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A Personal Note from Cam - Dated March 2, 2022

A Personal Note from Cam - Dated March 2, 2022

March 02, 2022
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A Personal Note from Cam – Dated March 2, 2022

The past week has been one for the ages.

The financial markets have made big moves in both directions as a result of the conflict in Russia/Ukraine.

As I write, there is no end in sight to the conflict and I expect the volatility to continue into next week and perhaps longer.

One thing is certain, senseless tragedy and destruction are underway in Ukraine.  War is never started for rational reasons, and this one seems especially pointless to me.  I hope that a path to peace can be found quickly.  Please join me in a prayer for world peace.

As the war continues and world-wide sanctions mount against Russia, a cloud of unpredictability hangs over the global economy.  The current situation is unprecedented.

People around the world are watching the war in real time on social media. This increases the demands for action, which has occurred with sanctions. 

As combat continues and sanctions increase, I believe market volatility will increase across the board.

Putin’s Catastrophic Mistake

Global financial markets for stocks, bonds and commodities are experiencing some of the most violent price swings in history.

Large cap U.S. stocks have suffered a correction.  Small cap stocks are in a bear market.  And oil recently crossed $100 for the first time since 2014.[1]

If you are feeling a little anxious about the markets, you are certainly not alone.

We all know why: Russia’s unprovoked invasion of Ukraine.

The financial markets hate uncertainty, and armed conflict is the ultimate uncertainty.

If the fighting intensifies or spreads to other countries, the financial markets may become even more turbulent.

I believe that Vladimir Putin has made a serious miscalculation.

In lockstep, the United States, Europe and Japan have responded with the severest economic sanctions ever put on a G-20 country.

Export controls will cut off more than half of Russia’s high-tech imports.  The Nord Stream 2 pipeline linking Russia to Germany has been halted.  Key Russian banks have been barred from the SWIFT interbank messaging system, further isolating Russia from the global financial system.

Russian air flights are no longer allowed over Europe and the United States. Russian financial assets-including those of Putin and his inner-circle are being seized or frozen.  Institutions worldwide are divesting Russian assets and canceling contracts with Russian businesses.

The Russian stock market has crashed and interest rates in the country have more than doubled to 20%.  The ruble is worth less than a penny.[2]

A professional colleague, Justice Litle, shares “Putin’s latest gamble was a catastrophic error of world-historic proportions.  He is going to lose everything.  The question now is how much the world will lose when Putin goes down.[3]

In choosing to invade Ukraine, Putin took the single biggest unprovoked geopolitical risk of any nation-state leader dating back to Hitler’s invasion of Poland in 1939.

In order for Putin’s move on Ukraine to work, a few things had to happen: [4]

  • Ukraine had to fall relatively quickly without showing much resistance.
  • Western opposition to Russia had to prove feckless and weak.
  • The threat of oil and gas withdrawal had to keep Europe cowed.
  • Russia’s $630 billion in reserves had to keep Russia stable.
  • Russian oil and gas had to keep flowing.    

Guess what?  Every one of these assumptions is now shattered.

Ukraine was supposed to fall quickly.  It did not.  It turns out that Ukrainians are some of the fiercest and bravest people on the planet.

Western opposition (plus Japan) has hammered Russia.  I believe Putin has single-handedly made NATO great again and given Europe a spine.

Europe was not cowed by the threat of oil and gas withdrawal - it took the pain head on. I believe Putin was counting on a weak and divided Europe being a pushover because the threat of a cut-off of Russian oil and gas supply would be too painful.  At first, this seemed to be the correct read.  But then, Europe found its courage and joined forces with the United Stated to punish Russia financially in the harshest ways imaginable.

Russia’s central bank has seen its assets frozen and Russian gold may be unsaleable. I believe Putin’s “ace in the hole” was supposed to be Russia’s $630 billion in currency reserves. But Putin did not realize the rest of the world had the will to trigger the mother of all financial weapons: freezing Russia’s central bank assets.

Russian oil and gas may soon not be able to flow at all with Western oil majors fleeing.  One of the most remarkable events of the past few days was BP, a United Kingdom-based oil major, deciding to simply dump its 20% stake in Rosneft, a Russian oil firm.  The cash cost to BP could be as high as $25 billion.  But the cost to the Russian oil and gas sector should be much higher because Russia does not have state-of-the art extraction technology.  It relies on Western expertise. [5]

Our Current Focus

Our ongoing focus at CTA Wealth is on controlling the things that we can control and monitoring those things that are out of our control as closely as possible.

During the past week, we have consulted with clients preparing to retire. We have talked with families about education planning. We have addressed cash-flow planning and the amount of emergency cash they should have on hand.  We have addressed the need to update estate planning documents.  We have addressed income tax planning questions.  We have reviewed investment planning and risk management goals and objectives.  We talked to a client who was just diagnosed with cancer and a widow after we learned her husband died over the weekend.  The list actually goes on and on.

Over the past week we have done what we have done for over 40 years…we have been there for you and your family. Our continued focus is on helping you, our friends and clients, address your most important questions, concerns and challenges. 

If you have questions, please call or email, as we would be more than happy to talk with you at any time.   

Yours truly,

Cam

Disclosures:

The information provided is not a complete analysis of every material fact and are subject to change.

Securities and some investment advisory services are offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker/dealer and Registered Investment Adviser.

Financial Planning and some investment advisory services are offered through CTA Wealth Advisors, Inc., a Registered Investment Adviser.

CTA Wealth Advisors, Inc. and Cetera Advisor Networks LLC are non-affiliated companies.

The opinions expressed in this letter are those of Cameron M. Thornton, CFP®.  All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.  All economic and performance information is historical and not indicative of future results.  Past performance does not guarantee results.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor.  Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

A diversified portfolio does not assure a profit or protect against loss in a declining market.

Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

Websites provided as a courtesy and are not under the control of Cetera Advisor Networks LLC or CTA Wealth Advisors, Inc.

Cameron M. Thornton, CFP® is a Registered Representative with Cetera Advisor Networks LLC and may be reached at www.ctawealthadvisors.com or
(818) 841-1746.

Citations:

[1] Wall Street Journal. February 28, 2022.

[2] Wall Street Journal March 1, 2022 and Ibid 1.

[3] TradeSmith Decoder. February 28, 2022.

[4] Ibid 3 and following.

[5] Ibid 4 and above.