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Weekend reading: Russia goes to zero

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What caught my eye this week.

When it comes to collateral damage from the tragedy in Ukraine, investors in Russia can only come near the bottom of the sympathy list.

But Monevator is an investing site. And the tumult in Russian assets since the war began is one for the ages.

Russia’s stock market was kept closed all week. But that didn’t save its key constituents from a furious reckoning of price discovery on foreign exchanges.

As war and its repercussions unfolded, Russian stocks were smashed.

Invasion-day alone saw the fifth-worse plunge of all-time for the Russian equity market, in local currency terms.

It only got worse from there.

From Russia with Love

As CNBC reports:

Russia’s London-listed stocks had lost almost all of their value by the time [their] suspension was announced on Thursday.

Sberbank was down 99.72% year-to-date to trade for around a single penny on Wednesday, while Gazprom was down 93.71%, Lukoil 99.2%, Polyus 95.58%, Rosneft 92.52% and EN+ 20.51%.

These are giant firms getting roiled.

True, their foreign-listed holdings might be being treated with especially extreme prejudice.

For newly-minted legal and regulatory reasons as well as – for want of better words – moral or PR ones, Russia is now untouchable for many investors.

Norway’s giant sovereign wealth fund has written-down its Russian holdings by more than 90%, for example. The manager warned: “it might be that they are essentially worthless at some point.

Happen to have some Russian share certificates under your bed? I wouldn’t look forward to an overnight bounce when (if) Moscow reopens. Not unless this invasion ends very soon.

That’s because we’re seeing economic warfare on a Francis Ford Coppola scale.

Russia is on the fast-track to Pariah status. (And I’ll say it again: I feel sorry for ordinary powerless Russians getting ruined by a despot).

Casino Royale

Already owning companies based in a gangster’s paradise was one thing.

But what if you waited until this week before plunging into massively devalued Russian securities?

After all, a Russian Warren Buffett might say: “Bud’te zhadnymi, kogda drugiye boyatsya, i boytes’, kogda drugiye zhadnichayut.”

(Be greedy when others are fearful, courtesy of Google Translate).

Well I wouldn’t recommend betting on Putin’s autocratic nuclear-armed superpower with more than pin money. For economic reasons let alone moral ones.

Ethical squeamishness aside, you might argue owning a Russian ETF is ‘option money’ on Putin getting ousted. Preferably by someone more humanity-friendly.

Okay, but then there’s the problem that Russian ETFs went batshit crazy (a technical term) this week.

Live and Let Die

As reported in the Financial Times [search result]:

The $446mn VanEck Vectors Russia ETF (RSX) closed on Tuesday at $8.26, a 177 per cent premium to its net asset value of $2.98 a share.

Similarly the iShares MSCI Russia ADR/GDR Ucits ETF (CSRU) closed at $28, 59.7 per cent above its NAV of $17.53.

However, most Russia-focused ETFs have plunged to sharp discounts, with the $165mn iShares MSCI Russia ETF (ERUS) and iShares MSCI Eastern Europe Capped UCITS ETF (IEER) both closing at discounts of 50-60 per cent to NAV.

The fact the Russian market is closed isn’t as fatal to Russian ETF trading as you might imagine.

ETFs can still act as a means of price discovery during market dislocations.

We saw that in the bond market, for example, during the Covid crash.

High-yield ETFs apparently veered from their ‘known’ value when the market froze. But when it thawed they were roughly right about real underlying value.

However there are extra snags with Russian ETFs.

The FT continues:

…owing to the sanctions imposed on many Russian companies after the invasion of Ukraine, the closure of the Moscow stock exchange, capital controls and some ETF issuers’ unwillingness to increase their exposure to Russian securities, many Russia-focused ETFs have halted the creation process and sometimes also the redemption process, causing the arbitrage mechanism to break down.

Ouch.

I am not an expert on ETF plumbing but Dave Nadig is:

  • Russia: how broken markets work with ETFs – ETF Trends

Skyfall

Wondering how quickly you can lose money when political risk goes 83.59% against you?

Here’s the London-listed iShares Russian ETF (ticket: CSRU) over the past month:

Grim by any stretch. But it’s actually even worse than this!

As per the iShares website, the last recorded NAV1 of CSRU was barely $7. It could be trading at more than three times what its assets are really worth.

The iShares site warns:

Effective March 3, 2022, the Fund has temporarily suspended new creations and redemptions of its shares until further notice […]

Effective March 4, 2022, secondary market trading in the shares of the Fund has been suspended by Deutsche Börse, Euronext and Borsa Italiana.

The Russian stock market was shut for 75 years following the Bolshevik revolution in 1917.

Fair warning to any ambitious long-term investors reading this.

The World is Not Enough

Active and hedge funds with big exposure to Russia have faced all kinds of damage, obviously.

There have been suspensions, too. Here your money is locked into a fund for an unknown period. Outfits as diverse as BNP Paribas to the UK’s Liontrust have suspended trading in Russian funds.

