on and unfortunately have already seen two in two months. Hopefully we don’t get many more, but if we do, we expect to continue to buy.
If you have any specific questions or concerns don’t hesitate to reach out to us.