The below is not a prediction. Nor is it a recommendation.
My only real tool for stocks and markets is to ask Is it Getting Better or Getting Worse? IF it is Getting Better, you buy. If it is Getting Worse, you either hang on tight or just outright sell. The terms are intentionally subjective because life is subjective.
As hairy as things might feel today, things are clearly Getting Better. If you look out 6-12 months, things could actually be pretty darn good.
3-6 months ago. we now know the market was looking ahead to 2 really ugly, nasty unknowns. Ukraine and the Inflation/Fed/Rates dynamic. Today, we know a lot more about both. The outlook ranges from not too bad to downright positive. Most important, it is a whole lot brighter than it was 5 weeks ago. So the scale tilts solidly towards Getting Better. Which might be why the market has been behaving better lately.
Ukraine: The world will likely be a safer, more secure place next year.
The war is horrible, but “we” (the West and the USA) are winning. The Ukrainians are not just building themselves a better future. They are building the whole Free World a better future.That is already obvious today.
- We will still be dealing with a loose-cannon in Russia, but a fatally weakened one. Every day this war drags on the Russian military falls deeper into a hole that will take years and billions (that Russia may not have) to exit. Their energy-supply “weapon” is permanently blunted – Europe is dead serious about replacing 2/3 of Russian gas buys by 2023. Even if they only replace half, it is enough.
- Conflicts with China still looms sometime in the future, but this war pushed it out by probably a decade. The Chinese are going to learn a lot of lessons from the sanctions and the Russian military failures. Most of those point to “lets not start any Cold War 2.0’s anytime soon. We’ve got some serious housekeeping to do before we get to that.”
- Most important, “the West” is now in much better shape to handle both a (weaker) Russian and China. Well get complacent and greedy again eventually, but we’ve bought at least a decade of vigilance.
That is a win, ugly as it may seem right now. It is also a good argument for pressing the win as long as we can. Russia is digging itself into a hole (and dragging China into it). Let them keep digging. It is awful for Ukraine, but even they will be better off in the end. Trading long-term insecurity for short-term stability is usually a bad bet.
Fed/Inflation/Rates: The worst case scenarios likely aren’t happening. The more likely scenarios aren’t that bad.
- The cure for high prices is… high prices. Everyone is hyper focused on the Fed, but gas at $4-$5 a gallon is going to slow the economy a lot faster than anything the Fed does.
- The Fed is raising rates fast enough to be able to cut them (which it will probably need to do soon).
- The markets are resolutely refusing to price in sustained inflation. They are pricing in sustained negative real rates.
Now idea if the above resolves to a relatively hard or soft landing, but it does look like a landing vs a crash. Everyone walks away relatively unhurt. That is not necessarily great, but it is definitely Getting Better vs (overblown) fears 3 months ago.
Just musing here, not predicting. So I’ll leave this here for the moment.
OK. One prediction. We are winning big in Ukraine.
Eventually people will figure that out. Even Tucker Carlson will have to acknowledge that eventually. OK, maybe not Tucker Carlson. But most everyone else.
