Happy Thursday friends – Josh is back! So you know what that means… time to bring on the dad jokes! In today’s episode, the guys discuss geopolitics and the impact on investors, specifically as it relates to the current situation between Russia and Ukraine. Tune in now!
Main Talking Points
[1:17] – The History of Russia and Ukraine
[2:51] – Why is Ukraine So Important to Russia?
[6:46] – Outside Impact
[8:48] – Cryptocurrency’s Role
[10:04] – People Impact
[10:46] – Other Countries Response
[16:07] – Why is the US Involved?
[18:11] – China
[20:42] – Dad Joke of the Week
[21:15] – How is This Time Different?
[24:13] – What to do in Uncertain Situations
[26:40] – How Could You Capitalize on These Geopolitical Situations?
[28:47] – What Should You Do During Geopolitical Tensions?
Links & Resources
115: Your Stock Draft Winner (ft. Amy Young) – The Invested Dads
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, we are going to be discussing geopolitics and the impact on investors, specifically as it relates to something that’s been going on. And that is…
Josh Robb:
I don’t know. What’s going on?
Austin Wilson:
I don’t know, you were napping.
Josh Robb:
I fell asleep recently.
Austin Wilson:
Yeah. If you recall the episode where we revealed the winner of last year’s stock draft, Josh was asleep. So, we’ll link that in the show notes, just so Josh can-
Josh Robb:
Sometimes, you go 110%, you just need a break.
Austin Wilson:
I know. So, anyway, Russia-
Josh Robb:
Russia.
Austin Wilson:
Has since invaded Ukraine.
Josh Robb:
Yes.
Austin Wilson:
Which is a big deal. It’s a big deal. And I think we should probably dig into what’s going on a little bit.
Josh Robb:
And we’re going to take this approach. We’re going to talk about what’s going on, the top two things, but we’re looking at it from a standpoint of here in the US, as two investment professionals; but we’re going to talk about this geopolitical thing going on. But then also, how does that impact investors, especially investors here in the US?
Austin Wilson:
Yeah.
Josh Robb:
Which is where we’re at.
[1:17] – The History of Russia and Ukraine
Austin Wilson:
Absolutely. So, Russia and Ukraine together.
Josh Robb:
Yes.
Austin Wilson:
They have a very storied path; many, many years of history, both good and bad. But generally speaking, it’s been mostly bad. So, Russia has been pretty terrible to Ukrainians over the course of history. They’ve forced them to be more and more “Russianized,” I guess, using quotes. I don’t know if that’s a word-
Josh Robb:
Air quotes in a podcast.
Austin Wilson:
… over time. And they’ve actually invested heavily, and placed actual Russian people over time into Ukraine, so that it seems more Russian than Ukrainian. So it’s an interesting past, and not a great one. There’s been blood, battles, lots of disagreements, nuclear wars, not nuclear actual wars, but nuclear drama; and we’re going to talk about that in a little bit. But that is what’s been going on there. And then, you look at the Russian side of things. So Russia has really been a sham since the fall of the Soviet Union in 1991. It was re-birthed after the fall of the Berlin Wall, and the end of the Cold War; and really made to look like a democracy from the outside. So it was kind of designed-
Josh Robb:
People were elected, there were votes
Austin Wilson:
Yeah. They were “elected.” There were votes cast, all these things.
Josh Robb:
Yeah.
Austin Wilson:
But Vladimir Putin is far from a democratically elected president. He’s a really power hungry dictator, who really will stop at nothing to further his own agenda. And the sad part of this is that it can even be; and this is kind of a history of Russia thing, but even to the detriment of their own people-
Josh Robb:
Yeah.
Austin Wilson:
… these Russian leaders have a history of not doing things to benefit their people, but really to benefit themselves and their own agenda.
Josh Robb:
Yep.
[2:51] – Why is Ukraine So Important to Russia?
Austin Wilson:
So, that’s not good. But that’s what’s going on; but we should probably kind of talk about why Ukraine is so important for Russia. So we’ll look at why it’s appealing for Russia to be doing what they’re doing.
Josh Robb:
Yep.
Austin Wilson:
Part of it is illogical, from a economic perspective, because as we’re going to talk about their economy is being destroyed.
Josh Robb:
Yep.
Austin Wilson:
Their markets have been destroyed. Their currency has been destroyed. Their people’s savings are zero. It’s just not good. Right? So, Vladimir Putin actually has a personal vendetta for Ukraine, because his brother was killed in the conflict there when he was very young. And this has scarred Putin for his entire life, really.
Josh Robb:
Yep.
Austin Wilson:
And you couple that with the fact that he really views Ukraine as a very important buffer state between Russia and Europe, for safety and security, and Russia’s own economic stability, and you get a bad recipe.
Josh Robb:
Yeah.
Austin Wilson:
A recipe for tension. And then, I guess a bigger point that affects more people than just Putin, is that Russia is a huge net oil exporter worldwide. They drill a crapton of oil.
Josh Robb:
Yep.
Austin Wilson:
And really, second in geographic area, only to the Middle East. So, lots of oil.
Josh Robb:
Yeah. Lots of oil reserves. Yeah.
Austin Wilson:
Yeah. Lots and lots of oil. So, much of this oil goes to Europe, and fuels their oil needs.
