Weekly Reflection for February 18, 2022

Market Update

Markets turned and flipped on the will-they or won’t-they drama playing out on the border of Ukraine where Russia has placed some 150,000 troops. Concerns about a Russian invasion and takeover pushed worries about inflation and pending higher interest rates to the side somewhat this week. U.S. intelligence agencies admit that trying to understand Russian President Putin’s thinking or ultimate motive is tricky; what we do know is that Putin enjoys chaos and chaos he has spread. Even though some fire/shelling has begun between Russia and Ukraine, there are to be in-person talks next week between the Russian Foreign Minister, Sergei Lavrov, and Secretary of State Antony Blinken in Europe next week to try to find a peaceful resolution.

The one thing that might keep Russia from invading is its desire to keep oil flowing to its largest customer, Europe. Per the BBC, oil revenue provides nearly 40% of its annual budget. Wheat is another major export of both Russia and Ukraine. Together they accounted for over 25% of the world’s wheat exports in 2020. Simply put, Russia is a massive exporter of many goods and sanctions that would prevent the world from doing business with it, making it possibly not worth the risk of invading Ukraine. But again, it’s folly to try to get into Putin’s head to know what the "hay" he is thinking.

Bonds and gold became safe havens for investors looking to reduce risk. The yield on the 10-year U.S. Treasury note, the benchmark for the bond market, fell to end the week as investors piled into bonds. The chart here shows the lift in yields on Wednesday as investors believed that Russia would pullback from Ukraine’s border. As fears returned, yields fell. Yields fall when bond prices rise.

Markets in Europe and Asia also have fallen this week on twin worries of geopolitical tensions and inflation. Investors have taken a "sell now, ask questions later" tack. In the U.S., a market holiday on Monday will perhaps be the break that many need to assess and review.

Celebrate with Shopping

Officially in the books as Washington’s Birthday, the country will celebrate and honor all former presidents on Monday, February 21st. Most states now call it Presidents Day. Financial markets and banks will be closed. There will be no trading in stocks or bonds and perhaps this will bring some calm to investors who have been juggling lots of worries.

Maybe some retail therapy could help? Consumers know that any three-day weekend means sales. Home goods, furniture and mattress sales are items usually hot in the early months of each year and big box stores like to reel in shoppers with promises of big markdowns. Even with inflation at 40-year highs, spenders have been resilient and patient. Despite the inflation and shortages of all kinds of materials like foam and wood, retailers still expect shoppers to turn out in-person and online. After all, consumer sales in January were up and a slowdown is not expected yet.

Higher income households are driving the sales. Unlike the early pandemic days when lower income families were the primary spenders, the situation has been reversed. Affluent customers can spend for much longer before inflation hurts.

Some might consider taking a look at the Pay Gap Store where what one pays depends on gender and race. The online marketplace started by Trusaic, an HR compliance software company, suggests prices on items based on your answers to those two questions. So for example the same t-shirt would cost an Asian man $34.99 and a Hispanic woman $17.14, and represents the 51% pay gap that exists between those two identities. A disclaimer says that the prices are suggestions because legally, businesses can not change prices based on race, gender and a whole host of other personal characteristics. Profits are donated to charity.

Bad for Laundering

As cryptos struggle for legitimacy - and the struggle is very real, beside the 180 recognized world currencies, bad news about fraud and theft just keeps coming. Over $14 billion in cryptocurrency was stolen last year, nearly twice the $7.8 billion taken in 2020. The scams are usually basic. Robocallers convince an unsuspecting account holder into giving up their passwords. Emails promise to publicly leak embarrassing photos or personal info unless a victim sends a blackmail payment in crypto. Others schemes involve selling a non-existent product to someone who is only allowed to pay with crypto. Since these transactions are irreversible, unlike a credit card payment, the money is gone for good once it leaves your account. Bitcoin is the most frequently used currency in these situations.

And listen up, money launderers, Bitcoin is a bad choice for blackmail and other extortion schemes because all transactions are recorded on the blockchain, a public ledger. Here's how it works: a blackmailer will tell the victim to send money to a "wallet" which is an account held with a cryptocurrency exchange. After that, the bad guy has to launder it from the exchange into the financial system by way of the dark web. Generally the end goal is for the money to be used as U.S. dollars or one of the other 179 recognized legal tenders. Once the money leaves the original "wallet" that is publicly known, authorities can use sophisticated tools to keep track of it with the goal of finding the physical person(s) behind the virtual crime.

Take the couple from Manhattan who were arrested this month, albeit six years after the initial theft of $71 million in Bitcoin in 2016. That amount is worth $4.5 billion today but only $3.6 billion has been recovered from the same account it was initially deposited in after stolen. The couple slowly spent only some of it on NFTs, gold and on presumably making this truly unfortunate rap video. But eventually, the publicly recorded transactions caught up with them as they tried to move out money to purchase a $500 Walmart gift card. Oops.