If you’re a medium- to long-term Money Morning reader you’ll know we’ve thumbed our nose at every so-called crisis for the past two years.
There have been a wide variety of crises too.
From interest rate crises, to currency crises, to political crises, to banking and emerging markets crises…you’ve seen them all.
But what you haven’t seen is the event that all these crises are supposed to result in – a wholesale crash in financial markets and an accompanying localised or global economic recession.
Could that change if the ‘Ukraine Crisis‘ turns out to be a much bigger one than anyone currently thinks?
Well, it’s got all the hallmarks of a crisis.
There’s the threat of war…the threat of sanctions…the threat of a debt default…the threat of energy supply disruptions…and the overall economic impact if these issues flow through to financial markets.
With all the so-called crises that have gone before, we’ve quickly dismissed them as not even a storm in a teacup – more like a breeze in a thimble. They were nothing.
But what about Russia making trouble in Ukraine? That’s got to be worth at least a short pause before we dismiss it out of hand.
It’s not the first time Russia has turned up on the opposing side to the West. Most people have doubtless already forgotten about the last international crisis that almost led to war – Syria.
That was Russia on one side and the United States on the other side.
The outcome? Erm, nothing of any consequence. Certainly nothing that has caused lasting damage to stock market valuations.
Some may say it’s inappropriate to talk about such things when the world is perhaps on the edge of another war. But isn’t that why you’re here? To find out the impact of these things on your wealth?
If you want war analysis, we’ll suggest you go and watch SBS or the ABC. Or even the supposed intelligence experts who pop up on CNBC and Bloomberg to bang on about that sort of thing. But us, we’ll stick to what we know: stocks.
Another Faux Crisis or Real Deal?
The world’s stock markets went into sell-off overdrive overnight.
The Euro Stoxx 50, an index of leading European stocks, fell 3%. The UK’s FTSE 100 index fell 1.5%. And the German DAX index fell 3.4%.
The Russian MICEX index slumped 10.8%.
The bad news carried over into the US markets, where the Dow Jones Industrial Average fell as much as 1.5% before recovering some of the lost ground in the afternoon.
Will this flow through to the Aussie market today? It’s possible. The question for Aussie investors is whether this is just another faux crisis, or if it’s the real deal.
It would be easy to lump the Ukraine crisis in with others such as Syria, Libya or even the recent but now forgotten Argentinian debt crisis. But it is fair to say that what’s going on in Ukraine is more important than those events from an economic standpoint…especially for Western Europe.
You should remember that Europe gets around a quarter of its natural gas supplies from Russia, via a pipeline that happens to go through Ukraine. So should a full-scale conflict break out between Russia and Ukraine it’s likely that the Russians would shut down this pipeline.
That’s potentially a real problem. However, as serious as it may be, markets have a funny habit of quickly solving problems. That’s why markets work. For instance, there are other potential pipeline routes that avoid Ukraine. It’s hard to imagine that Europe would refuse to accept Russia’s natural gas supplies even if Russia declared war on Ukraine.
So, is it time to panic?
This Isn’t The Crash They’re Looking For
There are some commentators out there who seem to talk out of both sides of their mouth. They’ll tell you something could be a real problem, and then when it all calms down they say they knew it would be fine all along.
Yeah, sure.
That’s not how we roll.
Sure, you should always take some precautions with your investments. That’s why for the past four years we’ve recommended that you have a healthy holding in cash and gold (by the way, the gold price has done pretty well the past few days).
But that’s something you should constantly monitor, not just when trouble brews up to the surface.
And when it comes to stocks, we’ve long said that most investors shouldn’t have more than 50% of their wealth tied up in a combination of growth and income stocks anyway. We don’t see any reason right now to change that advice.
Yes, you could see the Aussie market fall by 5% or so, as it did in January. But like then, we would see that as an opportunity to buy into unfairly beaten down growth and income stocks.
Bottom line: we’ll go on record again and say that there are far too many investors and so-called experts fighting to be the hero. They’re desperate to call the next full-scale market meltdown.
So far, they’re up to about their 30th attempt at picking it. They’ve got it wrong each time. The law of averages says they’ll get one right, but this just isn’t it.
Our advice is to use the opportunity (if it arises) to buy stocks from those senselessly selling in a blind panic.
Cheers,
Kris+
From the Port Phillip Publishing Library
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