Josh Robb:
Yep. It’s oil and natural gas, right?
Austin Wilson:
Yes.
Josh Robb:
Yeah.
Austin Wilson:
Exactly. So the real question is, where are the ultra-important pipelines located to get all this oil from Russia to Europe?
Josh Robb:
It’s right there in Ukraine.
Austin Wilson:
It’s right there in Ukraine.
Josh Robb:
Yep.
Austin Wilson:
Literally, almost-
Josh Robb:
It goes straight through them.
Austin Wilson:
Almost all of the oil and natural gas that Europe uses comes through Ukraine from Russia.
Josh Robb:
Yep.
Austin Wilson:
So that’s kind of a big deal there. So, theoretically, if Russia can control these pipelines, they can then control the supply of oil and natural gas, and therefore control prices more; which therefore, would boost their oil-dependent economy.
Josh Robb:
Yeah.
Austin Wilson:
So, that’s why Ukraine is so in important for Russia. Again, it doesn’t necessarily make a lot of sense. I think also, Vladimir Putin has had this thought that since the Berlin Wall fell and the Soviet Union was dismantled in 1991, that was wrong. He feels like the Soviet Union was wronged in this. And he feels that from that standpoint, all of these areas that were a part of the Soviet Union should be part of Russia now.
Josh Robb:
Yeah.
Austin Wilson:
And the rest of the world does not feel that way at all.
Josh Robb:
There’s a lot of “Stans”.
Austin Wilson:
Yeah.
Josh Robb:
That are countries that have the word “stan” in them, that are their own independent country, but he says, “That should all be mine.”
Austin Wilson:
They were part of the USSR, they should all be Russia. Right.
Josh Robb:
Yeah.
Austin Wilson:
And speaking of that, so there’s a little area south, unless it’s all Black Sea, called Crimea, if that rings a bell.
Josh Robb:
Mm-hmm (affirmative). It does.
Austin Wilson:
2014.
Josh Robb:
Not too long ago.
Austin Wilson:
Not too long ago. What? Eight years ago.
Josh Robb:
Yeah.
Austin Wilson:
Russia, they did what they-
Josh Robb:
Borrowed it.
Austin Wilson:
Yeah. They “annexed” Crimea.
Josh Robb:
Yeah.
Austin Wilson:
And again, similar to what is going on in Ukraine over time, Russia had had heavily Russian influences in Crimea over time. But the reality is that they just wanted it because they have great access to the Black Sea.
Josh Robb:
The port.
Austin Wilson:
Yeah. It’s a great port. So Russia “annexed” it; but they invaded it as well, and took it over and made it essentially part of Russia, or under Russian control anyway, for their own benefit. So this has happened before.
Josh Robb:
Yeah.
Austin Wilson:
Ironically, this also happened, I believe, in another year of a Winter Olympics, during the Winter Olympics.
Josh Robb:
Oh, yeah.
Austin Wilson:
This has kind of all started during the Olympics this year.
Josh Robb:
Weird.
Austin Wilson:
I think eight years ago, it was also during the Winter Olympics. They did it again.
Josh Robb:
Weird.
Austin Wilson:
It’s so weird.
Josh Robb:
The idea of that is just, “Oh, that’s nice. I want that. I’m going to take it.”
Austin Wilson:
It’s 2022. Can we just go take things when we want them?
Josh Robb:
Yes, you can, apparently.
Austin Wilson:
That would be like, I’m not saying this is ever on the table, but that’s like the US going to a part of Canada, and being like, “Yeah, I want… That’s going to be… That’s now part of America again.” I’m like, “You can’t just do that.”
Josh Robb:
Yeah.
Austin Wilson:
So anyway, that is-
Josh Robb:
Or Cancun. “Yeah. We’ve got a lot of tourists there. We’re going to take Cancun and call it ours.”
Austin Wilson:
Or Cuba.
Josh Robb:
Ooh. Annex it.
Austin Wilson:
That’s pretty close to Florida, come on.
Josh Robb:
Yeah. It’s right there.
[6:46] – Outside Impact
Austin Wilson:
All right. So let’s talk about some impacts. So first off, Russian stocks have sold off like 50 some percent.
Josh Robb:
Yes.
Austin Wilson:
Actually they closed their stock market, in fears that it would trade down further.
Josh Robb:
To stop trading. Yeah. They said, “No, we’re done.”
Austin Wilson:
So Russian stocks have stalled off, as the economic uncertainty of a completely unnecessary war is factored into asset prices. Stocks hate uncertainty. There’s a lot of uncertainty there.
Josh Robb:
Not just US stocks.
Austin Wilson:
Not just US stocks, global stocks. Russian bonds, they’ve sold off, as the higher chance of Russian default is high. Because if the government does not have access to money, which we’re going to talk about soon, and their economy is not doing well. And they’re spending a bunch of money on a war that doesn’t need to be.
Josh Robb:
Default.
Austin Wilson:
They could not have the money to pay their debt obligations. So Russian bonds have sold off. What does that do to interest rates? It sends them up.
Josh Robb:
Interest rates go up when bond prices go down.
Austin Wilson:
Ironically, we’re going to talk about it in a second, their ruble, the Russian currency is called the ruble.
