Misconceptions first
People tend to compare things to the past, cause that’s what we know for fact, however every crisis has its unique characteristics –
2000 – dot.com bubble crash, is a tech one.
2008 – subprime bubble crash, is a finance one.
2020 – covid-19 crash, is a black swan one.
2022 – war + post-pandemic printing crash – commodities one.
Now things get worse, cause we tend to compare things to the closest past, unless they’re high level magnitude, like world war. So people will tend to compare the current situation to 2008 or 2000 crashes, and sometimes to the great depression of the 20’s of the previous century.
But what if there’s a better example to test against, which was in the 90’s of the last century for instance?
Saddam Hussein, remember him?
Every war against the free world has a dictator invading some country within. When China will invade Taiwan or North Korea will do something stupid, they’ll all end like Saddam Hussein and Iraq eventually.
However, we’re not interested in this scum. So let’s see what the 1st Gulf War meant to the S&P 500:
The red line is the invasion to Kuwait day, candles are S&P 500, green line is the date when US + 35 nations coalition started to use military forces in order to expel Iraq’s forces from Kuwait – this process took 5 weeks; during this time period Iraq fired dozens of missiles to US allies – first into Israel and then Saudi Arabia. Oil prices in gray.
From the day of the invasion, it took the market 5 months to recover.
Where are we now on this analogy?
The two bottoms mark the uncertainty – Iraq invaded Kuwait, and the US led coalition started using military forces against Iraq. The rest is not interesting (for the markets – personally I was a school boy in Israel during those missile attacks, whole family with gas masks against chemical weapons that didn’t arrive eventually – only explosives missiles.)
So we’ve been through the invasion (of Ukraine), oil prices spiked, markets crashed, the red vertical line had been accomplished on the 24 of Feb 2022.
We’re waiting for the green line. An event that will bring back the confidence to the markets. Either peace talks are successful (hopefully!) or military operation or something else that even if won’t end this war (Saddam didn’t leave his chair then, and 10 years later there was the 2nd gulf war…) – it will bring back certainty to the markets.
Oil prices will probably go back to normal when this happens, and then we’ll be able to draw the green line.
…and where is the bottom, mister wise guy?
Oh yeah, you came for this, I forgot. Well that’s the million ฿ question of course.
No one can predict bottoms, as it can get worse. Whenever a dictator is pushed towards the corner, anything can happen. And Russia is a country with the largest nuclear weapon arsenal in the whole world.
I won’t leave you without something, though. I think the bottom is right around the corner, next couple of weeks, if Putin won’t do something stupid soon. Why now? Because the FED (finally) started reacting to the inflation, because the markets absorbed all the uncertainty from the post-pandemic and Ukraine situation, except from a nuclear event, which is unlikely in my POV.
So buy in May and sail away… 🙂
NFA… 🙂