We awaken this morning to a new level of global aggression from at least one nation that has been an enemy of this country since the end of World War II. The invasion of Ukraine by Russia is serious in its own right because it is attempting to overpower the will of the Ukrainian people who, by democratic election, voted for their independence and appointed governmental representation. This will of the Ukrainian people is now being overpowered by Putin and his posse.
Our deeper concern is whether this will usher in some coordination with China to invade Taiwan or indirectly embolden the Chinese CCP/Xi/Chinese military to proceed to attempt to take over Taiwan at this point in history.
There is an investment adage which, if Ukraine is an isolated situation probably will hold true which is “Sell the Build-up, Buy the Invasion. “.
As we are seeing this morning, the stock market today will sell off. Bonds will rally and commodities appear to be strongly rallying.
We are, fundamentally, buyers of this weakness. I use the adverb because of the risk of a coordinated action between both China and Russia to secure territories they desire by military force in the wake of an impotent response from NATO countries. As a result, where we might have been aggressive buyers on weakness, we will take more measured steps as this situation unfolds.
Ukraine and Russia are important from the standpoint of natural resources and the world needs those natural resources. We can attempt to be carbon neutral, but achievement of this objective cannot come at the expense of turning off those fossil fuel resources until replacement infrastructure is in place.
The reason that Taiwan is so important is that Taiwan produces the vast (70-90%) of the world’s semiconductors. Control Taiwan and you control this computerized world-weapon systems, industrial production, logistics and delivery, and your thermostat. While the Ukrainian invasion will impact energy prices, a Chinese invasion of Taiwan has much greater implications because while we can replace energy resources domestically, we do not enjoy that capability in semiconductors for several years.
Historically, since the end of WWII, invasion related market declines are excellent stock buying opportunities. Looking forward, we believe that this trend should continue but the seriousness of Ukraine in the context of emboldening China’s aspirations to take over Taiwan cannot be underestimated. As I mentioned above, this will require some additional caution, in our view. As you know, we are generally counterintuitive investors, and we look to these periods of market disruption as opportunities to be used constructively.
As always, we are here to discuss any specific questions or concerns you may have through this period of market disruption.