War... And What to Watch for Next
Waking up to bombs falling... Russia attacks Ukraine... War – and what to watch for next... Consequences, threats, and questions... Putin calls the West an 'empire of lies'... Oil prices spike... What to remember at times like these...
The bombs fell from the sky just after dawn...
Minutes after Russian President Vladimir Putin addressed his country on television just before 6 a.m. local time, announcing a "special military operation" against Ukraine, people in cities and towns in the former Soviet bloc nation awoke to the terrifying sounds of war.
Our colleague, Stansberry Research analyst Bill McGilton, who lives in the Ukrainian capital of Kyiv with his family, was one of them. Last we spoke, he was doing OK, but he told me (Corey McLaughlin) this morning...
I was awoken by bombs exploding on the other side of the city. Around six of them went off. Apparently, the Russians were blowing up radars and other military facilities around the city. They have been doing the same around the country.
They said they are not targeting civilians, but many people are trying to leave and are caught in traffic jams. Other people like me are staying in place.
Planes buzzed over Kyiv, Bill said. It was a cloudy day, so he couldn't make out which country they were from, but he presumed they were Russian, given reports that Ukraine's small air force had already been destroyed...
The Russians fired roughly 100 missiles from both land and sea and used 75 fixed-wing bombers to carry out the attack, according to a senior U.S. military official. This is the unfortunate possibility I spoke with Bill about just last week in the Digest...
The world woke up to that reality today... and the heartbreaking immediate fallout of reported casualties, plus Ukrainians lining up at ATMs for cash and stocking up on groceries, while a new generation wondered why war was happening at all.
By nightfall in Ukraine, as we approached press time here in Baltimore, we heard from Bill again. He was expecting the Russian military to take over Kyiv soon, but thought that Ukrainian forces would put up a fight...
We'll explore what this all means to us and what we saw from the markets today...
But first things first...
Our publisher Brett Aitken was also in touch this morning with Bill, who for now says he wants to stay put at home... Bill said he has an idea of what he'll do if things take a turn for the worse and Ukraine's capital is contested with force.
He's on top of things... As Bill said last week, once air space or airports started being shut down in Ukraine or near its border with Russia, that's when you would know an invasion was imminent... That's exactly what happened last night.
Our thoughts are with Bill and his family tonight, along with all the hundreds of thousands of people caught in the crossfire of this geopolitical conflict... or simply anyone with interest and empathy for those involved.
As Bill has also told us, the situation is much more complicated than you've likely heard in the media... with decades of disputes serving as scar tissue for a lot of people, including Putin, who seems bent on recreating the former Soviet Union, as our Kim Iskyan wrote recently.
One thing is for sure, though... Lost in virtually anything being said is what civilians on the ground in Ukraine actually want the most today...
Bill took law school classes in Russia and has worked on and off in Ukraine for the last 15 years, so he's familiar with public sentiment there. As he told us last week, even among pro-Russians in Ukraine – it's about a 50-50 split – few want to be "absorbed" by Russia. Bill explained...
Russia wants to reset up the Soviet Union, but they're the only one.
The Russian military has attacked Ukraine with missiles and bombs... and banks and other infrastructure through cyberattacks already. What's next?
The short-term economic consequences...
In anticipation of a possible invasion the last few days and weeks, foreign nations ‒ including the U.S., European Union members, and the U.K. ‒ threatened and then put sanctions on Russian businesses and individuals.
The idea is to limit their ability to trade with the West and to prevent them from developing new business... and to cut Russia off from financing and goods.
Today was a disaster for the Russian financial sector... The MOEX Russia Index – which tracks the largest Russian companies – crashed 33% to a four-year low... The ruble, the Russian currency, was down 8% compared with the dollar and hit a record low intraday...
The Moscow stock exchange temporarily suspended trading... Russia's central bank told brokers not to take short sales... Russian bank stocks like Sberbank and VTB Bank fell by more than 40%, causing the central bank to pump liquidity into the market.
In comparison, today, the major U.S. stock indexes finished up, with the tech-heavy Nasdaq Composite Index finishing up 3.3%, the benchmark S&P 500 Index up 1.5%, and the Dow Jones Industrial Average up slightly, after all three were negative earlier in the day.
The medium-term threat for the global economy...
On Tuesday, the German government decided to halt the certification of the new Nord Stream 2 gas pipeline, which runs from Russia to Germany beneath the Baltic Sea...
