Weekend reading: In a M.A.D. world all correlations go to one – Monevator

Bit of a ramble about the news, feel free to skip to the links below.

I was writing a follow-up on investing in the face of regime change when it began to look overwhelmingly likely that Russia would invade Ukraine.

My previous articles covered how quantitative tightening and the return of inflation could change the landscape for investors. Now Russia was set on redrawing maps the old-fashioned way.

Suddenly paragraphs on why you should still hold government bonds in case of shocks or reasons not to go all-in on equities didn’t look academic.

And how would the conflict unfold?

I held off completing my article, and like everyone I turned to watching the news.


Russia crossed into Ukraine. Markets fell. Bonds rallied a bit.

Most investing pundits were sanguine. They shared graphics like this one from Ryan Detrick:

(Click to enlarge the drama)

I wondered when we should do something similar. Traffic to Monevator had dwindled due to the sudden news-binge. But experience tells me investors can get spooked by geopolitical events.

Though everyone knows this these days.

So pundits on Twitter waved aside worry and talked up a buying opportunity. After a nod to the human tragedy, financial TV commentators debated the merits of energy firms versus cybersecurity outfits. And so on.

I have no problem with this. Sure it can look ugly in the moment. People complained about heartless traders during many of the latter events in the table above.

But there’s nothing to be gained by capitalism shutting down in the face of geopolitical horror. And it’s not like 99% of us are in any position to influence events, if only we could tear ourselves away from our brokers.

You might question someone’s priorities. But I don’t think it’s a question of morality.


No, something else was bugging me about all this talk of filling your boots on war.

It crystalized when I heard a couple of American bloggers waving away concerns by comparing the GDP of Russia to the (larger) economic output of Texas.

Again that was true. But as I retorted this missed something important:

We can debate which geopolitical events of the past few decades realistically might have put nuclear Armageddon onto the board, however unlikely.

But I think you have to go back to the 1960s for it to be a potential feature of conflict, not a bug.

Rage Hard

Maybe I’m showing my age, but these younger commentators mostly didn’t seem to get it.

Of course I fully agree that in a scenario where both sides launch nuclear bombs you may as well own shares versus bonds. Because who cares when the planet is in rubble?

Once you acknowledge that, the nuclear question is moot.

And perhaps all these chipper dip-buyers had already done that calculus.

But I doubt it. I don’t believe most gave it any thought, especially early in the week.

As child of the early 1970s, I well remember talk of four-minute warnings and visions of hiding under the kitchen table when you hear the siren. The relief when treaties reversed the expansion of the nuclear arsenals. The fall of the Iron Curtain that the Russian leadership now laments.

The reality is Russia could roll-up Ukraine and Belarus and Lithuania and reinstate its buffer with the West and we would be basically powerless to stop it.

Will we take the annihilation of London or Berlin in exchange for defending Vilnius? Of course not.

Again as a middle-aged bloke who has read my fair share of military histories I am well-versed in the counter-argument. Mutually Assured Destruction (M.A.D.) doctrine tells us neither side will act to start a nuclear war because nobody will win. Many say this is what has kept the peace in Europe since World War II.

Only this isn’t keeping the peace in Europe this morning. Russian troops are in Kyiv, with at least 1,500 ready-to-go nuclear weapons at their back.

Two Tribes

How should this change how you invest?

Barely, if at all, especially if you’re a passive investor.

All correlations between asset classes go to one in a worst-case scenario. (Good luck verifying your blockchain too).

But in that scenario the Great Filter does its job and Earthlings won’t have to fret about rising bond yields again for a few hundred years, if ever.

Therefore it’s only rational to ignore the worst outcome from your planning.

And so whether tough-talking or naive, those pundits were right. Take it out of the equation. Buy any panicky dip.

Sure enough the market went on a bender before the conflict had barely begun. Early losses reversed. Gold fell too. Many of my individual stocks ended the week higher than they started.

Again, all the theories. Falling bond yields meant it was now safer to buy growth stocks (except yields didn’t fall much). Central banks would raise rates more slowly. (Again, only the slightest nod to that in the data). The sanctions turned out to be too weak to cripple the European economy through friendly-fire. (The likeliest candidate for the rally, in my view). The West was galvanizing and that was good for future returns. The economy would slow sooner, and maybe that was good too. (Because, again, lower rates).

Russia was bogged down, and had proven itself weak. Russia had shown it would win quickly, and the war would be short-lived.

Who knows.

Warriors of the Wasteland

Like Matt Klein (and as I wrote a few week’s ago when bemoaning the distraction of Brexit) I have long fretted about how we’ve enabled a menace on our doorstep.

For example Germany shut down its nuclear reactors in a burst of progressive righteousness after Fukushima – only to become more dependent on a dictatorship with ambitions to produce the worst-ever sequel to Back to the Future.

