The Weekend Edition is pulled from the daily Stansberry Digest.
The bombs fell from the sky just after dawn...
Minutes after Russian President Vladimir Putin addressed his country on Thursday morning, announcing a "special military operation" against Ukraine, people in cities and towns in the former Soviet bloc nation awoke to the terrifying sounds of war.
Our colleague, Stansberry Research analyst Bill McGilton, who lives in the Ukrainian capital of Kyiv with his family, was one of them. Last we spoke, he was doing OK and on his way out of the city. But as he said to us Thursday morning...
I was awoken by bombs exploding on the other side of the city. Around six of them went off. Apparently, the Russians were blowing up radars and other military facilities around the city. They have been doing the same around the country.
They said they are not targeting civilians, but many people are trying to leave and are caught in traffic jams. Other people like me are staying in place.
Planes buzzed over Kyiv, Bill said. It was a cloudy day, so he couldn't make out which country they were from, but he presumed they were Russian, given reports that Ukraine's small air force had already been destroyed.
The world woke up to a heartbreaking reality... the immediate fallout of reported casualties, plus Ukrainians lining up at ATMs for cash and stocking up on groceries, while a new generation wondered why war was happening at all.
By Thursday evening, we heard from Bill again. He was expecting the Russian military to take over Kyiv soon, but thought that Ukrainian forces would put up a fight.
We'll explore what this developing story means to us and what we should expect from the markets from here. But first things first...
Our thoughts are with Bill, his family, and everyone caught in the crossfire of this geopolitical conflict...
As Bill has also told us, the situation is much more complicated than you've likely heard in the media... But one thing is for sure. Lost in virtually anything being said is what civilians on the ground in Ukraine actually want the most today.
Bill took law school classes in Russia and has worked on and off in Ukraine for the last 15 years, so he's familiar with public sentiment there. According to him, even among pro-Russians in Ukraine, few want to be "absorbed" by Russia.
The Russian military has attacked Ukraine with missiles and bombs... and banks and other infrastructure through cyberattacks already. What's next?
For now, we see a few economic consequences taking shape...
Thursday was a disaster for the Russian financial sector...
The MOEX Russia Index – which tracks the largest Russian companies – crashed 33% to a four-year low. The ruble, the Russian currency, was down 8% compared with the dollar and hit a record-low intraday.
The Moscow Exchange temporarily suspended trading... And Russia's central bank told brokers not to take short sales. Russian bank stocks like Sberbank and VTB Bank fell by more than 40%, causing the central bank to pump liquidity into the market.
In comparison, the major U.S. stock indexes finished up. The tech-heavy Nasdaq Composite Index ended the day up 3.3%, the S&P 500 Index closed up 1.5%, and the Dow Jones Industrial Average was up slightly, after all three were negative earlier in the day.
There are longer-term impacts of this crisis, too...
Over the past year, Europe has been struggling with a "gas crunch," just like the U.S...
But on Tuesday, in response to Russian aggression in Ukraine, the German government decided to halt the certification of the new Nord Stream 2 gas pipeline, which runs from Russia to Germany beneath the Baltic Sea.
Europe is heavily dependent on Russian natural gas, which supplies about 40% of its needs.
This new project was supposed to double the capacity of natural gas currently being pumped from Russia to Germany.
Last year, a survey found that 75% of Germans were in favor of the construction of Nord Stream 2, which was supposed to be a key piece of the country's new energy puzzle, having decided to ditch nuclear energy completely in March 2021.
In other words, demand for Russian energy isn't going away... Neither is all of the supply from Russia – at least not yet.
But what is being taken out of the equation for now is a decent chunk of future supply, which is drying up for an undetermined amount of time... No one knows when the pipeline will come online, if ever.
If this sounds like a recipe for higher energy prices, we agree...
It might most directly influence prices in Europe. But energy is a global market. Russia is part of OPEC+... And what happens in one place regarding oil and gas plays out in other places, directly or indirectly.
Plus, as our colleague Bill Shaw wrote in this month's issue of Commodity Supercycles, it's not just international sanctions against Russia that are a concern here. It's what Russia might do next in response.
Russia accounts for 17% of total global natural gas production. The possibility of Russia leveraging energy production and distribution in exchange for political gains are contributing to fears of tighter energy supply and more inflation worldwide...
This is particularly concerning to investors and traders.
