War, Part 2.
Politicians hide themselves away
They only started the war
Why should they go out to fight?
They leave that all to the poor, yeah
Time will tell on their power minds
Making war just for fun
Treating people just like pawns in chess
Wait till their judgment day comes, yeahWar Pigs, Black Sabbath
The day after Russia invaded Ukraine, I sent you a note, War (2/25/2022). That was exactly 4 years and 20 days ago. My message was simply the following:
in a crisis, such as war, nobody knows how exactly it will unfold
the so-called experts on tiktok and cable tv are all guessing
it’s ok to feel fearful (but panicking is counterproductive)
don’t let your emotions disrupt well laid plans
if history is any guide, this too shall pass, markets will eventually rebound
Since the War letter, the S&P 500 is up 60%, the Nasdaq is up 74%. But before participating in the gains over the past 3 years we had to endure the inflation induced bear market of 2022. Inflation rose to 9%, a 40 year high, which drove stock, bond, and gold prices lower. There was nowhere to hide except oil. President Biden was blamed for high prices at the gas pump but it was Russia invading Ukraine that sent oil prices soaring. It was the actions of an unpopular authoritarian politician who thought bombing a sovereign country would exude strength & mask their insecurities. Sound familiar?
The stock and bond market is singularly focused on oil prices right now. Unfortunately, our economy, in fact the global economy, is still very sensitive to oil prices. All of the cheap petroleum based plastic crap we buy from Amazon and Target travelled from China on ship. The biggest cargo ships can burn 60,000 gallons of fuel a day for the 10-to-20-day journey from Shenzhen to Long Beach. Every bite of food at your favorite restaurant travelled an average 30 miles on a diesel truck after leaving a factory farm. Yes, despite being energy independent, despite all the fracking, we are still beholden to oil.
Oil prices are up 40% since trump started another Middle East war. His timing isn’t great. Our economy was already slowing. The latest report from the Commerce Department showed fourth quarter growth slowed to just .7% (far less than the 1.5% expected by economists). On top of this, the latest employment report showed that our economy lost 92,000 jobs in February. This is consistent with my February letter, Jobless Growth . Due to this weakening backdrop out of caution, we executed the following:
slightly reduced our overall stock market exposure
bought a fund that tracks the price of oil
increased hedges, funds that are designed to go up when the market drops
increased our stake in the vix, or the stock market’s ‘fear gauge’
However, we have also taken advantage of elevated fear and added to cyber security & e-commerce investments. We believe it is best to be prudent right now, but we are always seeking opportunities when fear grips the market. The stock market is down nearly 3% this year and only down 5% from its all time high. Most years we experience a drop on average of 10-15%. Oil shocks can take markets down even further but fortunately they tend to be short-lived.
We are living in a post-truth world. I caution where you attain news today. After the war started, Wired magazine found that X, the site formerly known as Twitter, was flooded with misinformation. Social media is littered with falsehoods and conspiracies. I prefer PBS, NPR and the BBC for worldly news. When it comes to geopolitics, Ian Bremmer is always enlightening. The first time I ever heard of Kharg Island was in a recent post by Brenner:
If not regime change, what then? The answer may be staring at us from a small island in the northern Persian Gulf. Kharg Island handles 80-90% of Iran's oil exports. It's where the supertankers dock – the one place connecting Iranian crude to world markets. Iran has other export terminals but none that can handle supertankers. While Iran could pivot exports to several smaller terminals or to rail, it would not be able to replace the volumes Kharg handles. Control it, and you control the regime's revenue lifeline: its ability to rebuild its military, reconstitute its nuclear program, fund proxies, and survive as a regional power. –Ian Bremmer, (The Terminal Option, 3/4/2026)
Just 10 days later…the U.S. military was targeting Kharg Island.
The Iraq Body Count Project estimates that 183,00 to 205,000 innocent Iraqi civilians were killed in the U.S, invasion and occupation of Iraq. Just 17 days into this war, we’ve already killed too many kids.
There are 234 days until the midterms.
-randy
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