There are a lot of things we don’t know about Russia’s attempt to invade Ukraine, but there are also some things we do know. Mr. Putin’s gamble, and the West’s response, has brought into view one of the few existential tail risks that isn’t a Black Swan, which is to say, it is a known unknown: The risk of an escalation into war between Russia and NATO, and the exchange of nuclear weaponry. The continued call on NATO from Ukraine president Volodymyr Zelensky to impose a no-fly zone his country is an alarming case in point. I have no idea how to quantify such a risk, and it is fair to assume that markets don’t either, at least not with any accuracy. BCA’s suggestion that you might as well be long stocks on a 12-month basis, even if you think an ICBM is headed your way is probably a fair reflection of the level of analysis you can expect from your favourite sell-side researcher. Take everything you read with a heap of salt.
Read MoreEquities seem to be in the throes of the death of a thousand cuts at the moment. The rebound towards the end of January, from the initial swoon, was reversed last week, and at this point a new low is all but certain. There are a number of things troubling equities. Geopolitics are a fickle catalyst for anything, but it has certainly added to the misery in the past few weeks. A Russian incursion in Ukraine remains a distinct risk, an event which would force markets to discount the risk of a more sustained military conflict on the European continent, not to mention a further leap in energy prices. The latter would intensify inflation fears, which are already weighing on markets in the context of the surge in bond yields, and the significant repricing in expectations for monetary policy, for both rates and QE. Investors could do with relief from these headwinds, but I doubt they’ll get it, at least not in Q1.
Read MoreI’ve recently added a new chapter to my long-running demographics journal, which I will present in more detail later this month. Before I get to that, I thought that I would have a look at my own financial performance in 2021. In preview, I did ok, but not as well as the market. My portfolio, split across two accounts at AJ Bell and Nordea, returned 6.6% in 2021, when adjusted for a significant zero-return cash position, and around 10% on its own. I am embarrassed to say that I dropped the ball on the month-to-date PnL calculations throughout the year to a larger extent than usual, so these numbers are a bit a uncertain. They are, in any case, far from the show-stopping returns of the MSCI World equity, index at just over 21%, let alone the performance of the mighty S&P 500, at 27%. My first two charts plot the top and bottom 10 performers, which is as good a basis as any to talk about markets.
Read MoreApart from soul-searching on the endgame for Covid—see my version here—the arrival of Omicron seems to have had two relatively predictable effects on financial markets. Volatility has shot higher, and the yield curve has flattened. Put differently, stocks have sold off, and the long bond has rallied. The MSCI World is down just under 4% from its peak at the start of November, and the U.S. 10-year yield is off some 25bp. Neither of these numbers are dramatic, but they’re eye-catching, all the same. I suspect these shifts are driven by both fears of Omicron—despite little hard evidence that it is the vaccine-evading super-bug everyone has feared—and the fact that monetary policymakers so far have had little interest in changing their stance. More specifically, Fed officials have said nothing to shift expectations that it is expected to taper QE to zero by the middle of next year, and start raising rates shortly thereafter.
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