As Klein writes:

The perverse result is that Europe is at greater risk of Russian pressure than the other way around. Natural gas prices in Europe are now about 5-6 times as high as in the U.S. because Gazprom has been withholding supply and because the lack of LNG terminals has prevented ships from moving gas across the Atlantic.

And while Europeans have made some modest investments in solar and wind energy over the past decade, it hasn’t been nearly enough to make a dent in the overall energy mix, especially after factoring in the impact of the decisions to decommission existing nuclear power plants.

The Europeans seem to have – belatedly – realized the implications of all this.

The Cold War was hard won. It cost blood and treasure.

Yet we seem to have forgotten that the world is a dangerous place, whether living out little England fantasies and electing dangerously failed property developers on the one side, or canceling writers for what a goblin said in a fairy story on the other.

A could-have-been unifying global pandemic only made things worse.

I have a bug-out plan for some less-than-worst case scenarios. Do you?

Have a good and safe weekend.

From Monevator

Social care in later life can be a financial black hole  – Monevator

From the archive-ator: Don’t make a crisis out of a crisis – Monevator


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Warning: UK household energy bills could top £3,000 a year – BBC

Students in England to pay back loans over 40 years instead of 30 – Guardian

Taxpayer on hook to pay billions due to Covid fraud, says MP report – BBC

Rightmove predicts UK property boom after record 2021 – Yahoo Finance

Annual inheritance tax receipts rise £700m to £5bn – Wills & Probate

Fears of UK food and fuel prices rising due to war – BBC

Weekend reading: In a M.A.D. world all correlations go to one - Monevator - american banker - Banking - Public News Time

Some 97% of adults in England now have Covid antibodies – BBC

Products and services

Virgin Money launches installment plan option for credit cards – Which

People want green pensions but they’re reluctant to switch out of default funds – ThisIsMoney

Stake enables you to trade on the US market with zero commission fees. Sign-up via our affiliate link and fund your account within 24 hours and you will get a free share. Capital at risk – Stake

How Waitrose’s revamped loyalty scheme will work – Be Clever With Your Cash

John Lewis scraps its historic ‘Never Knowingly Undersold’ pledge – MSE

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Rates rise on UK mortgages as lenders look to inflation fallout [Search result]FT

What is Swift and why are leaders divided on banning Russia? – BBC

Interest rates on easy-access savings accounts inching up – ThisIsMoney

Insulated homes to weather the storm, in pictures – Guardian

Comment and opinion

How it happens – Humble Dollar

Beware past return smoke-and-mirrors with alternative assets – Factor Research

Now you get it – Morgan Housel

The worst thing you could do right now – The Reformed Broker

Patrick Geddes: the two greatest enemies of investors – T.E.B.I.

Never a better or worse time to be an investor – Behavioural Investment

Wealth doesn’t buy freedom – A Teachable Moment

Big fish – Indeedably

The last time the market was fairly-valued – Of Dollars and Data

How to find TikTok and YouTube ‘finfluencers’ you can trust – Bloomberg

Martin Wolf: as inflation rises, the monetarist dog is having its day [Search result]FT

Crypt o’ crypto

The case for Bitcoin as ‘digital gold’ is falling apart – CNBC

Starting a crypto hedge fund [Podcast]Animal Spirits

Manchester police return millions to cryptocurrency scam victims – Sky

Quantum computing will break the blockchain [Or it won’t]CFA Institute

Naughty corner: Active antics

Obscure inflation traders making a killing in London – Bloomberg via Yahoo

Can we trust Unilever’s dividend after Glaxo disaster? – UK Dividend Stocks

Covid corner

Five things we need to watch as legal restrictions end – BBC

Hong Kong: what went wrong with its Covid plan? – BBC

Kindle book bargains

Real Life Money by Clare Seal – £0.99 on Kindle

The World for Sale by Javier Blas and Jack Farchy – £0.99 on Kindle

The Joy for Work by Bruce Daisley – £0.99 on Kindle

The Perils of Perception by Bobby Duffy – £0.99 on Kindle

Environmental factors

Chernobyl: radiation spike at nuclear plant seized by Russian forces – BBC

Reef ball burials: new trend for becoming ‘coral’ when you die – Guardian

Sea level protection? Not in my park – Hakai Magazine

Kenya experimenting with growing crops beneath solar panels – Guardian

Off our beat

Rich People’s Problems: I’ve got superyacht envy [Search result]FT

The solace of ‘at least’ and the sting of ‘if only’ – Daniel Pink

Amazon’s $31bn ad business explained – Trung Phan

I’m a creator. You’re a creator. We’re all creators! – Vox

And finally…

“People will choose unhappiness over uncertainty.”
– Tim Ferris, The 4-Hour Work Week

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