To those who have lived through wartime, this may be stating the obvious, but most of us have experienced better times in the past decades. I remember the second Iraq war when the Iraqi army kept up appearances almost to the end before imploding. So please do not expect signs of weakness from any of the involved parties. The make-believe is vital to keeping up the strategy against the enemy and assuring support at home.

Economic fallout

At the same time, the economic fallout is getting bigger and bigger on both sides. While sanctions need time to sink in, the energy bill is an immediate burden to any net importer of commodities on this planet. Price spikes could be weathered if they are transitory. Yet the longer this frenzy in commodity markets goes on, the more likely it is that we will see a recession looming in many economies this summer. We are talking about weeks, not months, of current price levels until oil and company derail the global economy. Financial markets, with their relentless discounting mechanism, are already there. For instance, European stocks have entered a cyclical bear market that has already accounted for a lot of the weakness.

Conclusion for investors

This is the crux of investing during crises: emotional stress triggers strong pressure to take action, simply so as not to feel so helpless. Yet history suggests staying put until the fog eventually clears. Buying insurance while the house is on fire can be a costly exercise in itself. The feeling that the situation can only turn worse is also an indication that even a small glimmer of hope could trigger large countermovements. But if buying gold, oil & gas, US Treasuries, defence stocks, and the Swiss franc (see number of the week) bring some emotional relief, why not give it a go? To all others, we suggest staying the course.

Number of the week

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