The 2020’s are Proving to be a Period of Turmoil with Shocks and Uncertainty

American markets today, viewed several hours before the 9:30 a.m. Eastern time opening, appear set for a positive but sober start as the S&P 500 NASDAQ and DOW are in positive territory, but without too much margin. Still, they are improving slightly at time of writing

Canadian markets are also poised for a positive opening as the TSX 60 and TSX Composite look to be strongly in positive territory.

European markets are open at time of writing and are positive with the FTSE 100, CAC 40 and DAX in the green. The FTSE 100 and DAX look a little ‘nervous’ at time of writing but should hold for the remainder of the trading day there.

Amongst precious metals and not surprisingly, the safe havens of gold and silver are up.

Amongst currencies, the Canadian dollar and the Euro are up against the American greenback while the British pound sterling has slipped into the negative territory.

This follows Friday’s trading session which saw modest gains boosted by the February jobs report and United States President Joe Biden’s decision to release 1 million barrels of oil per day from the Strategic Petroleum Reserve starting in May. The International Energy Agency also agreed to release reserves but has not provided details at time of writing. OPEC+, whose members include Russia, has not changed plans to increase output by 432 million barrels per day and American firms continue adding oil and gas rigs.

While all of these extra barrels will go a long way to relieving supply pressures caused by the Russia-Ukraine war, they do not completely solve the problem, according to at least one analyst. "The looming flood of U.S. barrels does not change the fact that the market will struggle to find enough supply in the coming months," PVM analyst Stephen Brennock said in a Reuters report. "The U.S. release pales in comparison to expectations that 3 million barrels per day of Russian oil will be shut in as sanctions bite and buyers spurn purchases."

In the bigger picture this decade will be one of continuing volatility according to the Qatar National Bank. The 2020’s are proving to be a period of turmoil with shocks and uncertainty. Just when the global economy was seemingly turning the page from the COVID-19 pandemic, another significant event is producing negative geopolitical and economic consequences,” it says in an analysis, with a touch of understatement.

“Following the initial military invasion, the United States and the European Union decided to support Ukraine by inflicting comprehensive economic pain to Russia via embargoes, sanctions and trade bans. With this, the Russian economy was quickly disrupted and to a large extent disintegrated from the rest of the world in less than a month.”

More broadly the economic implications of the invasion including the damage to the economies of Russia and other European countries are not yet completely understood and we may not completely comprehend them for months to come. That being the case, the total impact on investments is equally unclear currently.

The casualties will include the concept of globalization which had already taken hits from the COVID 19 pandemic and the United States-China disputes. This is not to suggest that the concept has died, just eroded.

The best perspective for our times that I have seen to date comes from JPMorgan chieftain Jamie Dimon’s annual letter to shareholders. On the positive side, he says “the U.S. economy is strong, with the consumer in excellent financial shape (on average) and leverage among the lowest on record....excellent mortgage underwriting (even though we've had home price appreciation), plentiful jobs with wage increases, and more than $2 trillion in excess savings, mostly due to government stimulus. However, on the negative side, he says ‘The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy - and it could easily get worse. It is also clear that trade and supply chains, where they affect matters of national security, need to be restructured.”

Let us consider that equation carefully as we check our investment portfolios. It is entirely possible that the equation will remain current for some time to come.

The Qatar National Bank report projects that the impact of the war on commodities could be more substantial than has occurred to date. “While financial integration between Russia and the rest of the world is relatively small, the impact of commodity price pikes and asset destruction can be significant for commodity houses, brokerage firms and banks with direct exposure to Russia,” it says.

That unclear future combined with events to date means that focussing on a portfolio has become even more confusing than ever previously.

Appraising the implications starts with some self-questioning, according to Eben Burr, President of Toews Asset Management in New York. Burr believes that we need to stay problem-focused and gather information carefully, That, he says starts with asking oneself:

  • What is the real problem?
  • Is the problem that you are about to retire and you can’t afford this drop?
  • Is it that your portfolio is down and you can’t afford this drop?
  • Is it that you had not planned for this and now feel regret and shame?

Burr says that the answers to those questions might point the way to the next questions:

  • Are you going to try to change course now? What can be done—if anything to correct the situation?
  • When is too late to de-risk?

Some investors can tolerate huge discomfort for a shorter or longer time, Burr says and each must conclude how much he/she can absorb. And we all need to come to this conclusion soon.

Related: Yield Curve Inversions & Media’s Denial Of History

Al Emid is a financial journalist, broadcaster and author with two books underway.

The Emid Report on Volatility 2022 – the next in the series -- is scheduled for release in Summer 2022 and his book on foreign investing is scheduled for release in January 2023.