That's why oil prices did what they did on Thursday...
Brent crude, the international benchmark, rose above $100 for the first time since 2014, before pulling back some. West Texas Intermediate ("WTI"), the U.S. standard, remains high as well.
No matter where you live, it should be no surprise to see gas prices go up from here.
However, war in Eastern Europe isn't the only reason for expensive gas today... It's just making it worse.
Broad supply-and-demand forces are driving most of it, which many people don't realize. Politicians have become obsessed with alternative energy, but it simply isn't as available, reliable, or affordable as oil yet.
From the October 11, 2021 Digest...
We're simply not at the point yet where there are enough alternative energy sources to power the American and global economy.
Oil accounts for around one-third of energy consumption globally. That's more than coal (27%) and gas (24%). And it's more than three times as much as hydropower, wind, and solar combined (9.7%).
Said another way, as several of our editors believe, oil already had bullish tailwinds behind it and any more concerns about supply disruptions in Russia, or anywhere else, will only strengthen those tailwinds.
There's no denying the long-term global consequences of Russia's attack on Ukraine...
Putin's speech about the matter was chilling... He referenced the outcome of World War II and pointed the finger directly at what he called the "expansion of NATO to the east," referring to the North Atlantic Treaty Organization as a reason for Russian forces invading Ukraine.
He also cited the dismantling of the USSR and decisions made more recently by the United Nations Security Council in Belgrade, Iraq, Libya, and Syria... He said the "entire so-called Western bloc, formed by the United States in its own image and likeness, all of it is an 'empire of lies.'"
All in all, it doesn't sound like Putin plans to stop being aggressive anytime soon.
Later in the day, U.S. President Joe Biden pledged full support to NATO – made up of 28 European nations and the U.S. and Canada – and said he was deploying some troops to those allies near Russia, but that the U.S. wouldn't be sending troops directly into Ukraine.
Biden also accused Putin of choosing "a war without a cause." He also acknowledged the threat of higher energy prices and tried to tell the American people precautions are being taken to keep things in check.
We're left to make of this what we will...
Perhaps surprising to many, U.S. stocks closed Thursday up, not down. Overall, the spike in oil futures was probably the most significant reaction.
But given the history of the Cold War and the war of words between the U.S. and Russia recently, we know you're probably thinking about what all this means for the markets and for your portfolio...
The markets, as we've been writing for the past several weeks, have been extremely volatile to start 2022...
In the U.S., the Federal Reserve, which is planning to hike interest rates as early as next month in an effort to tone down inflation, was to blame first... and fears of a major conflict in Ukraine fueled more sell-offs in recent weeks.
With nearly two years of ridiculously "easy money" from the Fed coming to end, it has been a recipe for losses. Year to date, the S&P 500 is down 11%.
Nobody knows for sure what direction stocks, bonds, or any other asset will go next, but remember, that is always the case anyway.
Most important, now is not the time to panic...
By that, we mean don't forget everything you've learned. Don't obsess over every news report. And don't hit the "sell" button based on an emotional reaction to something happening in the world...
You will likely regret it minutes or days later, wondering what you did.
Pause and think things through. These are the times when all the work you do with your investments – and knowing yourself and your goals – should pay off.
Remember Warren Buffett's timeless advice: Be fearful when others are greedy, and greedy when others are fearful.
To which I'll add... Don't go overboard with the contrarian greed or fear either.
We don't know if this war between Russia and Ukraine will escalate... or if it'll spread to other regions of the world.
Further developments could shock the markets even more and lead investors to take "risk" off the table.
At the same time, though, don't be entirely scared of that scenario.
If you have a longer-term time horizon, these can be buying opportunities, especially if a company's business model does not change significantly as a result of the kind of geopolitical affairs we're talking about...
Great companies will keep rewarding shareholders with dividends or buybacks... and owning shares of these companies will help insulate your money from the scourge of inflation.
That's why you want to own the world's best businesses in the first place. When all hell – or war – breaks loose, they still are good places to put your money.
All the best,
Corey McLaughlin
Editor's note: We know you have questions during this critical time. That's why Stansberry Research's Director of Research Matt Weinschenk is planning a special "Town Hall" meeting with a group of our top editors and analysts this coming Monday afternoon. They'll discuss the financial impacts we're likely to see from this geopolitical crisis... So stay tuned for more details after the weekend.
