Russian Invasion Slows Pace Of Fed Tightening Plan
The Russian invasion into Ukraine sent global markets on a wild ride with globally traded public securities, bonds, commodities, and crypto trading. Wednesday evening was a sad day as I witnessed the first invasion of Europe in my lifetime. The last few years have certainly been challenging for everyone due to the pandemic. The destabilization of a European country will continue to create additional known and unknown risks throughout the world at a very delicate time. While our economy is doing well overall, it is also slowing as inflation inhibits consumer spending ability. The Russian invasion of Ukraine will add more pressure to food and oil prices. While we hope sanctions move Putin to negotiate, he is simply unpredictable.
The U.S. being the safe haven in the world witnessed a quick drawdown on equities this Thursday morning, which turned into “a rip your face off” type of rally. The old trader’s adage of “buy on the sound of cannons” certainly played out. Bond yields sank but then reversed higher and gold and silver traded down as well, which I found to be curious. The reason bonds yields rose is due to unprecedented global inflation. Ultimately, the bond markets quickly overcame their concern about what Putin may do to Ukraine and beyond. Personally, I believe we have yet to see the worst of Putin’s intentions. There could be very troubling days ahead in the market. Make no mistake, China is watching all of this very closely, as its own ambitions to take control of Taiwan cannot be forgotten. Additionally, the relationship between Russia and China has been growing more established over the last few years.
As the world has become more dangerous overnight, real estate should benefit as a less volatile asset to own. Good solid real estate holding at a reasonable price will continue to be sought after. Also, as many investors have had a great run in the equity portfolios, I am hearing anecdotally from several financial advisors that those investors with big gains are looking to cash out their winnings for either a new home or a cash flow producing property.
The demand for U.S. bonds during more unstable periods should keep a lid on high bonds as yields may go. However, as inflation is running at the hottest rate in over 40 years, rates will need to rise (but probably not as much prior to the conflict). This will be good for tech stocks who were very worried about the 10 year Treasury quickly moving north of 2.500%. While rates can move higher over time, the pace will be more gradual now. Borrowers should take note that there is still time to lock in favorable interest rates. This opportunity could quickly change if there is a pullback by Russia over Ukraine. For the moment, this seems unlikely, but still cannot be totally discounted.
