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Market Update: World War 3?

World War Three. There, I said it. People have nightmares about this stuff. People make movies about this stuff. People write fiction and sci-fi about this stuff. People look at the First World War, they look at the Second World War, and say, “No, we’ll never have World War Three because now we have so many nukes between the US and Russia, our mutual destruction would be guaranteed.” 

But what if Putin is a madman? What if Putin is getting bad intelligence from those around him, the ones he’s crafted to feed him intelligence? What if Putin wants to escalate everything and does fire off a nuke? Nobody has a plan for a nuke. Nobody. But ask yourself, what would you do differently this week? What loved ones would you reach out to? Would you change a discussion you might have had with a neighbor, coworker, a family friend, if you knew a nuke was coming? 

So many times in church, people hear pastors talk about the afterlife, about a place called heaven, and the idea is to try to get it right here so that perhaps you might eventually go to a place called heaven. But I’m not speaking about heaven, I’m talking about real world nuclear war. If nuclear war breaks out and we’re all impacted and everything we know, and think we can depend on, is destroyed, what would you do different this week? No, I’m not here to scare you with that, but that’s the 900-pound gorilla in the room right now. 

The invasion of Ukraine has been a catastrophe for Russia from a military standpoint. And whether you want to call them war crimes or just outright murder of innocent civilians, I’ll let you call it what you want. But my heart is broken as I watch these news stories unfold. And yet at the same time, I wonder why we don’t do something more about it as a nation. Is it that we are truly scared that Putin is a madman and that World War Three will happen, and Ukraine is the price paid for everyone else’s safety? I’m not a politician, and I’m certainly not a military strategist. But I’ve known since my first days on the playground that if you don’t punch a bully in the mouth, he’ll keep coming back. 

Now, let’s assume that there is no nuclear war. How does this play out? Well, obviously we have sanctions, but does the U.S. end up sanctioning all Russian oil, impacting global energy supplies? Does the rest of the world? There would be significant economic fallout of course, because energy is one of the things that drives all economies. 

However, if we continue on our current course of simply sanctioning the billionaires and the war funds and any Russian-based company that would do business with the US, there will certainly be implications from that, but the reality is that for many American S&P 500 companies that do not conduct a significant part of their business in Russia, day-to-day things do not look that different. Certainly, if you’re in a business that relies on commodities or some type of widget or natural resource that may come out of Russia or Ukraine (or whatever country they go to next if undeterred), then your business certainly will be affected – cost of goods will go up, and inflation will run rampant. But once again, it won’t stop the companies that were already doing fine before this war started. 

Now, will this affect our markets? It certainly could turn into a really nasty bear market. The market always needs a reason to correct. First it was interest rates, and now it’s Russia. On the other hand, what if a truce is tendered? That seems impossible right now, but the wonderful thing about the world we live in is that nobody actually knows the future. Peace is tendered? Then the markets most likely will recover, albeit slower than we first expected when this was just based on how many interest rate hikes the Federal Reserve will pull out of its hat in 2022. 

There certainly will be broad ramifications caused by additional global supply chain disruption, but despite these inconveniences, the world will go on – all is not lost. We still get to deal with the neighbor across the street that never picks up after their dog. We still can root for our Kentucky basketball teams, even if it’s the Cardinals with their offseason program challenges. We still get to root for the Bengals, and maybe next year they’ll win a Super Bowl. But investing or panicking based on nuclear war is the equivalent of rooting against America. 

The fact is that if the world as we know it does go on and World War Three does not happen, then as always in any market correction, there will be opportunities. But I do not believe the short term opportunities will be in the international sector. As the fallout of a Russia that has been zeroed out as a worldwide power economically hits, the world will feel those vibrations. International economies will be challenged to maintain versus decline, and growth for many that depended on Russia will be very difficult. 

But for us in the United States, you may not have thought this a month ago because we do all have our differences. But I’m sure when you’re reading this you’ll relate: We are all privileged to live in the United States of America. And sometimes we get an unfortunate and sickening international crisis to remind us just how good we have it at home. And guess what? When the bombs started falling, the world ran to our dollars, to our currency, to our bonds. And as globalization is unraveled, America will benefit significantly. Will it be easy? No. There will be challenges. But just as Warren Buffett said in his letter to shareholders recently, never bet against America. I’ll say it again. Never bet against America. 

If you still have additional questions on the how, the why, the what, of your portfolios, or if you just need some assurance on how this affects your financial plan, or hey, if a rich uncle died and you’re thinking hey, this might be a good time to put some money in while the markets are low, give us a call. We’d love to hear from you. And remember. Nobody wanted to put money into the markets in 1998 when Russia devalued the ruble. Nobody wanted to put money in when we had the great technology crash in the early 2000s. Not a single soul wanted to put money in the market at the depths of 2009. And absolutely no one wanted to put money in during that horrific COVID pandemic in 2020. 

And despite all of those things, just a few weeks ago the markets were at all-time highs that many of our parents and grandparents most likely thought they’d never see. And so in this correction, my game plan is to play it just like all the other corrections, and believe that no, we won’t all get blown up. That at some point, somewhere, cooler heads prevail. The world goes on. And the world literally flocks to America. Because there’s only one. 

Article by David Smyth, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.

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