Josh Robb:
Ruble.
Austin Wilson:
It’s just fallen like pieces of ruble in value. Again, because of the uncertainty, and people are very fearful that the value of the country’s reserves, especially in light of the global Central Bank disconnection, which we’re going to, again, we’re going to talk about; that has really devalued the currency there. And a lot of what’s going on is that that’s going to cause, the value of their currency is lower, that’s going to cause really high levels of inflation. So what did the Russian Central Bank do over the weekend, the last weekend of February? They increased their overnight lending rate to banks from 9.5%, which is very high.
Josh Robb:
Ooh. That’s high.
Austin Wilson:
Because considering ours is zero.
Josh Robb:
Zero.
Austin Wilson:
To 20%, overnight.
Josh Robb:
So they’re charging banks 20% for the overnight holding of the assets.
Austin Wilson:
Lending. Yeah. Yeah. So lending, yeah. It’s pretty rough.
Josh Robb:
So they’re just slowing down inflation, is what they’re doing here.
Austin Wilson:
That’s exactly what they’re doing.
Josh Robb:
Yeah. I gotcha. It’s really just, they said, “Oh yeah, we’re going to raise our overnight lending rates for inflation.”
Austin Wilson:
Yeah. And people have actually been making runs on banks to get their money out of banks, trying to get it into dollars if it all possible, because dollars are a lot more stable. And that’s only further devaluing the currency, as they’re having to sell the ruble in its devalued state, further devaluing it.
[8:48] – Cryptocurrency’s Role
Josh Robb:
Now, cryptocurrency, we’ve talked about this in the past.
Austin Wilson:
Oh, yeah.
Josh Robb:
One of the arguments for cryptocurrencies is decentralized, not affiliated with governments type of thing. Now, how can that play into all this?
Austin Wilson:
Yeah.
Josh Robb:
I know that there’s limitations in Russia; the government has put on limitations.
Austin Wilson:
True.
Josh Robb:
And again, if you’re buying things using the local currency, you can only do so amount of trades per day in that currency. And so, it’s not like you can quickly move your wealth, even into a digital currency, which is still volatile.
Austin Wilson:
Oh yeah.
Josh Robb:
But you don’t have to have that fear of your hard currency.
Austin Wilson:
Yes.
Josh Robb:
They just can’t do that quickly.
Austin Wilson:
Actually, both Ukraine and Russia have restrictions on cryptocurrency. Ukraine actually prior to some of their more recent restrictions, was like the number three adopter of crypto in the world.
Josh Robb:
Oh wow.
Austin Wilson:
But I think that’s gone down a little bit as of late.
Josh Robb:
Yes, it has.
Austin Wilson:
But Russia, they have strict rules on how much and what, and all the stuff you can do. So that puts a little bit of a kibosh, I love that word. On citizens actually taking rubles, effectively, and turning it into something else to being able to transact. And that is not necessarily good for citizens, because they’re watching the value of their Russian rubles.
Josh Robb:
They can’t do anything about it. They can’t-
[10:04] – People Impact
Austin Wilson:
They’re just stuck with them. Right? So that is kind of an issue that is happening as well. So then, when you talk about actual people impact, right? Because obviously, there is a war going on; there’s a people impact to this.
Josh Robb:
Yes.
Austin Wilson:
Russian people are protesting this war, and they literally, all over the country, there’s a big protest going on, because they feel that it’s a terribly stupid, stupid, unnecessary invasion. Right? These people’s economy, by no fault of their own, is going to tank. It’s going to tank.
Josh Robb:
Yep.
Austin Wilson:
It’s going to take years and years to recover. And a lot of lives are going to be lost, and people are wondering, “For what?” Right?
Josh Robb:
Yeah.
Austin Wilson:
“For what purpose?” And no one has an answer for that except for Vladimir Putin. And that’s kind of the issue of what’s behind all this.
[10:46] – Other Countries Response
Josh Robb:
Yeah. So, that’s kind of the underlying aspect, what’s going on. So the US, European Union, NATO, there’s some groups that are looking at trying to be involved with this, and there’s some limitations of what they’re willing to do.
Austin Wilson:
Yeah.
Josh Robb:
So let’s walk through that. What are some of the things we’ve seen other countries do as sort of sanctions on this?
Austin Wilson:
Yes. So there’s this international monetary movement group called SWIFT.
Josh Robb:
SWIFT.
Austin Wilson:
And I-
Josh Robb:
For how fast these transactions happened.
Austin Wilson:
And it actually isn’t that swift.
Josh Robb:
No. It’s horrible.
Austin Wilson:
Because it actually took place in sort of in the seventies.
Josh Robb:
Yeah.
Austin Wilson:
But what it actually does, is it facilitates the transfer of financial information across borders; and that helps the flow of money.
Josh Robb:
Being in our industry.
Austin Wilson:
Yes.
Josh Robb:
When one organization can communicate with another. So, if you are Schwab, and you’re communicating with TD Ameritrade, you have two different systems. They’re not necessarily compatible. This is set up to say, “Okay. We’ll help you guys communicate.”
Austin Wilson:
Wire. Yeah.
Josh Robb:
Yes. We’ll help you guys get your transaction done.
