Ukraine, Russia, and Your Money.
How will the invasion of Ukraine affect your finances?
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Dear Friends,
I believe that it is very important for any investor, trader, or businessperson to follow events across the national and global political landscape. For example, the great Warren Buffett reads The Wall-Street Journal, New York Times, USA Today, Barron’s, The Economist, Omaha-Herald, and the American Banker every single morning. He does this because certain political events could give him the opportunity to make money in the markets. In this newsletter, I will explain some possible opportunities with this major crisis.
From the beginning of time, war has never been good for anyone involved. This includes the country that wins the war due to the loss of life that happens. However, most countries have never faced consequences of other countries wars until 1950.
Since World War 2, the United States has led the policy of Globalization which essentiality makes all countries dependent on each other. In theory, the United States wanted to make each country economically dependent on one another. In other words, this would make the cost of going to war not even worth it. This theory was put in place to prevent a 3rd world war. Due to this policy, American Citizens will in-directly face consequences of a Russia-Ukraine war especially at the gas pump.
If you haven’t been following, Russia is on the brink of re-invading our allies Ukraine.
In fact on Tuesday, White House Press Secretary Jen Psaki gave a bold and stark warning to the American people: “Let’s be clear, our view is that we are in a extremely dangerous situation. We are now in a stage that Russia could invade Ukraine at any point and launch an attack.”
President Biden sent Secretary of State Antony Blinken to meet with Ukraine President Volodymyr Zelenskyy. Prior to his arrival in Ukraine, Secretary Blinken spoke with the Russian Foreign Minster where he urged Russia to take immediate steps to de-escalate the situation.
Earlier this month, the United States and Russia were in talks to resolve the standoff after Russia deployed over 100,000 troops to the Ukraine border.
The United States warned Russia of dire economic consequences plus possible military action if Russia were to invade to Ukraine. These talks have failed.
The Question Is Why?
In 1991, The Soviet Union was broken up. During this same year, the Ukraine Revolution took place which made them a country of their own. Russians were furious that they lost Ukraine, and they were really mad that they especially lost Crimea.
In 2014, Russian President Vladimir Putin stated to colleagues that "we must start working on returning Crimea to Russia."
The Obama Administration made a mistake in under-estimating Putin, when they did not take his threats serious that he would take Crimea by force. (Secretary Blinken has said The Biden Administration will not make the same mistakes.)
President Biden’s current nominee to become assistant secretary of defense for international security affairs, Celeste Wallander, said it was the wrong call not send weapons to Ukraine. Wallander was a a senior Russia adviser to President Barack Obama in 2014, also stated that the Trump Administration has made the right decisions between Ukraine and Russia.
Between the months of February 2014-March 2014, Russia invaded Crimea to reclaim their terrority that they once had for years. Putin’s approval rating went sky high during this time. In 2014, Putin said that he only wanted Crimea, and he was done with challenging Ukraine.
So why in 2022 has Putin sent 100,000+ troops to the border to create a new crisis?
Please keep in mind that these two answers are being debated all across the world including in the White House and Pentagon as I type this. There is no right or wrong answer, only the unknown.
The obvious answer could be that Vladmir Putin’s dream is to return all of the former Soviet States back to Russia.
This would cause mass panic on a global scale. This would put our European allies in harms way.
Putin knows this is impossible to do all at once, he would have to do this slowly but surely.
However, he would have to fully believe that he can take Ukraine without military force coming from the United States.
The other answer is that Putin believes that President Biden wants to make Ukraine a full member of NATO. He is using a possible military invasion of Ukraine as leverage for them to remove that from the agenda. In other words, when they negotiate, they will say “We will not talk unless you give us your word that Ukraine will not become part of NATO.”
I personally believe that Ukraine should become part of NATO. This would give us the ability to put maximum military strength on the Russian border. (Bush, Obama, Trump, and Biden believe this as well) However, the last thing Putin wants is maximum USA military strength on their border.
During the 2020 election, the Hunter Biden-Ukraine ties was a big issue that came under scrutiny. President Biden’s son, Hunter, was serving on the board of a Ukraine Nuclear company and getting paid $50,000 a month for it. Putin could be worried that Ukraine-Biden Administration has a very good relationship.
Ukraine, Russia, and Your Money
When Russia invaded Crimea, the global markets were panicked for the first couple of months during and after the invasion. There was also a panic at the gas pumps, since Russia is one of the largest exporters of oil. Their main pipeline is in Ukraine, and if they are at war with Ukraine, they cannot use this pipeline.
In almost every major geo-political crisis, since 9/11, we saw a major sell off in the first 3 months of stocks BUT in 6 months time, equities were at higher levels. This means that you shouldn’t panic sell and buy any sell-off that you can.
The rule of thumb is that Treasuries are a traditional haven during periods of geopolitical and economic stress.
However, I am looking at two different plays here: Russian stocks and Oil stocks.
“The emerging crisis between Russian and Ukraine raises political risk premium,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.
“Whereas the Russian-Ukrainian crisis directly affects the regional natural gas prices, crude oil prices are generally aloof, since little Russian oil transits through Ukraine,” he said. “Still, the possibility of an armed conflict is a serious development, and has wide geopolitical ramifications, thereby boosting oil price premiums.”
Supply expectations continue to call for increased production from OPEC+ and U.S. shale producers in the months ahead, said Robbie Fraser, global research & analytics manager at Schneider Electric, in a note.
“However, geopolitics and unplanned disruptions have added support to prices at least for the near-term,” he said. “Unrest in countries like Libya and Kazakhstan caused some strong, but likely temporary, production losses in recent weeks, while the chances of a breakthrough around a renewed Iranian nuclear deal have again faded.”
In Matt Allen terms: If Russia invades Ukraine, this would cause the supply of oil to shrink, driving the demand of oil up making the price of gas prices and oil stocks to go up.
However, you have to remember that the last thing President Biden wants heading into an election year is even higher gas prices.
Russian Stocks have been crushed in the last 3 months due to investors having a fear over a war with Ukraine. This means that Russian stocks are potentially at a huge discount, if a war does not happen.
The VanEck Russia exchange-traded fund (ticker: RSX) has plunged by 30% in 3 months. Anytime that positive talks happen between Russia and the United States, this etf soars. (You can also look into their top holdings to buy individual Russian stocks.)
An agreement to jaw further is a bullish signal given Russia’s downtrodden valuations, says Christopher Granville, head of global political research for independent analyst TS Lombard.
“There’s an upside skew to the risk,” he says. “I would be buying on weakness.”
“Political risk aside, Russia is clearly the best play this year in emerging markets,”
In Matt Allen terms: If you believe that Putin is all talk and will not invade Ukraine, you should buy this Russian ETF. If you believe that a war between Ukraine and Russia is imminent, I would focus on wholesale oil companies.
In terms of our gas prices, President Biden will need to start exploring using more American oil to lower the prices at the pumps. However, this will go against his own parties policies. He will have to convince them before he does this. If he does not do this, I would not plan on getting any relief at the pumps anytime soon.
I hope everyone has a great week!
Talk to you soon! :)
Matt Allen
Founder/CEO BeanInvest
Awesome information