The vast majority of passive investors haven’t done too badly. Emerging market index funds had less than 5% in Russia when this all got going.

Of course losing an entire country overnight is still a nasty hit. And given that MSCI and Dow Jones are now pulling ‘uninvestable’ Russian stocks from their indices, holders of passive funds tracking such indices probably can’t expect a bounce from Russian stocks from any future recovery.

Incidentally, I’ve noted the Freedom Emerging Markets ETF before in Weekend Reading. This ETF tracks an alternative emerging markets index. It screens out the likes of Russia and China.

Unfortunately it’s a US-only product. Maybe that will change now?

As Humble Dollar wrote this week, going without autocrats needn’t be bad for your wealth:

Since inception in May 2019 through February, the fund is up 39%, outperforming Vanguard’s emerging markets index fund, which is up 30%, and iShares Core MSCI Emerging Markets Index Fund (IEMG), up 29%, and it’s even further ahead of the big fundamental-weighted funds mentioned above.

Quantum of Solace

As an active investor I had no exposure to Russia, fortunately, when Putin decided to do the worst retcon in recent history.

However plenty of other stocks have been smashed. Some European banks are down more than 25% on Russian exposure fears. We’ve all taken our lumps I’m sure.

And any of it pales into insignificance compared to Russian missiles raining down on your city. Let alone aggressive taunts concerning nuclear weapons.

Have a safe weekend wherever you are.

From Monevator

Snapshots from the front line of economic warfare – Monevator

Social care funding: how your house, pension, and savings are means-tested – Monevator

From the archive-ator: Gilts: UK government bonds – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

Gas prices hit new record sparking fears over bills – BBC

UK petrol hits new high of 151.67p per litre – Guardian

Price of first-class stamps to rise 10p to 95p – BBC

US jobs growth surprisingly strong in February, and wages were flat – CNBC

We’re definitely in that once-a-decade moment where you wished you’d diversified into commodities [I didn’t] – Google Finance graph of WisdomTree Broad Commodities ETC

Products and services

Here’s how to donate to Unicef’s Ukraine campaign – Unicef

E.On’s one-year fix for energy sells out amid cost-of-living fears – Guardian

Time-limited offer: open an account with InvestEngine via our link and get £25 when you invest at least £100, PLUS additional cashback when you invest £1,000 or more in an ISA (new customers only, T&Cs apply) – InvestEngine

Property start-up Boomin claims four new features over rivals – ThisIsMoney

The cheapest mortgage rates revealed – Which

Solar panels: a ray of hope as energy bills go through the roof – Guardian

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

Georgian homes for Bridgerton fans, in pictures – Guardian

Comment and opinion

Tennis lessons – Fortunes & Frictions

Which BTL landlords were hit hardest by the tax changes? – ThisIsMoney

Retirement income: six strategies – Enterprising Investor

Safe investing at a time of uncertainty – Portfolio Charts

The next 30 years – Michael Baker

Why diversifying your portfolios is getting harder [US but relevant]Morningstar

Should talking about money remain the last taboo? – Humble Dollar

The financial realities of death and aging [Podcast]Standard Deviation

When can I be as rich as Batman? [Fun tool]When Can I Be Batman?

Lessons unlearned – Humble Dollar

Crypt o’ crypto

Financial Conduct Authority investigated 300 UK crypto firms last year [Search result]FT

Naughty corner: Active antics

30 trusts that could have made you an ISA millionaire [Starting 1999]IT Investor

Warren Buffett’s 2021 annual letter… [PDF]Berkshire Hathaway

…and lessons from this latest Berkshire letter – Novel Investor

Ukraine-Russia

Unexpected – Indeedably

UK dockers refuse tanker of Russian gas – BBC

Ukraine AirBnBs being booked to get money to residents – Guardian

A curated feed from credible Twitter sources on the conflict – via Twitter

Five reasons the sanctions are working – Full Stack Economics

Martin Wolf: the conflict is between tyranny and liberal democracy [Search result]FT

Finding an off-ramp for post-Putin Russia – Noahpion

Why you shouldn’t wish for a full-on Russian economic calamity – The Atlantic

College kid’s Twitter bot that stalks Musk’s jet is now tracking Russian oligarchs  – Ars Technica

How the Russian invasion is playing out on Wikipedia… – Slate

…and on Russian TV – BBC

Ken Rogoff: the ‘peace dividend’ is fading – Guardian

Sanctioned oligarchs and Bitcoin – ThisIsMoney

How dangerous was Russia’s attack on a nuclear reactor? – BBC

Precedented times – Young Money

Kindle book bargains

Hacking Growth: How Today’s Fastest-Growing Companies Drive Breakout Success by Sean Ellis and Morgan Brown – £0.99 on Kindle

The Almighty Dollar: Follow the Incredible Journey of a Single Dollar to See How the Global Economy Really Works by Dharshini David – £1.89 on Kindle

Invisible Women: Exposing Data Bias in a World Designed For Men by Caroline Criado Perez – £1.99 on Kindle