Austin Wilson:
Exactly.
Josh Robb:
All right.
Austin Wilson:
So, that is called SWIFT.
Josh Robb:
Yep.
Austin Wilson:
And most banks and financial institutions around the world are on this system, to be able to facilitate inter-country financial transfers and stuff like that, and information and stuff like that. Well, almost all banks… So, from the European Union, most of other countries in the world, have cut off SWIFT access to, I think all but two major Russian banks; so they are not able to do that-
Josh Robb:
To do anything.
Austin Wilson:
Yeah. To transact internationally, essentially; which means they’re only running on the assets that they have on hand. That’s not good. And a lot of that is ruble denominated, by the way, because it’s-
Josh Robb:
Getting devalued.
Austin Wilson:
And that’s getting devalued as well. However, a caveat is that oil companies, as of now, have not been affected by the SWIFT.
Josh Robb:
And there’s a reason for that.
Austin Wilson:
Because they want the flow of oil to continue.
Josh Robb:
Europe.
Austin Wilson:
Europe does.
Josh Robb:
The European Union.
Austin Wilson:
They need the oil.
Josh Robb:
Europe is like, “Hey, if you stop these transactions, we’re in the middle of winter, and we need some oil and energy.”
Austin Wilson:
Yeah. Yeah.
Josh Robb:
“We need natural gas.” Okay. Gotcha.
Austin Wilson:
So there’s also sanctions on a specific group of high-ranking people, which means that they pretty much can’t do anything with their assets. And they’re going to just… They probably don’t need access to money; they can do whatever they want. But all the people that are really close to Putin specifically, there are sanctions on them and what they are able or not able generally, to do with their assets as well.
Josh Robb:
How I picture this in my head, is there’s a person that follows these people around, and every time they pull their wallet out to buy something, they slap their hands.
Austin Wilson:
“No, no, no.”
Josh Robb:
They just slap their hand.
Austin Wilson:
Yep.
Josh Robb:
And knock the money out.
Austin Wilson:
Yep.
Josh Robb:
That’s really what’s happening.
Austin Wilson:
That’s exactly what’s happening, I think. So that is another group of sanctions. A couple of the impacts of this is oil prices.
Josh Robb:
Yep.
Austin Wilson:
Despite the flow of money for oil companies still being available for now, oil prices are going to continue to be high because of the uncertainty on the supply of oil coming from Russia.
Josh Robb:
Yeah.
Austin Wilson:
So that’s-
Josh Robb:
You mentioned the other big supplier is the-
Austin Wilson:
Middle East, essentially. The group-
Josh Robb:
Yeah. The group of-
Austin Wilson:
Yeah.
Josh Robb:
Yeah. All the, I don’t know what you call it.
Austin Wilson:
OPEC.
Josh Robb:
OPEC. Yep. That’s the word for it.
Austin Wilson:
Oil Producing Economic Countries.
Josh Robb:
Yes.
Austin Wilson:
Yeah. Like Putin.
Josh Robb:
But they have their own kind of problems, in that they can adjust their supply to some extent, but they’re running at pretty full capacity.
Austin Wilson:
Yeah.
Josh Robb:
They just upped their supply just recently.
Austin Wilson:
Yep.
Josh Robb:
So it’s not like they could just say, “Hey, we are only giving 50% that we…” They can’t offset-
Austin Wilson:
They can’t make up for it.
Josh Robb:
… what Russia is doing.
Austin Wilson:
Which puts supply down.
Josh Robb:
They could get some more, but they’re really just diverting it from somewhere else.
Austin Wilson:
Yep.
Josh Robb:
And readjusting.
Austin Wilson:
Yeah. So what this does, is it brings the overall supply available down; and the demand is still static, or growing, as the global economy recovers, which puts upward pressure on prices as we’ve just seen both Brent and WTI, two different ways to look at oil. But both Brent and WTI have crossed $100 per barrel recently. Now, they’ve pulled back a little since then.
Josh Robb:
That’s high. But Brent was telling me the other day that he thinks oil prices will-
Austin Wilson:
Brent was?
Josh Robb:
Yeah. Brent. So, yeah.
Austin Wilson:
Another impact of kind of what’s going on is there’s going to be a continued push to greener alternatives to make this not happen in the future.
Josh Robb:
Yeah.
Austin Wilson:
So if you’re using more even nuclear, which is ironic, because Chernobyl is in Ukraine.
Josh Robb:
Yeah. And I heard there’s… Yeah.
Austin Wilson:
And I’ve heard that their radiation levels have actually gone up since Russia took control of Chernobyl.
Josh Robb:
Yeah. They took it over.
Austin Wilson:
And the radiation levels have gone up since Russia got there.
Josh Robb:
I don’t know what that means.
Austin Wilson:
How does that happen?
Josh Robb:
They turned some switch on.
Austin Wilson:
What have they done?
Josh Robb:
They’ve been pushing buttons.
Austin Wilson:
Yeah. What have they done? But pushes for greener alternatives are going to be more in demand; so things like wind and solar and things like that, especially in Europe, because they’re more dependent on Russia. Even in the US, that is going to be a huge push. Because we, I don’t know if anyone really thinks about it, but over the last handful of years through administrative changes and stuff, we’ve become a little bit less fossil fuel friendly, in terms of approving pipelines to transfer oil and stuff like that.
