s I write, all kinds of noise about possible “outcomes” are playing out across the airways. A Turkish brokered ceasefire or maybe an “exitramp” for Putin, including a “NoNato Membership for Ukraine” promise and Crimea in return for an advance back to the previous borders. The brutal reality is Ukraine is being progressively flattened. Their troops are taking heavy casualties. Raw recruits will be thrown into the meatgrinder to frustrate the Russian advance, but how much time they gain is debatable. It is desperately sad and tragic, but what choice do they have? The reality is predicting outcomes in Ukraine remains guesswork. Yet, for all the uncertainty, the death, wanton destruction, and the rising refugee crisis, the first thing we’ve learnt following the Russian invasion is markets are apparently impervious to negativity and risk. That won’t last forever. Reality has a nasty habit of catching up and biting hard. Take a close look at the numbers underlying stronger stocks – volumes are weak and unconvincing. The recent bond slide and flattening curve speak of a nasty and unpredictable recession to come. The uncertainty hitting markets is greater than I’ve ever seen. Whether it’s the end of the QE market picnic, Central banks hiking rates, the rising risk of monetary and fiscal policy mistakes, the pandemic, the approaching cost-of-living shock about to crush consumers, inflation, recession, or possible stagflation, broken and rebroken supply chains, rising geopolitical instability, and the largest most bloody European conflict since 1945 with a not intangible possibility of nuclear war. But, where’s the panic? The markets seem to be thriving. Themarket is not a rational beast. Prices represent what market participants believe rather than the economic actuality. Mr Market is simply an enormous voting machine weighing the hopes, beliefs and opinions of every single market participant. The market does not measure actual reality or facts. At the moment – it is discounting any pain likely to come. The fact prices remain “euphoric” tells us participants hope for positive outcomes – despite the multiple tensions facing us – and are therefore taking buy-the-diprisks rather than battening down for a possible storm. Events trigger consequences, and how these will play out is frankly a guessing game. Ripples from Ukraine threaten to swamp the whole globalised marketplace. It’s what’s happening below the surface, out of sight, that matters. It may take many months for the consequences of the war in Ukraine to really impose themselves on market sentiment. Russia’s move on Ukraine shocked the West. It will impose massive costs. Longterm sanctions will cripple Russia – perhaps fatally because of its hopeless demographics, creating yet more instability. The two immediate threats in plain sight are food and energy security. We are in for a long period of price instability in both. Vladimir Putin Bus i ne s s & Economy 14 Finance Monthly.
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