Posh Boys: How English Public Schools Ruin Britain by Robert Verkaik – £0.99 on Kindle

Environmental factors

Plans to extend the ULEZ to all of London by the end of 2023 – ThisIsMoney

ESG and alpha: sales or substance? – Institutional Investor

Why electric car prices are about to plummet – Sky News

Off our beat

The Good Old Days are happening now – Raptitude

How to get rid of almost everything [Some US detail, but good]The New Yorker

Long Covid may reawaken interest in EBV, the ‘everybody’ virus – The Atlantic

The two worlds – Prime Cuts

And finally…

“Even short commutes stab at your happiness. According to the research, commuting is associated with an increased risk of obesity, insomnia, stress, neck and back pain, high blood pressure, and other stress-related ills such as heart attacks and depression, and even divorce.”
– David Hansson, Remote: Office Not Required

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{ 46 comments… add one }
  • 1 William March 5, 2022, 9:58 am

    Kindle book journey of a dollar actually £1.89 on Kindle as of Saturday 5 March.

  • 2 The Investor March 5, 2022, 10:14 am

    @Willian — Aha! Who doesn’t like a 20p price cut on a Saturday morning. 🙂

    Thanks, I’ve updated it now. The others seem unchanged.

    Slim pickings on the £0.99 investing and finance front right now.

  • 3 hosimpson March 5, 2022, 11:19 am

    The article from Full Stack Economics got me thinking.

    “ When the tanks start rolling, only the physical balance sheet matters.”

    Perhaps this could also be true to some extent when I think of future-proofing my FIRE. Replace tanks with inflation / financial / non-financial shock, and there might be a case for getting that maybe-later house extension / landscaping project / new car / solar panels / etc / etc sorted before pulling the plug.

    I have reasons to believe the readers of this site spend an above-national-average amount of time looking at spreadsheets and modelling-slash-simulating SWRs 😉 , but perhaps we should add an extra step to our early retirement plans where we, being financially independent and ready to retire, spend two years’ earnings on building a sort of a physical war chest – replace old laptops and tellies, boilers, carpets, get a new kitchen and a new roof.

    Thoughts?

  • 4 Jam March 5, 2022, 11:28 am

    A good read, thanks.

    The start of a new tax year, which isn’t that far away, is the time I normally rebalance back to my target allocation. That normally means being out of the market just for a few days due to the settlement of the funds. I am just starting to think about this now, but might have push that back until later in the year in the hope the markets are less volatile. Although worrying about how to optimise my portfolio feels so wrong at a time like this, but it is one of the few things I can control in a world gone mad.

    p.s. Like the James Bond theme, but it is ‘Live And Let Die’.

  • 5 Neverland March 5, 2022, 11:43 am

    This idea that Russia is isolated is total rubbish

    They still have intact trading links with China, India and many other countries

    Just China and India together are close to a third of the worlds population

  • 6 BuildBackBetter March 5, 2022, 12:06 pm

    Once in a decade moment to go short on commodities now?

  • 7 BuildBackBetter March 5, 2022, 12:14 pm

    @Neveland, good point. Most people in the West still think Asia is just a rounding off number, including Monevator.

    China has already agreed a cut price deal for gas with Russia. Only a matter of time for India and other oil importing Asian nations.

    The recent CS leaks can be easily forgotten. Swiss and European banks were eagerly helping African and Asian dictators launder their looting. Now the European countries are surprised that those countries are indifferent to the Russian invasion.

  • 8 The Accumulator March 5, 2022, 12:28 pm

    @ hosimpson – I completely agree – and if you’re not sure what to spend it on in the short-term you could also think of it as a reserve fund.

    I did exactly what you suggested but completely underestimated the inflation monster. Ah well. It doesn’t matter much at a time like this.

  • 9 Old_eyes March 5, 2022, 1:13 pm

    @hosimpson

    Absolutely! That is what I have done/am doing.

    Looked around at the needs of the house, and anything that could be done now with a reasonable chance of a 20 year life, we are working our way through. It is probably a 5 year programme, not because we can’t afford it, but to keep disruption and risk under control. Probably about half-way through,

    Also investing in our hobbies whilst we can still enjoy them. I love astronomy, so have been building and equipping an observatory. This is a hobby where people can and do spend insane amounts of money, but I have been reasonably restrained whilst getting a lot of my ‘dream’ kit. Still spending sums that would have had me gasping for breath 15 years ago. Also planning for continued enjoyment by automating the observatory so that I don’t have to spend all night out in freezing temperatures (good observing nights are always cold!) as I age. Also buying into a shared automated observatory under clearer skies than the UK provides.

    You need money to set up a pleasurable and hassle-free retirement, but it needs to become about more than the money. Investing for enjoyment and physical comfort and security, rather than investing to grow the pot.

  • 10 Lee Briggs March 5, 2022, 2:20 pm

    @Ho Simpson & Old Eyes,

    I’m also in the ‘do the house up’ camp, however, the costs of materials and obtaining very busy tradesmen/women is the issue. I’ve got a war chest which I’m adding to by selling stuff (not stocks/bonds) to pay for renovations just need the work to commence and the expensive bills to follow!