Josh Robb:
We were exporters.
Austin Wilson:
We were a net exporter, and energy independent. Yep.
Josh Robb:
And now we’re-
Austin Wilson:
And that has since changed. Now we’re reimporting oil, and where are we buying some oil from?
Josh Robb:
Russia.
Austin Wilson:
We’re buying oil from Russia. So that puts us in a little bit of a spot as well. Now, higher oil prices as they are right now, is incentivizing our American oil companies to continue to explore and drill and bring new American oil online. So that’s good; and that supply and demand will eventually work itself out. But we are actually proposed to, if needed, send oil to Europe from us.
Josh Robb:
Yeah.
[16:07] – Why is the US Involved?
Austin Wilson:
So that actually could continue to put higher pressure on prices. So that is kind of where we are there. But the real question that I think we need to start with is, why the US has to be involved at all?
Josh Robb:
Yeah.
Austin Wilson:
Because in 1991, a great year, the greatest.
Josh Robb:
It’s a good year.
Austin Wilson:
It’s a good year. It is the year I was born.
Josh Robb:
You don’t say.
Austin Wilson:
In 1991, when the Soviet Union fell, Ukraine had the third largest nuclear weapon arsenal in the world.
Josh Robb:
That’s crazy.
Austin Wilson:
It did. The third largest, behind Russia and the US.
Josh Robb:
Yeah.
Austin Wilson:
Right?
Josh Robb:
Because we just got through that fun Cold War.
Austin Wilson:
Exactly. So when they wanted, when the Soviet Union fell, Ukraine was becoming independent, they signed an agreement that if they were to give up their nuclear arsenal, we, the United States and Europe specifically, would give them protection and support should they ever need it. So why does the US-
Josh Robb:
And Russia, too, I think was part of that deal.
Austin Wilson:
Yeah. That’s not necessarily helping right now, because they’re attacking them.
Josh Robb:
I know. I was just saying, they were there. They were saying, “We’ll help you, too.”
Austin Wilson:
Yeah. Yeah. So anyway, that is why the US is giving… Now we’re not necessarily sending physical troops to Ukraine right now.
Josh Robb:
Yep.
Austin Wilson:
We are sending more troops to Europe in general.
Josh Robb:
Poland.
Austin Wilson:
Sending things like Poland, things like Germany. We have bases and presence there. So we’re sending more troops there; not bazillions, but some. And we are sending support in the form of weapons and money and things like that to Ukraine, to do our help from that side.
Josh Robb:
Yep.
Austin Wilson:
Ukraine itself actually has more soldiers than Russia has brought into Ukraine. So, Ukraine is actually holding its own and defending itself. Now-
Josh Robb:
Do they still have an Air Force?
Austin Wilson:
They do have a limited Air Force.
Josh Robb:
Not much, comparatively.
Austin Wilson:
Some of it got exploded from Russia recently.
Josh Robb:
Yeah.
Austin Wilson:
But there are some Ukrainian fighter jets that are defending their-
Josh Robb:
But the size of their army; they have personnel, yes, but army size Russia versus Ukraine: tanks, equipment, airplanes. Yes. They need some help.
Austin Wilson:
And I imagine that most of their technology is Russian technology from 1990.
Josh Robb:
MiGs and all that.
[18:11] – China
Austin Wilson:
Yeah. Exactly. So that’s probably, they’re fighting Russian stuff with Russian stuff. That is why the US has to be involved. And I think it is worth pointing out that we have to talk about the elephant in the room, and that’s China.
Josh Robb:
China.
Austin Wilson:
We always like to talk about China.
Josh Robb:
Asian elephants, are they in China?
Austin Wilson:
Smaller ears.
Josh Robb:
Yeah. We talked about, I think I did… No, that was in our video, about the group that was traveling around, left the reserve.
Austin Wilson:
That’s right.
Josh Robb:
And it was just like-
Austin Wilson:
Yes.
Josh Robb:
Man. Trampled. I never found out what happened to them. They may have decided to turn around and go back. I don’t know. But they were just on a rampage.
Austin Wilson:
Crazy. Okay. So, “President,” using air quotes again.
Josh Robb:
Yes.
Austin Wilson:
Xi. He’s not really a democratically elected president, as we would assume. He’s in a-
Josh Robb:
How you pronounce that, Xi?
Austin Wilson:
Xi. Xi.
Josh Robb:
Xi.
Austin Wilson:
In a similar situation to Putin. So he says the US is fueling the fire of this conflict, and did so by encouraging Ukraine to join the EU and join, especially NATO. They’ve been a part of the EU, but joined NATO.
Josh Robb:
Yeah.
Austin Wilson:
Before the invasion for protection, which really put Vladimir Putin in a corner.
Josh Robb:
Because they’re in NATO.
Austin Wilson:
Seeing it as a threat. Yes. No.
Josh Robb:
Russia?
Austin Wilson:
No. Russia is not, and China is not.
Josh Robb:
But if they were in… If Ukraine was in NATO, then we would be obligated to-
Austin Wilson:
Defend and help.
Josh Robb:
Defend and push.
Austin Wilson:
Even though we already were.