There is already a Nord Stream 1 pipeline that has been moving gas between the two countries for the last 10 years.
This new project, which has been built but hasn't been "switched on," was supposed to double the capacity of natural gas currently being pumped from Russia to Germany.
And over the past year, Europe has been struggling with a "gas crunch"... and high inflation, just like in the U.S.
Last year, a survey found that 75% of Germans were in favor of the construction of Nord Stream 2, which was supposed to be a key piece of the country's new energy puzzle, having decided to ditch nuclear energy completely in March 2021.
In other words, demand for Russian energy isn't going away. Neither is all of the supply from Russia, at least not yet... But what is being taken out of the equation for now is a decent chunk of future supply, which is drying up for an undetermined amount of time... No one knows when that second pipeline will come online, if ever.
If this sounds like a recipe for higher energy prices, we agree...
It might most directly influence prices in Europe. But energy is a global market. Russia is part of OPEC+... And what happens in one place regarding oil and gas plays out in other places, directly or indirectly.
Plus, as our colleague Bill Shaw wrote in this month's issue of Commodity Supercycles, it's not just sanctions from the U.S. and international allies that are a concern here. It's what Russia might do next in response. From the issue...
Europe is heavily dependent on Russian natural gas, which supplies about 40% of its needs. Putin has already slowed delivery and could potentially shut down the supply completely. With natural gas inventories at their lowest level since 2011, this could be devastating to Europe.
Tankers carrying liquefied natural gas have been racing to bodies of water around Europe in case supplies from Russia are cut off.
Russia accounts for 17% of total global natural gas production. So a conflict with Ukraine – along with expected international sanctions – could stoke energy prices around the world.
These moves – leveraging energy production and distribution in exchange for political gains – are contributing to fears of tighter energy supply and more inflation worldwide... This is particularly concerning to investors and traders...
That's why oil prices did what they did today...
Brent crude, the international benchmark, rose above $100 for the first time since 2014, before pulling back some. West Texas Intermediate ("WTI"), the U.S. standard, is around $93 per barrel.
Prices at your local gas pump are likely to be going up, probably no matter where you are.
We can say that because war in Eastern Europe isn't the only reason for expensive gas... It's just making it worse.
Broad supply and demand forces are driving most of it... which many people don't realize. The world's talkers and politicians have become obsessed with alternative energy, but it simply isn't as available, reliable, or affordable as oil yet.
From the October 11, 2021, Digest...
We're simply not at the point yet where there are enough alternative energy sources to power the American and global economy.
Oil accounts for around one-third of energy consumption globally. That's more than coal (27%) and gas (24%). And it's more than three times as much as hydropower, wind, and solar combined (9.7%).
Said another way, as several of our editors believe, oil already had bullish tailwinds behind it and any more concerns about supply disruptions in Russia, or anywhere else, will only strengthen those tailwinds.
The long-term questions about what comes next...
This morning, Putin said in his speech announcing the attack on Ukraine that "our plans do not include the occupation of Ukrainian territories," but he also previously said he didn't plan an invasion of Ukraine either.
He's not exactly a reliable source...
Putin's speech was chilling. He referenced the outcome of World War II and pointed the finger directly at what he called the "expansion of NATO to the east," referring to the North Atlantic Treaty Organization as a reason for Russian forces invading Ukraine.
He also cited the dismantling of the USSR and decisions made more recently by the United Nations Security Council in Belgrade, Iraq, Libya, and Syria... He said the "entire so-called Western bloc, formed by the United States in its own image and likeness, all of it is an 'empire of lies.'"
All in all, Putin doesn't sound like a guy who plans to stop being aggressive anytime soon.
Later in the day, U.S. President Joe Biden pledged full support to NATO – made up of 28 European nations and the U.S. and Canada – and said he was deploying some troops to those allies near Russia, but that the U.S. wouldn't be sending troops directly into Ukraine.
Biden also accused Putin of choosing "a war without a cause." Ultimately, he said, "Russia will be weaker and the rest of the world stronger." Putin will be a "pariah" on the international stage...
Biden also acknowledged the threat of higher energy prices and tried to tell the American people precautions are being taken to keep things in check.
We're left to make of this what we will...
That's what the markets did today...
Perhaps surprising to many, U.S. stocks finished unnerved and up, as we said... The spike in oil futures was probably the most significant reaction.