    Good luck in all of your house endeavours

    Lee.

  • 11 Old_eyes March 5, 2022, 2:26 pm

    @Lee Briggs

    Yep! Getting the tradesmen is a bottleneck. 2-3 months for most things in these parts. Still have some DIY skills but no longer interested in climbing around on the roof!

  • 12 The Investor March 5, 2022, 3:03 pm

    @neverland — As you like. Your previous comment that the sanctions would have little effect hasn’t aged well. Maybe you’re smarter than the market that has written down some assets by 99%. Time will tell.

  • 13 Rich March 5, 2022, 3:22 pm

    At the risk of being that terrible person, is it worth a £100 punt on some apparently worthless London-listed Russian stock? I’m interested in how it works mainly. Does delisting mean existing owners of the stock get nothing or do they still own something?

  • 14 Neverland March 5, 2022, 3:34 pm

    @Investor

    I’m looking at the way Russia is rolling up the southern Ukraine and I’m not optimistic tbh

    Russia was plunged into a deep recession in 2014 too and there were protests in the streets – but nothing changed

  • 15 far_wide March 5, 2022, 4:54 pm

    With the obvious caveat that this all pales into insignificance from the human tragedy POV, I’ve been quite pleased to see my 5% of gold really hit it’s stride in this awful situation.
    I allocated it back last Summer with a nod to a risk parity approach for my portfolio, though I couldn’t bear to go to anything like 20% as I didn’t frankly believe in it enough.
    It’s made me tempted to go the whole hog and switch to an equities/LT bonds/gold approach a la Golden Butterfly.

    Re: Bitcoin, though I shared your view about the possible causes of the big jump it had earlier in the week, I note that it now has collapsed back to exactly where it was last Saturday.
    So, in light of that, I now wonder whether it was actually some crypto whales speculating that those factors might play in and then realising ‘nope’? It certainly seems to be a great test of ‘Crypto vs Gold’ as a safe haven, and so far at least, Gold appears to be winning.

  • 16 Tom-Baker Dr Who March 5, 2022, 7:40 pm

    @far_wide (#15) – I have noticed the same so far with great interest regarding gold versus crypto.

    My total allocation to gold accross all portfolios is only a few percentages short of that of the golden butterfly. As a result I have been quite resilient to the recent market shocks. My largest portfolio is very similar to Harry Browne’s permanent portfolio and it has in fact appreciated in the last two weeks.

    Anyway, as you mentioned, all this pales into insignificance compared to the horrific events happening in Europe now. Like many of you, I can’t help feeling very uncomfortable about thinking about investments at times like these. Unfortunately, when you are close to come to relying on your investments to pay your bills, you have no alternative.

  • 17 Seeking Fire March 5, 2022, 8:46 pm

    Interesting to see what the UK will do on defence spending. If we don’t spend any more we will be increasingly a bit part player (even more?), a price taker on events rather than a price setter. That may be a sensible position given our disastrous foreign policy over the last 20 years. Although if Germany bulks up its defences, it will I guess find a closer special relationship with the US than we do, if we ever had one :). If we do want to spend more on defence that can only come from increased taxation, borrowing or public spending cuts. When push comes to shove, I imagine we’ll not spend materially more but who knows.

    Like others, I remain grateful for my allocation to gold (and also $TIPS) and £ cash. Perhaps incorrectly to some, my allocation is based on having a number of years expenditure in liquidity before I need to tap other sources in the event earned income goes to zero.

    I’m actually considerably more worried now than I was with respect to the pandemic, which may be illogical. Not so much with respect to the red button being pushed – pointless worrying about something you have zero influence on and I reckon the heart of zone 1 would be the best place to be. But things, particularly in the UK, are looking economically closer in style (hopefully not substance) to the 70’s than they were a year ago – I know the trade unions are gone, globalisation etc etc.

    But the self-inflicted economic wound of brexit (I almost voted for it), rising public expenditure on an ageing population needing increased taxation, no idea how to or interest in growing the economy, increasing green taxes, which hit poor people most (even though we’ll be a v small part of the problem this century) and massive house price inflation does not augur well for living standards and potentially the future for democracy in this country – people often love a ‘strong’ man in tricky times. We’ve already got a paper example of that at the moment.

    Save like a pessimist and invest like an optimist on a global basis.

    Interested to know how those who have fired are now feeling particularly those with a heavy equity allocation. With inflation potentially hitting 10% and equities still quite highly valued in markets, one must feel less comfortable than a year ago……At least historical precedent can provide some comfort. I’ve always been sceptical on my ability in retirement to sit through massive market swings although whilst I keep earning, I’m less bothered.

  • 18 Al Cam March 6, 2022, 9:49 am

    @SF (#17):
    Re: “Interested to know how those …”
    As I see it there are two distinct inflation scenarios: a) pass through/blip of high inflation; or b) increased inflation for decades to come. IMO, the latter is – by far – the more concerning outcome. This assessment is probably not news to anybody but the probability of scenario b) today seems somewhat higher than it was.

