A recent Goldman Sachs commentary wondered if the Chinese year of the Tiger would really be the year of the Hawk as the Federal Reserve was expected to raise rates aggressively. There is another hawk issue now – war in Ukraine. Social media is beaming the war straight to the phones in our pockets. The overflow of information is proving correct the adage that “the first casualty of war is the truth”. It’s unproductive for us to speculate on possible outcomes or opine on what public policy should be. We pray for peace.
We do know that the war is putting upward pressure on energy prices. 40% of Europe’s natural gas comes from Russia and 30% Europe’s energy imports flow through Ukrainian pipelines. Sanctions are hitting Russia’s financial centers, but energy has been left alone for now.
The Federal Reserve finds itself in a pickle. US equity markets are in correction territory. A global flight to the safety of US Treasury securities is pushing yields down. Inflation is already high while energy prices rise and equity market volatility is heightened. Expectations for aggressive rate hikes (7, 8, or even 9) are mostly off the table. The markets now anticipate a 25 basis point hike in March instead of 50 basis points. This is another area where trying to predict what will happen is counterproductive. The time between now and the Fed’s decision on March 16th will feel longer than usual. Anything can happen.
Countering the frenetic news cycle, Warren Buffett’s annual letter to Berkshire Hathaway shareholders has been published. As always, it’s worth reading. This year’s letter reminds us to never bet against America, luck plays a role in everything, and you don’t have to work with jerks.
We are seeing increased financial product sales pitches which makes it a good time to dust off this Warren Buffett quote: “The stock market is a no-called-strikes game. You don’t have to swing at everything – you can wait for your pitch.” He went on to say that the problem with this is that your fans keep yelling, “Swing, you bum!”. Even Warren Buffett has a hard time laying off pitches.