But given the history of the Cold War and the war of words between the U.S. and Russia recently, we know you're probably thinking about what all this means for the markets and for your portfolio... and I'll explore this to close things out today.
I'll say right off the bat that if our editors have any urgent updates on existing recommendations or new trades to make given this developing story, they will send them to you as usual.
I can also tell you our Director of Research Matt Weinschenk has plans to gather a group of our editors Monday afternoon for a special briefing focused on the impact the conflict in Ukraine will cause... Stay tuned for more details on that.
The markets, as we've been writing for the past several weeks, have been extremely volatile to start 2022...
In the U.S., the Federal Reserve, which is planning to hike interest rates as early as next month in an effort to tone down inflation, was to blame first... and fears of a major conflict in Ukraine fueled more selling off in recent weeks.
With nearly two years of ridiculously "easy money" from the Fed coming to end, it has been a recipe for losses. Year to date, the S&P 500 is down 11%.
Nobody knows for sure what direction stocks, bonds, or any other asset will go next, but, remember, that is always the case anyway...
This is not the time to panic...
By that, we mean don't forget everything you've learned... don't obsess over every news report... don't hit the "sell" button based on an emotional reaction to something happening in the world... You will likely regret it minutes or days later, wondering what you did.
Pause and think things through. These are the times when all the work you do with your investments – and knowing yourself and your goals – should pay off...
Specifically, if a position you own hits its predetermined stop loss, it's a good idea to sell it... That's why stop losses exist. You can "get out" before any further damage and use that capital on a better opportunity down the road.
As DailyWealth Trader editors Ben Morris and Drew McConnell wrote today, stick to your plan...
We don't recommend selling your current positions or adding aggressively to them. Instead, just stick with your current trading plans... Sell only if your positions trigger your stop losses.
For most traders and investors, these are scary times... And if you're scared, you probably won't make good decisions with your money.
Subscribers to our Income Portfolio, one of our Portfolio Solutions products, received one such "stop out" alert in their inbox today from senior analyst and Stansberry NewsWire editor C. Scott Garliss. As Scott wrote...
There are two reasons for the recent sell-off: U.S. Federal Reserve policy and geopolitical concerns.
Inflation has remained persistently above the Fed's 2% target for some time now. And that's forcing the central bank to pull back on stimulus. But investors are concerned that the Fed could tighten its policy too quickly and choke off growth.
Plus, Russia just invaded Ukraine. This has created even more uncertainty for investors, as they await a response from the rest of the world – whether through sanctions or military action. And while investors wait for clarity on the situation, they're exiting risky assets like stocks.
Times like these should also remind you why you own something... and what your goals for your money are.
Are you in this for short-term trading and speculating or long-term investing?... Are you betting on stocks moving a certain direction next week... or next month?
If so, you should probably be following the advice of short-term traders like Ten Stock Trader editor Greg Diamond, or Ben and Drew.
Or is a particular stock of yours aligned with a three-, five-, or 10-year timeline? In that case, conflict with Russia might not be as acute as it is today.
Keep following our flagship Stansberry's Investment Advisory team, and editors like Steve Sjuggerud, David "Doc" Eifrig, and Dan Ferris...
If anything, if the reasons you bought the stock for the long term haven't materially changed, you might want to buck natural emotion and buy more shares today...
Remember Warren Buffett's timeless advice...
Be fearful when others are greedy, and greedy when others are fearful.
To which I'll add... Don't go overboard with the contrarian greed or fear either.
Today, we don't know if the conflict in Eastern Europe will escalate, but it very well could... These war games are not limited to one region of the world...
When asked multiple times today, China's assistant foreign minister, Hua Chunying, refused to call what Russia did in Ukraine an "invasion"... And we've seen that China has aligned itself with Russia in recent weeks in some type of union.
It's scary to imagine what that might mean for the world or what the intentions are behind that partnership... though Hua told reporters this: "What you are seeing today is not what we have wished to see"...
But she still wouldn't call it an invasion.
However, the Chinese official also said, according to an official translation of her Mandarin remarks...
The U.S. has been fueling the flame, fanning up the flame. How do they want to put out the fire?
Rightly or wrongly, that is an outstanding question that frankly we don't think many people have an answer for... The point is, further developments could shock the markets even more and compel investors to take "risk" off the table as concerns persist.
At the same time, though, don't be entirely scared of this scenario...
If you have a longer-term time horizon, these can be buying opportunities...