  • 19 Neverland March 6, 2022, 10:29 am

    @far_wide
    UK defence spending was 4-5% in the 80s and it’s going to have to be funded by tax too

  • 20 The Accumulator March 6, 2022, 10:54 am

    @ Seeking Fire – As a recent FIREee I feel fine. I’m not looking at my portfolio, not worrying about what’s down, what’s holding steady… The asset allocation pieces are in place. Economic history tells me a diversified portfolio has weathered worse storms than this. Trouble has always been on the horizon, there never was a golden age.

    Re: your point about being less bothered if you’re earning. I am keeping some pocket money trickling in and I think it makes a big difference. Partly because I’m less reliant on the market but mostly because I enjoy having mini-projects to get my teeth into. The career and the corporate BS was the problem, not work itself.

  • 21 The Accumulator March 6, 2022, 11:05 am

    On defence – Nato spending is already a quantum larger than Russia’s.

    According to the figures in these two pieces, Britain alone already spends more than Russia:

    https://www.statista.com/chart/14636/defense-expenditures-of-nato-countries/

    https://www.statista.com/chart/16878/military-expenditure-by-the-us-china-and-russia/

    I’ve seen varying stats on this theme, but we may be seeing right now that Russian armed forces are not as strong as beating up on the Chechens, Georgians and Syrians implied.

  • 22 Pinkney March 6, 2022, 11:26 am

    Sad times indeed thanks for this weeks links. Made me think about those how to prepare for not needing to work articles. Save as much as you can, have some hobbies, retire at the start of a bull market, look after your health and relationships and be lucky. As I see it being lucky is really the key as we have no idea what will happen tomorrow. We can only really save and invest wisely in ourselves and what happens next is frankly outside our control. Be lucky monevators.

  • 23 No Free Lunch March 6, 2022, 12:30 pm

    As the days turn into weeks, the Black’s knights take out the White’s pawns one by one. Black signifying an oil rich country, a valuable resource as richly priced today as is the richness of its deep black color. White representing so called “good” when it couldn’t be further from the truth. Perhaps better representing the stereotypical color of ghosts, stuck in the past too often, stuck in a realm of weakening economies and opportunities. Never being truly free from the dead-weights it likes to hang onto.

    As a major city in Ukraine gets crushed, so goes a part of the so called democratic West, which it never was truly part of. The hypocrisy continues to go from strength to strength as we continue to finance Russia by utilizing its other natural resource, gas, while at the same time virtue signalling the banning of Russian Vodka.

    As I sip on my sweeter than ever tasting supply of Russian Vodka, I think back at the other hypocrisies we self-interested apes like to commit.

    How many of you (and you alone) are willing to give up half your net worth if it were to stop the Russo-Ukraine war once and for all? I suspect many would say yes as means to virtue signal. But how many of you would change your mind as you see your net worth crushed in half, while the war stops as promised and everyone else has their net worth intact?

    I suspect many of you won’t be so generous. For you see, envy and being provoked (financially or otherwise) are just too much of a powerful force. Much like the underlying reason behind Putin’s war with Ukraine, everyday folk like all of us are succumbed too such frailties in the human psyche.

    How many of you are saddened by the bloodshed of innocent Ukrainians? Nearly all I suspect, including this very writer you may be begrudgingly taking notice of now.

    But how many of you are saddened by your very human competition who have lost out on that career position, that under supplied home or that investment asset that is now a lot dearer due to all the speculation. That very human competition that is seeing their standard of living being eaten away bit by bit, pound by pound, as you marvel at your precious home financed by the substantial pay rise you just received where the excess gets put away in ever more expensive financial assets.

    For you see this too has a human cost. Maybe not direct bloodshed, but certainly harming the competition in ways you probably can not even comprehend. All under the pretense of capitalism.

    As a more direct example, one of the creators of Monevator has a so called “bug out plan”. Eagerly waiting to be used if the SHTF in the UK. An escape plan, perhaps cunningly created, maybe with no care of what he would leave behind. To be used if and when the devastation of a country occurs, a country that had given him so much wealth and prosperity.

    Nothing wrong with this at all if you believe all morals are subjective. It is the human condition. We are all self interested apes whether we like to believe it or not. But don’t pretend it is anything but, because this would otherwise be the so called hypocrisy I keep going on about. Much like the White pawn pretending to be the “goodness” the world thinks it needs.

  • 24 The Accumulator March 6, 2022, 12:55 pm

    What makes us human? “Hypocrisy” wouldn’t be a bad answer to that question.

    “The line separating good and evil passes not through states, nor between classes, nor between political parties either — but right through every human heart.” Solzhenitsyn

  • 25 Kraggash March 6, 2022, 1:09 pm

    @ The Accumulator
    “On defence – Nato spending is already a quantum larger than Russia’s”
    A ‘quantum’ is the smallest possible amount. I don’t think that is what you meant?