Josh Robb:
Yeah. Okay.
Austin Wilson:
So, yes, Ukraine joining NATO made Ukraine all of a sudden a lot more threatening to Russia; and China says that Russia had no choice to do what… Than to do what they’re doing, which is all talk.
Josh Robb:
China.
Austin Wilson:
The real kicker here is that, should this Ukrainian invasion from Russia work out and be not stopped, what would that look like for China? Well, China could then think about doing the same thing with Taiwan.
Josh Robb:
Yeah.
Austin Wilson:
With Hong Kong.
Josh Robb:
Mm-hmm (affirmative).
Austin Wilson:
Which are two separate entities.
Josh Robb:
Yeah. But Hong Kong’s kind of like this hybrid weird thing now. Yeah.
Austin Wilson:
Exactly. But Taiwan, China calls Taiwan Chinese, and Taiwan says they’re independent.
Josh Robb:
Yeah. Like, “no, we’re our own.”
Austin Wilson:
So it’s like a square is a square, but a rectangle is not a square. You know what I’m talking about. So anyway, this could cause some drama in Asia, if this were to go unchecked, which is why it must be checked. Yeah. Oh, and another thing; if this continues and goes unchecked, this really will just lead Putin to be reinforced.
Josh Robb:
And what this does-
Austin Wilson:
Then he can do this with any other Eastern European countries you can think of: Slovakia and Latvia and Slovenia, and all these Eastern European country names that are fun to say. They can just think that’s the next target, because then they’re just creeping in on Europe.
Josh Robb:
Yep.
Austin Wilson:
Not good, man.
Josh Robb:
Slowly, silly.
Austin Wilson:
So that’s my opinion on what’s going on.
Josh Robb:
All right.
Austin Wilson:
I’m not pro-Putin, let’s just say that.
[20:42] – Dad Joke of the Week
Josh Robb:
Yep. So let’s take a break. I got a dad joke for you.
Austin Wilson:
I need it. I’m getting fired up.
Josh Robb:
Since we’re talking geopolitics, here it is. So I know this guy, he’s a dual citizen. Right? And so, he kind of tells me that, depending on where he is at in his house, he changes his citizenship. When he’s in the kitchen, he’s US.
Austin Wilson:
Yeah. He’s American.
Josh Robb:
When he’s in the living room, he is Canadian. And guess what he is in the bathroom? You already know, Austin, don’t you?
Austin Wilson:
He’s European.
Josh Robb:
He’s European.
Austin Wilson:
Oh, that never gets old.
Josh Robb:
Nah.
Austin Wilson:
That never gets old.
Josh Robb:
That’s where it’s at.
[21:15] – How is This Time Different?
Austin Wilson:
So let’s talk about why this time is different.
Josh Robb:
Yeah.
Austin Wilson:
Is this time different?
Josh Robb:
Yeah.
Austin Wilson:
I don’t know. One thing that’s new-ish is that Russia has placed a nuclear arsenal on high alert, as Ukrainian defense has actually been much stronger than anticipated.
Josh Robb:
He kind of thought he was going to roll through.
Austin Wilson:
Yeah. It didn’t exactly happen.
Josh Robb:
Because if I remember, in Crimea. Crimea? Crimea?
Austin Wilson:
Crimea.
Josh Robb:
Crimea.
Austin Wilson:
Yeah.
Josh Robb:
That it was pretty low.
Austin Wilson:
Yeah.
Josh Robb:
Low drama.
Austin Wilson:
It was in the distance.
Josh Robb:
Yeah. So yeah.
Austin Wilson:
And then on February 28th, President Biden said that, “Americans should not fear a nuclear war.”
Josh Robb:
Okay. So don’t fear that.
Austin Wilson:
Hopefully that will help. Hopefully that will ring true. But let’s talk about market performance during these situations, because this is not the first geopolitical situation we’ve had. It’s not going to be-
Josh Robb:
Nor will it be the last. Yep.
Austin Wilson:
So what happens? What’s normal? Volatility is extremely high.
Josh Robb:
Yep.
Austin Wilson:
We’ve seen that. There are days-
Josh Robb:
Now.
Austin Wilson:
Yeah.
Josh Robb:
Again, we’ve talked about this. Volatility is not down.
Austin Wilson:
Mm-mm (negative).
Josh Robb:
Volatility is movement.
Austin Wilson:
Absolutely.
Josh Robb:
And we’ve seen both up and downward movements. In fact, let’s see, what was that? Thursday was… The 25th and 26th, those were some of the best movements in the market we’ve seen.
Austin Wilson:
Yeah.
Josh Robb:
In quite a while.
Austin Wilson:
Oh, absolutely.
Josh Robb:
So volatility is movement in both directions.
Austin Wilson:
Yeah.
Josh Robb:
And you see that a lot. Historically speaking, some of the best days are close to some of the worst days.
Austin Wilson:
Absolutely.
Josh Robb:
So yes, high volatility.
Austin Wilson:
And one thing to keep in mind, is that there are days and weeks when the market is very disconnected from reality. In fact, it’s kind of like we saw in 2020; we’re getting the worst, COVID. So in March of 2020, March 20th was the bottom.
Josh Robb:
Yep.