Especially if a company's business model does not change significantly by any of this... and is positioned to keep rewarding shareholders with dividends or buybacks... or will insulate your money from the scourge of inflation... no matter what happens next.
That's why you want to own the world's best businesses in the first place. When all hell – or war – breaks loose, they still are a good place to put your money.
But if you are itching to do something new...
The clearest economic fallout from Russia lobbing bombs and shooting missiles at Ukrainian military targets today – aside from Russian stocks crashing, which you likely don't have an interest in anyway – is the price of oil...
This has been a trend many of our editors have been tracking for well over a year...
In November 2020, our Stansberry's Investment Advisory team recommended shares of an oil and gas royalty company. That position is up 101% as we write and now out of buy range...
In the February 16, 2021, Digest, True Wealth analyst Chris Igou said to look out for higher oil prices... and suggested buying the Energy Select Sector SPDR Fund (XLE) as a "simple way to make that bet."
Since then, XLE is up about 46% – about five times the 9% return of the S&P 500 over the same span.
In August, we made the case for higher oil prices ahead yet again. This wasn't a popular thought at the time (if it ever is)...
And we brought up the oil idea again in October, when we noted prices pushed past $80 "with no end in sight." And Doc highlighted an energy play in his Retirement Millionaire newsletter...
Today, if you're looking for an easy way to play higher oil prices or add energy exposure to your portfolio, we direct you to Steve's signature True Wealth newsletter.
In November 2020, Steve suggested a "bad to less bad" way to profit from oil in True Wealth. That position is up close to 80% today, but, important for folks who might have missed out, it still remains a "buy" in Steve's portfolio.
As Steve wrote in the February issue of True Wealth, just published on Friday, this is a play on the companies that help major oil producers with services like drilling, evaluation, and equipment maintenance...
That means when oil majors like Chevron (CVX) or Shell (SHEL) are adding more rigs to take advantage of higher prices, these companies also thrive. As Steve wrote in True Wealth on Friday...
That's what we're seeing today. The number of oil rigs online continues to climb. There are 516 active oil rigs in the U.S. today. That's up from 172 in August 2020.
This trend is likely to continue as well. The oil rig count is well below its 2018 high of 888. In short, oil prices are up. Companies are adding more rigs to get oil out of the ground.
If you're interested in learning more details, subscribers and Alliance members can check out the latest edition of Steve's True Wealth newsletter. And if you don't subscribe already, today is the perfect time...
We've arranged a special offer for Digest readers. You can get a year's subscription to True Wealth for just $49... That's 75% off the regular price. Click here to get all the details and access to Steve's entire model portfolio and latest advice.
We will continue to monitor the markets and macro trends as this conflict in Eastern Europe unfolds... both here in the Digest and in our other publications. And we will provide more information about Monday's gathering of Stansberry Research editors once we finalize plans.
New 52-week highs (as of 2/23/22): AbbVie (ABBV), Altius Renewable Royalties (ARR.TO), and United States Commodity Index Fund (USCI).
In today's mailbag, feedback on Kim Iskyan's Tuesday Digest... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Kim — I think Jim Stockdale would have liked your 'Living by the Stockdale Paradox' in the Tuesday 2/22/22 Stansberry Digest. This is based on having taken the Stockdale Course at the Naval War College and having had the good fortune to expose students at Northwestern University and Illinois Institute of Technology to the ideas and life lessons of Jim Stockdale and John Boyd, creator of the Observe-Orient-Decide-Act ('OODA') Loop.
"The course concluded with the following quote from Stockdale that may be of interest to you and perhaps your readers:
I think it was obvious to my close friends, and certainly to me, that I was a changed man and, I have to say, a better man for my introduction to philosophy and especially to Epictetus.
I was on a different track – certainly not an anti-military track but to some extent an anti-organization track. Against the backdrop of all the posturing and fumbling around peacetime military organizations seem to have to go through, to accept the need for graceful and unconscious improvisation under pressure, to break away from set procedures forces you to be reflective as you put a new organization together... able to throw out the book when it no longer matched the external circumstances.
"Jim Stockdale: Courage Under Fire: Testing Epictetus's Doctrines in a Laboratory of Human Behavior From Thoughts of a Philosophical Fighter Pilot, CH 3, 'Education for Leadership and Survival,' pp. 188-189." – Stansberry Alliance member Dan M.
All the best,