  • 26 Tim-Baker Dr Who March 6, 2022, 1:20 pm

    In physics, we know that when an effect is much larger than all other effects it is often a very good approximation to consider it by itself and neglect everything else. This agression is so horrific that this is really not the time to be talking about the flaws of the West.

    ‘Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time.…’

    Winston S Churchill, 11 November 1947

  • 27 The Accumulator March 6, 2022, 2:26 pm

    Thanks Kraggash. I meant a magnitude greater. I’m a numpty 🙂

    Caveat: I didn’t mean magnitude in a mathematical sense beyond: “much larger”

  • 28 Neverland March 6, 2022, 3:01 pm

    Since Russias economy was only as big as Italy last year (and next year will be a lot smaller…. ) the rest of Europe comfortably outspends them

    But Russias military has been gearing up for land war across Europe for the last decade whereas Western Europe has been gearing itself up to fight lightly armed insurgents right across the globe and humanitarian missions

    In order to have an effective deterrence the Russian armed forces have to know they will be crushed if they ever try to invade a nato country

    That will take more than a decade and far more than 2% of GDP

  • 29 The Investor March 6, 2022, 3:35 pm

    Absent nuclear war — an enormous caveat, as I foreshadowed when this all started and others were wittering on about the GDP of Texas — the West can easily contain Russia/Putin if we put our mind to it. The early signs are positive.

    The combined might of Western economies dwarfs Russia. The combined conventional forces is an easy match too (again, absent nukes), even before the inevitable ramp up in defense spending.

    Readers of this site are very familiar with compound interest. After the end of the Cold War, the demilitarization of Western economies (aka the ‘peace dividend’) was effectively reinvested into other projects, welfare, and so on.

    Some of this was frivolous, some profound. But meaningful improvements in standards of living and productivity were compounded year on year.

    The result is we enjoy a far superior standard of living than Russians do today — or that we would have if we’d kept defense spending unchanged since the late 1980s.

    If we now have to cut into some of that windfall to meet the threat from Putin (higher energy prices, perhaps subsidies to poorer households accordingly, higher taxes, whatever) so be it.

    House troll @Neverland can be expected to keep shifting his opinion, so take his comments with a pinch of salt. But anyway earlier this week he was saying the sanctions and other elements of economic warfare were same old same old. Now even he can’t really claim that any more, he’s suggesting his position was that Russia can still militarily ‘win’ this invasion and occupy, for some time at least, Ukraine, despite sanctions. This is a different argument entirely to the one he first made. Expect more shapeshifting to come as he requires.

    IMHO, I think for all its setbacks so far, the Russian army can probably ‘take’ Ukraine, although I don’t think it’s a foregone conclusion.

    But the economic warfare being waged on Russia is not about changing the pieces on the battlefield in the short-term. It’s about increasing the pain, compounded over time, so that looking forward the prize looks worse than Pyrrhic. So far so good on that front.

    @No Free Lunch — At the moment I’m taking your gnomic pronouncements as genuine attempts to contribute a perspective to the discussion. If I detect hostile/troll-ish intent, I’ll begin deleting, on my whim. Our enemy has been destabilizing discussion and fabricating dissent for many years now. I was just learning today about Russian bots ‘debating’ vaccine effectiveness in online forums long before Covid to sow doubt. Information war played some hard-to-quantify role in the Brexit folly and Trump, too. Anyway I won’t have malicious intent here. Fair warning.

    @BuildBackBetter — I’m well aware that Asia is not a ’rounding error’, cheers. I’ve invested there, been there, have friends and contacts there, and more.

    However apparently unlike many Brexit supporters such as yourself I’m also acquainted with iron-clad laws of economics, at least while economies mainly take place in the real of atoms, such as distance effects and comparative advantage.

    Have a read of this, long after the horse has bolted of course for the UK:

    https://blogs.lse.ac.uk/management/2018/11/09/can-brexit-defy-gravity-it-is-still-much-cheaper-to-trade-with-neighbouring-countries/

    It’s entirely possible the UK will increase trade with Asia, over time — out of natural changes in sizes of markets and also, at the margin, a need borne of Brexit.

    When we do our economy will sadly be smaller than it would have been due to the pointless (economically speaking) Brexit, and thus the relative gains we’ll enjoy from such trade boosts will likely be smaller than they would have been if we’d stayed the course anyway. Ho hum.

  • 30 Neverland March 6, 2022, 3:47 pm

    @Investor

    Thanks for telling me what my opinion is.

    I tend to rely on facts.

    Fact: Iran and Venezuela have been shut out of the western financial system for years. This didn’t change their domestic governments.

    Fact: RSA was under sanction since the early 70s. Sanctions only got serious in the late 80s. It took five years to effect regime change. RSA didn’t have any allies; the Russians have the worlds second biggest economy as their ally.

    Do you think the Chinese government can allow the West to engineer the fall of the current Russian regime through economic coercion? I don’t. They would be next.

  • 31 Marcus Hudson March 6, 2022, 4:22 pm

    At the moment the markets seem to have made their moves and the impacts of a continuing war just in Ukraine will not see any more dramatic moves. But what will be the impacts on markets if the war spreads to Europe or even worse turns nuclear.

