Ramifications From the Ukraine War Will Be Felt for Some Time

The market had a nice across the board rally in Tuesday's trading session. Supporting the rise was a drop in oil below the $100 a barrel threshold. It is hard to believe we just breached the $130 mark on crude 10 days ago, however briefly. Whether the move down in oil is due to large holders liquidating positions, global growth forecasts being revised down, the war in Ukraine looking more and more like Russia is bogged down, or some combination of these conditions. I won't speculate. I will say again as I have since after the initial phases of the invasion, Putin's incursion looks like it will eventually resolve itself in a stalemate and/or negotiations. His initial 190,000-person force has lost at least 10% and likely more of its original strength through fatalities and wounded. He is easily now outnumbered by the Ukrainian defense forces which continue to receive more and more lethal aid daily from the West. My guess is serious negotiations to end this conflict start before the end of the month or soon thereafter. The markets should rally on that news as investors realize that all the talk about Russia quickly moving on to the Baltics and Poland was never more than warmongering farce from some of the 'experts' on network news. Until this happens, unfortunately, civilians will continue to bear the brunt of Putin's absolute barbarity. However, if the West can contain its emotions from seeing this tragedy and not do anything that could significantly escalate this situation into a larger scale war, I have hope that most hostilities could stop by this time next month. When equities move higher on that news I will not be buying into that rally, however. The ramifications from this invasion will be felt for some time. Over half of Russia's currency reserves have been frozen by the West, which is unprecedented on this scale. This event could start to erode the dollar's status as the global reserve currency over time. We are already seeing possible cracks in the Petrodollar, which has benefited the U.S. greatly for two generations. Saudi Arabia is reportedly in active talks with Beijing to price in some of its oil sales to China in yuan. Then there are the impacts on the global supply chain. With Russia and Ukraine being huge exporters of wheat and fertilizer, it is hard to see how the global food supply chain will not be under extreme pressure in the months ahead. The countries also supply over 40% of the global neon supply, which is needed for semiconductor manufacturing. Russia is a major producer of palladium and other metals. It produces over a quarter of world's nickel, which is critical for the migration to electric vehicles. Europe is obviously heavily dependent to Russia for a good portion of its energy supplies. While Russia has not cut off Europe during this conflict from existing contracts, they have stopped for a large part from supplying the spot market. That's a key reason natural gas prices are so much higher in Europe than the U.S., and why I don't see Europe avoiding some sort of economic contraction as the result of this conflict. With the S&P 500 trading near 20 times forward earnings, the 10 Year Treasury yield at three-year highs, the global economy cooling, inflation at four-decade highs, supply chain issues not getting resolved, and the Federal Reserve about to raise interest rates, I plan to take some profits on any rally triggered by de-escalation in Ukraine. Much like the Covid pandemic, 'normalcy' will take much longer to arrive than most investors are currently pricing in.

Ramifications From the Ukraine War Will Be Felt for Some Time

When equities move higher on news of negotiations, I will not be buying into that rally.

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