At a Glance
- Ukraine, a case of courage
- Stock markets continue to slide, the pandemic has brought on new technology
- Commodities are rising and 50 year highs in multifamily housing.
- Consumer sentiment is at decade lows and not a good sign
Ukraine
When I was a little lad, my shower curtain was a world map. As our eyes are trained to see colors like red first, I couldn’t help but notice the country USSR. Upon further inquiring with my siblings, I was told it was Russia. Putin would like to change the map yet again and bring all the lost chicks back to the fold. As a big part of the former Soviet Union Ukraine for example is home to the second largest natural-gas reserves in Europe, the sixth largest iron ore reserves, and tenth largest reserves of titanium. It is rich in agriculture and rare earth minerals like lithium used for batteries. Is it the desire to be a soviet empire again or the desire to have all the natural resources of the country? I would assume Putin wants both but he is losing economically and socially. Even China is calling for a cease fire.
I listened to some commentary yesterday from Dr. Pippa Malmgren, a geopolitics expert. She said “we are already in World War III”. When she said that it caught my attention. She then went on to say “we are in a hot war in cold places”. She talked about what is happening in space and satellite wars between the US, Russia, and China. She talked of cyberspace wars and nuclear submarine wars. Her comments provide perspective and help me understand the complexity of our current geopolitical environment. She described Putin as a man in a room with bombs strapped to his body with hostages inside. The silver lining in all her comments were… talks. She said talks buy time and NATO with Biden’s leadership can offer Putin a way out. We will see what happens in the weeks and months to come but we hope this isn’t a Sarajevo or Sudetenland moment.
Markets
The stock market continues to test new lows trying to find some support. The probability of a .5% rate hike by the feds is waning and it is more likely that the feds will only raise rates by a quarter of a percent on March 16th. This is important because, treasury rates continue to flash a warning signal. Today March 1st, the 2 year treasury is at 1.44 and the 10 year treasury is at 1.83. So the spread now is 39 basis points instead of around 63 basis when I wrote to you a month ago. A couple of rate hikes might just invert the yield curve (short term rates go higher than long term rates). This is a bad sign for the stock markets and the economy. This is one of Mr. Markets greatest head winds at the moment coupled with geopolitical risk and no stimulus.
In February, all US stock markets entered into official correction territory where they are down 10% or more. More than 70% of S&P 500 companies (the big guys) are down over 10 % and many of those are down over 20%. So the short term outlook for stock markets doesn’t look good.
On the bright side with a long view, the pandemic coupled with labor issues has forced companies and consumers to use more technology and increase productivity. If you are driving in Arizona and see a driverless car delivering a busy executive to work, don’t be alarmed it’s just technology. Air taxis, like those from the movie The Jetsons, are on the way. More robots are working in restaurants. I think we will look back in 20 years and see how far we’ve come.
Economy
Oil his hitting multi-year highs around 105 dollars a barrel. Why? Russia and Ukraine have a lot to do with it. Russia supplies 10% of the worlds oil, and 40% of Europe’s natural gas.Russia is the largest wheat exporter in the world. This won’t help on the inflation front along with higher prices on food. On the flip side, rental prices should come down this summer, or at least level out, which is a big part of the current inflation. The St Louis Fed is showing we are at 50 year highs on multifamily housing construction. Many of these units finish in the spring and summer and should help to ease the cost of renting nationwide. Rents went up last year on average 11% and in some cities as high as 30%. Needless to say there is a lot of pain being felt by lower income households as their incomes increase… so do all of their costs.
Its not just low income families feeling the pinch. The University of Michigan released its report and consumer sentiment fell to a decade low of 62.8. That’s 18.2 percent lower than a year ago. The loss was entirely due to households who make 100,000 or more. This is an indicator that measures how optimistic consumers are about their finances and the overall economy. We were at these levels in 2008 just before Lehman Brothers filed bankruptcy and the subprime mortgage crisis became real.
The Road Ahead
In response to Russian military attacks on Ukraine the US and European countries have slapped sanctions targeting Russia’s financial institutions and economy. In the weeks ahead we will see if any peace talks can diffuse the situation. The end of an economic cycle is never fun especially when there is a war in the mix. My feeling is that we will continue to see more economic pain to come. Keep your chin and eyes up as there will be buying opportunities and in the not so distant future, perhaps you can have a Jetson ride just for fun.
Your situation is unique, please call me with any of your specific investment, retirement or tax planning needs.
Written By Sean West, CFP®
Disclosure
This blog reflects the personal opinions, viewpoints and analyses of the White Cloud Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by White Cloud Wealth Management. The views reflected in the blog are subject to change at any time without notice. Nothing in this material constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.