  • 32 The Investor March 6, 2022, 4:30 pm

    @Neverland — Newer readers to this site may not not realize you have posted over 1,000 largely disagreeable and troll-ish (i.e. bad faith, your position keeps changing) comments to Monevator. They may see an over-reaction.

    I however have had 10 years of it from you and am beyond immune.

    Your previous comment was a few days ago. I’m repeating what you said then, and here. Go back and read it yourself.

    I’m not in the mood for the likes of you at the moment, nor in filling these threads with disagreement (from me or you or the likes of BBB) that crowds out the other interesting comments in this thread. Will be deleting as I see fit, which is likely to be freely in the case of certain posters.

  • 33 Seeking Fire March 6, 2022, 4:42 pm

    Thanks Accumulator for your response. I agree with you, earning some income to cover basic expenses can dramatically help to reduce concerns with respect to market gyrations when you’ve pulled the trigger. Each to their own of course, with health, human capital and a general desire to escape ‘The Man’ means we all walk our own path. I agree in your situation, the key is to ignore the market, assess on a periodic basis and correct course if needed.

    The current environment is providing a good reminder that equities are not a good hedge when inflation is high.

  • 34 TahiPanasDua March 6, 2022, 5:21 pm

    @Investor,
    You are already too tolerant! I would just go for it if I were you!
    TP2

  • 35 The Investor March 6, 2022, 5:22 pm

    p.s. For the benefit of those new readers and who knows, maybe even the poster concerned, here’s the sort of thing a reasonable person interested in genuine discussion (not trolling) might have said given how this week unfolded:

    “Wow, when I posted a week ago that the sanctions were not unprecendented and that it was basically the same as 2014, I could scarcely have imagined that BP would get out of Russia, as would Shell, that Visa and Mastercard would have switched off their services there, that Switzerland has broken years of neutrality to take a stand against Russia, that a lack of insurance meant that some Russian tankers currently can’t carry oil, that the Russian stock market would remain closed all week, there would be bank runs, and much much more — all things that absolutely did not happen in 2014 — nor that as a result of all this major Russian stocks have fallen to near-zero where they are traded, and ETFs have been suspended.

    None of these things happened in 2014 so I agree actually it is different this time. However I still [go on to argue an extension of the position, if still held, rather than just change the line of attack etc]…”

    Nothing like that has happened in 15 years of comments from the poster concerned. And that is why I’m not interested and have had enough. Take it to unmoderated forums elsewhere.

    Sorry for the interruption all.

  • 36 Neverland March 6, 2022, 5:34 pm

    @Investor

    Look up the sanctions against Venezuela. It’s not unprecedented. It’s the same playbook

    I believe Iranian sanctions are similar but I can’t be bothered to check tbh

    No regime change in either country

    Delete the facts as you like it doesn’t change them

  • 37 far_wide March 6, 2022, 5:35 pm

    @seeking Fire, no problems as a FIRE’ee here either. We’re only 10% off the top in World tracker terms, I have a low SWR and of course also a defensive allocation too.

    Re: your comment on inflation, nothing does the job perfectly of course which is what makes it so pernicious. In the long run, stocks are as good a place as any. I take comfort too that Safe Withdrawal Rate theory is all based in real terms and also had to cope with the 1970’s. So let’s just hope we don’t go into truly unprecedented times.

    Above said, with the recent huge shifts caused by the war, we (the World) could be in for a very rocky time. Countries like Egypt that were already struggling with the cost of wheat are going to find it very tough indeed. Looking at trading economics’ list of inflation in commodities/agriculturals over the last couple of weeks is rather scary.

    I’ll refrain from commenting too much on @No Free Lunch’s comment, except to say that if one can’t morally cope with the idea of buying and financing a home in the country you live in due to the sickening capitalist endeavour it represents, then can I suggest they’re probably on the wrong website?

    @Investor, I don’t know how you keep up the patience, though it is a sort of comforting long running soap opera once you’re used to it 🙂

  • 38 The Investor March 6, 2022, 7:15 pm

    @Neverland — Maybe you can’t even see yourself doing it, it’s so automatic.

    Nobody mentioned regime change except you.

    This is the shapeshifting.

    I said:

    But the economic warfare being waged on Russia is not about changing the pieces on the battlefield in the short-term. It’s about increasing the pain, compounded over time, so that looking forward the prize looks worse than Pyrrhic. So far so good on that front.

    i.e. The initial push is to hopefully make Russia withdraw, or if not then not invade elsewhere.

    So you change what you claim to have said, and change again, and hope someone bites.

    This My First Trolling stuff works on people who are new to the Internet, but it’s really very 1990s.

    I’m bored of it. As was alluded to by @Far_Wide, believe it or not I have some sort of nostalgic fondness for all the grit you’ve put in my shoe over the years. 🙂

    But this is a truly serious matter and I’m done.