Austin Wilson:
From that point on, we were getting some of the worst COVID news we had seen to that point. Right?
Josh Robb:
Mm-hmm (affirmative).
Austin Wilson:
What did the market do?
Josh Robb:
It was going up.
Austin Wilson:
The news kept getting worse and worse.
Josh Robb:
And it’s going up.
Austin Wilson:
And the market just bounced off like a trampoline.
Josh Robb:
Yeah.
Austin Wilson:
And so, it’s not uncommon for these volatile times, to have a very big disconnection from market to reality.
Josh Robb:
Well, part of that is because they’re forward-looking.
Austin Wilson:
They are very forward-looking.
Josh Robb:
So you price in some of this stuff. So even though the news shows up, the market may have already priced that in.
Austin Wilson:
Yeah.
Josh Robb:
And it’s looking forward to what’s next.
Austin Wilson:
And that’s why a lot of strategists, because this has happened before, you can look at it in various scenarios. A lot of strategists actually think that sometimes you can time the invasion day as potentially the bottom. Even though the actual war or disagreement is going to get worse for a little bit-
Josh Robb:
Yeah. Right said.
Austin Wilson:
The market has, at that point, priced in most of the bad news. And from that point on, could, not always, but could get a little bit better from there. Another thing to point out is these things often fizzle out in weeks or months. They don’t necessarily all… Unless it becomes a World War.
Josh Robb:
Yeah.
Austin Wilson:
They don’t last for years. So that is something to keep in mind. And like you had mentioned, yes, when you’re going through some of these crazy volatile days now; it’s big moves up, big moves down.
Josh Robb:
Yep.
Austin Wilson:
The market’s best days, they’re often following the worst days. So, that’s one of the reasons which we’re going to talk about, why you really shouldn’t be selling when things are choppy like that.
Josh Robb:
Yep.
[24:13] – What to do in Uncertain Situations
Austin Wilson:
So Josh, talk a little bit, from your perspective, on what to do and what not to do during these uncertain situations.
Josh Robb:
Yeah. Like you just said, don’t panic sell.
Austin Wilson:
No.
Josh Robb:
Sell if you need cash.
Austin Wilson:
Yeah.
Josh Robb:
But don’t sell just because you’re scared.
Austin Wilson:
Yeah.
Josh Robb:
And that’s part of having a plan, having a purpose, having a strategy, is to say, “All right. This is why I’m invested in the way I’m investing.” And so, don’t make adjustments if they’re not needed.
Austin Wilson:
Yep.
Josh Robb:
Definitely don’t try to time the market, because one, like you said, it could get disconnected.
Austin Wilson:
Oh, yeah.
Josh Robb:
You could say, “I know it should be doing this.” And it may not do that.
Austin Wilson:
Exactly.
Josh Robb:
You have to be perfect in getting out and getting back in; and that’s a very hard thing to do. And so, timing the market is just not a thing to do.
Austin Wilson:
Yep.
Josh Robb:
Short-term volatility, which is what we’re talking about here, is a normal part of investing.
Austin Wilson:
Yeah.
Josh Robb:
This is a unique reason for it, but there’s always a unique reason for it. If you pull up any stock chart, and overlay that headline news, there’s always a reason for volatility. And so, don’t let short-term volatility direct how your asset allocation is set up. Your asset allocation should be set to go through short-term volatility.
Austin Wilson:
And if you have questions about that, talk to your advisor.
Josh Robb:
It’s a great thing to do.
Austin Wilson:
Always talk to your advisor.
Josh Robb:
They’re always ready to talk to you.
Austin Wilson:
That’s right.
Josh Robb:
They’re there, really to help you before you try to make that panic decision.
Austin Wilson:
Right.
Josh Robb:
And if you have cash, the markets are down.
Austin Wilson:
Yeah.
Josh Robb:
And so, who knows when the bottom is. Don’t try to time it.
Austin Wilson:
No.
Josh Robb:
But if you have cash, and the markets are down, it could be a good opportunity.
Austin Wilson:
Yeah. You get good business advice.
Josh Robb:
If you’re worried about timing it, then average it in, because over the long run, getting the money is more important than timing.
Austin Wilson:
And technically speaking, the S&P 500 is officially in correction.
Josh Robb:
We’re in a correction, which is 10% down.
Austin Wilson:
10% down. The NASDAQ is near bear market.
Josh Robb:
It hit one intra day.
Austin Wilson:
Yeah. And never closed-
Josh Robb:
A week ago.
Austin Wilson:
It was really close.
Josh Robb:
Yep.
Austin Wilson:
I think something to keep in mind is we’ve had years of good returns, like 20 plus percent returns. Now that’s not normal. Right?
Josh Robb:
Right.
Austin Wilson:
8-10% is normal.
Josh Robb:
Yep.
Austin Wilson:
These big returns that we’ve had, have not been normal. We were already due for a pullback; and this kind of was a catalyst to get us there. This, along with the inflation, Federal Reserve discussion; these were the catalysts that got us to that correction that we were looking for. And that’s a very, very healthy thing; because what markets do is they overcorrect when things get bad.
Josh Robb:
It’s like a pendulum.
Austin Wilson:
They swing to one side.
Josh Robb:
Swing left.
Austin Wilson:
Then they overcorrect when things get good, to the upside.
