War Never Changes.
This week has been tough. I’m still trying to wrap my head around what’s happening. Although we’ve seen geopolitical tensions for years, this war still feels like something that came out of the blue.
I guess there’s a reason why the famous game Fallout starts with the phrase “war never changes.” Ironically, this game series is about a post-nuclear apocalypse world. I don’t want to think about that.
Instead, let’s focus on the more productive things. Since war never changes, we know from the past that no war has killed economic activity and markets. So, looking at this situation purely from an investor perspective, we shouldn’t be overwhelmed.
Take a look at how Dow Jones behaved during World War II on the chart below. It crashed on war worries but started recovery already in 1942.
Source: Investment Office.
The war is bad, but it doesn’t stop people from speculating. Remember, the markets are forward-looking, so once the darkest days of the current war are behind us, the markets will likely quickly turn bullish, even though the war doesn’t end.
Now, let’s get to crypto and its place in our troubled world. This week we’ve seen another confirmation that BTC is a risk-on asset, and the market doesn’t see it as a hedge against bad events. I liked an article I wrote in 2020. If you haven’t read it yet, it’s time to do so.
So, if we see an extremely grim development on the geopolitical stage in the coming weeks, BTC and the entire crypto market will likely tank. I won’t try to predict the probability of that because I don’t think it’s possible to get into the Russian president’s head.
As Mohamed El-Erian said in his recent interview, there’s a whole number of outcomes, and more money in the system can’t get us out of what’s happening. I agree with him. We shouldn’t expect a COVID-style reaction from the Fed to this war.
That being said, Mohamed also pointed out that the Fed will likely not be aggressive with rate hikes. That’s something I agree with too, as there’s no point in crippling the economy even more during tough times. If that is the case, the inflation will run hot, likely pushing risk-on assets higher.
To conclude, the world right now is a big blob of uncertainty, but the uncertainty will diminish over time. And by that time, forward-looking markets will turn optimistic. Now is the time to prepare for it.
SIMETRI Portfolio – Red
The Portfolio is red across the board. Great projects are losing over 50% of their value. It’s tough, but that’s the state of the market: when the uncertainty increases, people flee from riskier assets to save-haven ones.
Unfortunately, the situation can worsen if BTC dives due to the macroeconomic environment.