  • 39 The Investor March 6, 2022, 7:29 pm

    @SeekingFire @TA @Others — I’ve got a sort of strategic writer’s block over the final part of my ‘new regime’ series from a couple of weeks ago, when we only had to apply this language to inflation and interest rates. 😉

    History suggests that these kind of shock events revert to whatever trend was in place before, as I see it. The big tectonic shifts (credit expansion/contraction, demographics, certain technologies etc) on a global scale overwhelm events — maybe even pandemics. That was certainly my working hypothesis coming out of Covid, which was why I expected inflation to correct itself and rates to rise but not to rocket.

    However just coming out of the pandemic (as the meme says, Putin has cured the world of Covid overnight, judging by the news 😉 ) we’re now piling events on top of events here. And arguably seeing some underlying changes in fundamentals. So it does make me wonder.

    Of course I end up roughly where @TA is, in terms of what a passive investor ‘should’ do, let alone one in drawdown. Essentially an All-Weather portfolio, tilted by numbers more than emotions and hunches were possible. (For good or ill I remain active and will get my just deserts.)

    But if this conflict continues (/god forbid spreads) and oil moves towards $150 and consumers draw in their horns, and as I said in my piece in the week (and as @Neverland mentioned in his usual unfortunate mixed bag of sensible comment and trolling) China does indeed step-in and we move to a bipolar world, I can’t help thinking the ‘ideal’ would look a bit different post-invasion than pre-.

    The snag, of course, is how? More fixed income? Less property? More growth? Less value? One could debate all directions.

    Personally I see the strongest reason for a passive investor not to change plan is that (as ever) the only certain best plan is the one you backdate with 2020 vision.

    For that reason, I’d probably look to back up a FIRE plan with extra pocket money work, renting out a room, maybe taking 25bps off my SWR.

    I do come down on the side that ‘something’ has changed, I suppose, even for investors, and until I had conviction which way I’d want some extra belts and braces, personally. 🙂

  • 40 Factor March 6, 2022, 7:44 pm

    I spent several hours on Saturday morning, with my teenage younger son, loading my car with all manner of bedding and clothing, and then driving through the countryside to the nearest Red Cross facility, where we were welcomed with open arms by the volunteers there and where we boosted the Ukraine donations they had already received.

    Actions speak louder than words do they not, and I only wish there were more that I could do.

    P.S. No more @Neverland gets my vote!

  • 41 FI-FireFighter March 6, 2022, 8:39 pm

    If we are going democratic ( although @TI your website your rules), I think
    @No Free Lunch, with this abomination last week – “Everyone one else is expendable to me. Thus, I sit back with my legs up and a bag of popcorn and enjoy the events of Russia’s invasion of Ukraine.”
    Should be never heard from again!

  • 42 Boltt March 6, 2022, 9:14 pm

    I’m very happy to be in my early 50’s as there’s no (soft) record of all the stupid things I said and did – it must be crap to have you entire online history visible.

    TI/TA – it’s their website and their rules, but please can we not vote to “disappear” regulars from the comments. It just doesn’t feel right (and a bit Black Mirror for my liking)

  • 43 Seeking Fire March 6, 2022, 9:36 pm

    @No Far and Wide – 100% agree with your comment

    @TI. Thanks and v interested to read your thoughts if you unblock!

  • 44 Xenobyte March 6, 2022, 10:05 pm

    Having tracked 2 Russia ETFs this week I was interested to see that HSBCs HRUB tracked differently to iShares CSRU (which increased in price). Apart from slightly different weightings of their constituents, the main difference is CSRU uses ADR/GDR. Do these certificates provide some extra security compared to an ETF invested directly in shares?

  • 45 The Accumulator March 7, 2022, 11:05 am

    Re: Bipolar world – this has been happening since Trump’s shift in China policy, largely continued under Biden. I guess war in Ukraine makes it seem less abstract.

    What’s changed is it seems finally clear we can kiss goodbye to the 1990s hope of an integrated political and economic order as encapsulated by the “End Of History” misnomer.

    It’s less obvious to me that this will be a major concern in ten years time. It could be that the threat of a ‘common enemy’ sutures some of the political divisions in the US and Europe.

    That it leads to more effective efforts to combat the misinformation that has done so much damage to our societies.

    That a unified Nato and increased defence budgets work to deter aggressors who view democratic nations as weak and in decline.

    That a protracted struggle in the Ukraine proves to be Putin’s undoing in the long-term. And even cools Xi Jinping’s jets when it comes to invading Taiwan.

    Perhaps the ‘strongman’ model of populist politics will prove less attractive when we clearly see the misery it brings.

    I do think we face greater headwinds now than a generation ago but that’s OK.

    Trump, Brexit, the global rise of the far right, our inability to combat climate change lead me to think that social division is probably the greatest long-term threat we face. Perhaps this hour of crisis will help us set a better course.

  • 46 The Accumulator March 7, 2022, 11:09 am

    @ Xenobyte – I don’t think they provide greater security. Their purpose is primarily to enable investment in otherwise difficult to access markets.

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