Josh Robb:
Yep.
Austin Wilson:
And then they have to correct back down to a more normal-
Josh Robb:
Then it sits back for a while.
Austin Wilson:
… long-term trend. So, it’s not unusual, and we have been overdue for some sort of correction from a technical perspective for a while.
Josh Robb:
Yep.
[26:40] – How Could You Capitalize on These Geopolitical Situations?
Austin Wilson:
So the question is-
Josh Robb:
Yes.
Austin Wilson:
How could, now I’m not saying you should, because again, talk to your advisor. Every situation is different. But what are some ways that you might be able to capitalize on some of these geopolitical tensions?
Josh Robb:
Now these are not-
Austin Wilson:
Not recommendations.
Josh Robb:
Not recommendations.
Austin Wilson:
No. Yeah. Yeah. Do your own due diligence on some of these. But these are ideas of ways that have historically done okay during times of geopolitical turmoil. Not saying they will, there’s no guarantee of future results based on historical ones, but these are some ideas. So, individual stocks like in the areas of defense, defense names, defense contractors like Lockheed Martin, Boeing, L3Harris Technologies, Northrop Grumman; these defense names, because of militaries buying equipment and things like that-
Josh Robb:
Contracts for militaries. Yep.
Austin Wilson:
Those have historically done well during these times of geopolitical tensions. You can also access these through ETFs like the iShares US Aerospace and Defense ETF, the Invesco Aerospace and Defense ETF, and the SPDR S&P Aerospace and Defense ETF.
Josh Robb:
And none of those have fun tickers, so that’s why we possibly didn’t say them.
Austin Wilson:
No, I didn’t even read the tickers.
Josh Robb:
None of them are fun.
Austin Wilson:
They’re not fun. Other ways, now these are more unconventional; I would use them as alternatives to equities. Things like gold are typically viewed as a safe haven during times of turmoil in this area. And gold has done well during this uncertainty. And bonds, bonds are viewed as an area of safety as well.
Josh Robb:
That’s right.
Austin Wilson:
Specifically, United States bonds.
Josh Robb:
Yeah.
Austin Wilson:
Risk-free United States bonds. Now you’re not going to get much for them, but-
Josh Robb:
They don’t have the volatility.
Austin Wilson:
Exactly. So those are more anti-stock ways to get a little bit of this. Some people are saying that crypto is the answer in areas like this, but it’s really… It has not worked out to be that way.
Josh Robb:
Yeah. It’s volatile.
Austin Wilson:
Crypto has been extremely volatile. And when people are in a risk off mood, where stocks are notably risky asset class; they’re already selling stocks, they’re not selling stocks to go buy crypto.
Josh Robb:
No.
[28:47] – What Should You Do During Geopolitical Tensions?
Austin Wilson:
So, if you’re in a risk off environment when things are choppy, people need to understand that crypto is going to be extra volatile during that time and may go down also with stocks. So then, Josh.
Josh Robb:
Yes?
Austin Wilson:
The big question.
Josh Robb:
Yeah.
Austin Wilson:
Are you ready for it?
Josh Robb:
I’m ready.
Austin Wilson:
Do you know what I’m going to ask?
Josh Robb:
I know my answer even before you ask.
Austin Wilson:
Should you buy stocks during geopolitical tensions?
Josh Robb:
It depends.
Austin Wilson:
Okay. Should you sell stocks during geopolitical tensions?
Josh Robb:
That also depends.
Austin Wilson:
So what should you do?
Josh Robb:
You should have a plan in place, and you should stick to your plan.
Austin Wilson:
Yeah?
Josh Robb:
So, should you buy stocks? Yeah, if that fits in your plan, and you have cash coming in. Yeah. Should you sell stocks? Yeah. If that fits with your plan, and you have cash needing to go out. But really, what it comes down to is there’s always going to be uncertainty, whether it’s geopolitical stuff, whatever. Your plan needs to be set up in a way where you can stick with it and reach your goals, regardless of those things around it. So, what should you do? Is talk to your advisor and stick to your plan.
Austin Wilson:
And speaking of that plan, check out our free gift to you. It’s a brief list of Eight Principles of Timeless Investing. These are overarching investment themes, meant to keep you on track to meet your long term goals, even in the midst of geopolitical turmoil.
Josh Robb:
Yep.
Austin Wilson:
So check it out. It’s free on our website. And Josh, how can people help us to grow this podcast and help lots of people?
Josh Robb:
Yep. Make sure you subscribe; that way, every Thursday you get it downloaded straight to however you listen to podcasts. If you have any questions, thoughts, or concerns, shoot us an email at hello@theinvesteddads.com, and make sure you share the episode with your friends and family.
Austin Wilson:
And a new thing that we would love, is if you would subscribe and give us a rating on Spotify.
Josh Robb:
Ooh, Spotify.
Austin Wilson:
Because we have a lot of listeners who utilize Spotify as their preferred podcast platform. So go ahead and give us a listen, a follow.
Josh Robb:
More people, more ratings.
Austin Wilson:
Yeah. That’d be great. Well, until next week, have a good week.
Josh Robb:
Talk you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you joined this episode, and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guest are solely only their own opinions, and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only, and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecast provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
