In the midst of the Covid pandemic there was little to no hope. It now feels like eons ago we were waking up to perpetual sinking prices across the board and new investors were learning firsthand about ‘circuit breakers’ or a method by which markets halt in order for buyers and sellers to take a deep breath. Think of this like a time out during an intense last few minutes of game time. It was almost impossible to consider a positive outcome to a global pandemic and markets discounted this – at one point taking the S&P down 35% at its lows. The panic and fear were as heightened as I’d seen it since 9/11.
As I sit at my computer observing the current landscape, the outlook feels very similar. As we watch a war play out in real time while facing the collateral damage of rising prices at home, it definitely feels as if the future is dark and beyond uncertain. In fact, this morning as I write, oil is soaring to new highs above $125, which will quickly translate to even further elevated gas prices. The threat of nuclear war is enough to shake even the most optimistic and while the S&P is now down 10% for the year, the action feels as if we’re down a gazillion with no hope in site.
While I, nor anyone, have absolutely no idea how this will play out, what I can say for certain is that eventually it will pass, and we will move on from here concerning ourselves with something else. If there is one thing I’ve learned over my 20 years in this business, it’s that buying into doom and gloom or the idea that America will somehow no longer progress with strong businesses and incredible opportunities is a terrible investment strategy.
While wide-eyed optimism may be cute, let us play out some practical scenarios.
At some point Ukraine will either fall into Russian hands or they will prevail. Either way, this will result in a new scenario that has to be dealt with by the world. While this transpires, Russia itself has been absolutely crippled economically and will have to spend years dealing with the consequences of their actions. There is a real possibility that Russia takes over Ukraine and attempts to govern through hostility, all the while trying to rebuild their own economy.
Of course, the great concern is that NATO, and therefore the US, will be drawn into another war. While I am surely not alone in not wanting this outcome, it is a possibility and therefore something that must be considered. In this scenario we will see a rapid shift back towards military spending, contracts and industrial output to support the war. Despite what some economists will tell you, our involvement in World War 2 was, in my opinion, the catalyst that ended the great depression.
Regardless of the scenario, this recent conflict has brought our energy policy back in focus front and center. It matters not how you lean politically, there is no question we cannot be reliant on foreign oil as it becomes much more than just a price issue but rather a matter of national security. As we roll into mid-term election season, I can’t imagine the current administration isn’t rethinking their stance on this and will ultimately be forced to make concessions.
Despite the current decisions regarding oil, our output, drilling, pipeline development or the like, you can be sure that while we deal with the immediate pricing pressures, our long-term focus will be firmly placed on advancing alternative energy. Whether you believe in its application or not, this will be a massive investment opportunity as we see tax breaks, direct subsidies and innovation take center stage. America cannot handle oil prices over $100, and I believe this will force change and therefore provide opportunity.
In summary, my goal in writing this piece is not to minimize the concern regarding this conflict but rather to relay just how important it is to remain openminded towards the future. At some point we will look back on this and the opportunities will have seemed so obvious; however, during the chaos it’s always difficult to envision a brighter future. Allow me to be the one to remind you that it is out there, and it will be realized.
Our portfolios have plenty of cash and are positioned well for this current volatility. I firmly believe we’re getting close to a point where we will look to put some capital back to work. I know I’ve said this to you in meetings that when the time came to do this you would not want to. The old adage of buying when others are panicking is so easy to say but extremely difficult to do when the time comes. We’re not there just yet but it is coming soon.