It’s Amateur Hour in Ukraine

Ukraine Russia

On any other second weekend of February, I’d be welcoming one of the best events of the year. No… not Super Bowl. (I stopped watching after the Bills broke my heart again, anyway). I’m talking about Major League Baseball’s Spring Training. Right now, billionaire owners are locking out millionaire players. Two perfectly good stadiums about two miles from my house will be empty this weekend. No baseball for me…

So, I have really nothing to do except read the news, make some calls, and try to make sense of what the hell is happening in the markets. Friday’s selloff is yet another reminder that our betters have little understanding of what to do. This amateur hour has nothing to do with the Federal Reserve, and everything to do with Ukraine. 

Energy Prices Surge

I’ve been on the record predicting $100 per barrel oil since it was trading in the $60s. Now, every major financial house has piled on top of this, and the chatter suggests $120 per barrel if things really get bad in the supply chains and we have a war in Eastern Europe.

First, there’s a massive supply and demand imbalance that was perfectly avoidable. However, credit standards have made it a headache for drillers – and the incentive to drill didn’t really resonate with many U.S. producers until we started seeing prices approach three-digit territory. 

That’s happening while U.S. reserves are dwindling to dangerously low levels. We aren’t building supply up ahead of our busy driving season – so get ready to pay even more at the pump.

Meanwhile, OPEC can’t get their sorry stuff together. They’re falling well short of production quotas. Russia is distracted. Emerging markets are under pressure. Nigeria has a massive crisis involving domestic gasoline that is spiked with too much methanol (and that will affect their economy). (Seriously). Which brings us to Friday. 

Will Russia Invade Ukraine?

Today, markets plunged not just because the Federal Reserve will host an emergency meeting on Monday (and potentially raise interest rates in-between meetings for the first time in decades), but also because speculation accelerated that Russia will invade Ukraine. I want to comment on this because I’ve been on conference calls involving this situation with traders in Europe for three weeks. 

At 7 am this morning, I was under the impression from reliable sources that this situation had calmed. We were looking at lower natural gas prices here in the United States. And we didn’t have any concerns about a project that I’m working on in nearby Finland. But a funny thing happened that later caught my attention. 

Last night, I received an email from the magazine Foreign Policy with an article about Russia and Ukraine. It was titled “Is There a Diplomatic Offramp in Ukraine?” The article commented on the news that Russia rebuked French president Emmanuel Macron’s assertion that Putin wouldn’t attack Ukraine. And the general hope was that diplomatic efforts would be possible. Remember everyone – the adults are in charge – or so they tell us. 

Getting to Know Liz Truss

Well, funny thing about diplomacy and the next shoe to drop. First, the United Kingdom’s top diplomat went to Russia to engage in diplomacy. Her name is Liz Truss – and she met yesterday with her Russian counterpart Sergei Lavrov. During the meeting, Larvov asked Truss if the United Kingdom agreed and accepted that two Russia Federal districts – Voronezh and Rostov – belonged to Russia. 

The UK minister – apparently misunderstanding the question – said that her nation would never recognize that sovereignty over those regions. Someone on her team had to correct her, and she had to put out an embarrassing clarification stating that she thought he was talking about two breakaway regions in Ukraine. 

She also said that the UK would support its “Baltic allies” across “the Black Sea.” Now, I’m not asking you – my dear friends – to know where these two places are. But they are Russia territories literally on the border of Ukraine. And the Baltic region isn’t on the Black Sea. The Baltic is a completely different sea than the Black Sea… more than 600 miles from each other. That’s not your job. That’s HER job. However, it gets worse and dumber. 

Who Said What?

You see, the Biden Administration attempted to downplay the issues with Russia, then accelerated them, then gave an order for Americans to leave within the next 24 to 48 hours. That’s not a lot of time, and multiple journalists are reporting various messages all across Twitter. 

Nick Schifrin of PBS says that the U.S. thinks that Putin decided to attack Ukraine. Then, National Security Advisor Jake Sullivan said that the U.S. has not concluded this. Then Sullivan came out and said that Americans should leave and that the U.S. will not put any military into Ukraine to extract anyone who “who could’ve left now but chose not to.” Then reporters released yet another statement suggesting that Russia will invade next week.

Is anyone working in Washington today? Can they 1.) make up their mind 2.) get Americans out of Ukraine to avoid a similar problem that we had in Afghanistan 3.) stop talking to us as if we are golden retrievers? We have a serious competency problem across the West. And your market reaction today is proof.

I’m hearing now that Putin and President Biden will talk on Saturday… here’s hoping that they can find some level of calm but that chance is fleeting. A massive geopolitical problem in the middle of an inflation surge is the last thing that this economy and market need. Oil at $100 would be the least of our problems.

Wrapping Up with Market Momentum

Market momentum went negative right in the final hour of Friday. It practically wiped out all of the gains from February. This is now the second time that we’ve experienced strong starts to the month this year, followed by massive declines that hammer investor sentiment. These types of events lead to “dead months” for money. I’ll be back to talk next week’s volatile possibilities. Cash is once again your best friend.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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