Yesterday I received a phone call from one of the smartest people I know. He’s an energy trader based in Switzerland. Smart guy. Went to college with me and at 19 years old knew he wanted to trade oil in Russian. He double-majored in economics and Russian.
I’m investing in an energy project of his in Finland. And as I’m supposed to turn over capital to his team on January 1, he called me today in a bit of a panic. “I’m extremely worried about what is happening between Russia and Ukraine,” he said.
It’s possible that he might have to delay the project. Geopolitical worries. He put the probability that Russia goes into Ukraine at 25%. It would cause sheer panic across Europe. He made sure that he isn’t exposed to any oil and gas trades in Russia. And anyone who has exposure or inventory is doing all they can to unload it soon. This was very eye opening and sobering.
Before COVID, After COVID
It feels like life will forever feel like we live in “BC” and “AC” times. Before COVID. After COVID.
While COVID certainly is a geopolitical crisis – it isn’t and wasn’t the same as what we knew in the markets in “BC” times. If you want proof of how long this COVID crisis is, take for example another conversation that I had with the same friend about six months ago.
We were talking about “geopolitical crisis,” and the subject turned to Iran. “The last major event with Iran,” I had said to him, “was when the country’s military shot down that passenger jet a few years ago. He interrupted: “Garrett, that missile attack happened 23 months ago. Back in January 2020.”
It doesn’t feel that way. I could have sworn that was back in 2017 because this COVID battle has been such a long and daunting process. And as I say at this point, it’s not the COVID that is going to kill me one day, but all of the bad habits that I’ve developed during this experience.
On the Geopolitical Front
The idea of war and a major geopolitical event like Russia invading Ukraine or possibly China invading Taiwan is shocking. It’s almost like we’ve forgotten what geopolitical tensions look and feel like.
A few years ago, we had North Korea test firing missiles… we had Iran threatening nuclear expansion… We had proxy wars between Iran and the Saudis. And we had large downward moves in the stock market that followed. A North Korean test launch could send the Dow off 5%. Today, we’ve largely forgotten about North Korea.
With this market so hyper-charged with stretched valuations, recent geopolitical tensions like America’s departure from Afghanistan didn’t even cause investors to bat an eye. There was a small selloff, but we quickly came back to all-time highs. That is likely to change in 2022.
Russia invading Ukraine is ranked as the No. 2 geopolitical risk for next year by the Atlantic Council, following only the threat of new variants and a lack of coordinated vaccine development in other nations.
As one looks at the list, we need to be vigilant. China’s economic worries continue (Evergrande has not gone away) and it continues to saber-rattle around Taiwan. A new cold war with China seems likely.
Afghanistan is on the verge of collapse. Nations like India are experiencing tremendous increases in poverty. And the one that now really starts to freak me out – Ethiopia and Nigeria are two nations that could potentially collapse, according to the Council.
I know that this isn’t the happiest message today, but it’s necessary. You see, I think the goal moving forward in 2022 is wealth creation and wealth preservation. Both are critical and they are not mutually exclusive. So, it is my goal and duty to deliver you the best insight and analysis on how to complete that task.
As always, I greatly appreciate you taking the time to read Haven Investment Letter, and we’ll work diligently to use various strategies that can build AND preserve your wealth in the new year. At the core – as always – will be the use of momentum insights.