If Russia were to invade the Ukraine, all bets are off on macro and financial forecasts. Given the recent briefing, here’s what some measures of uncertainty and risk look like:
Figure 1: VIX (blue, left scale), VIX as of 2:30pm ET (light blue square), Economic Policy Uncertainty index, 7 day centered moving average (red, right scale). Source: CBOE via FRED, policyuncertainty.com, accessed 2/11/2022.
WSJ notes investors don’t think an invasion is in the offing. However, oil, gold are up (bitcoin down).
《Mangee saw that when it comes to the stock market, uncertainty and ambiguity are at the very core, which is why investors are all about stories. His dissertation work on financial news analytics convinced him that the factors driving stock prices are always changing over time, and nobody really knows which of them will matter the most to investors.》
https://www.nakedcapitalism.com/2022/02/revealed-new-insight-into-what-really-drives-the-stock-market.html
Doesn’t every trader know price is a liar? Aren’t you really dealing with noisy psychological stories, all the way down?
And all the way up as well, rsm.
Well, there is that old wisecrack out there that economists know the price of everything but the value of nothing.
But, I suspect that is not what you mean, especially since we know you actually have no idea what you mean at all.
Oil price up on war jitters.
(Please, please, Putin don’t invade Ukraine. I want to be able to write a 10 year retrospective on how miserable “hundred dollars here to stay” [Hamilton, 2014] was and you might mess up the bearish time series.)
eia sees +800Kbpd crude demand in the near horizon.
diesel stocks are reporting low and prices rising all over the world.
diesel build will be good for other levels particularly kerosene which is iffy based on spotty increase in passenger flights.
and John Kemp is talking about how ridiculous carbon trading appears in the eu where they can’t make wind work and are closing nuke plants…..
all it will take is one of those usa provided javelins to be fired into luhansk….
usa playing a dangerous game.
every day russia don’t invade is a good day……
for humanity.
The French are apparently going to be building some new nuclear plants.
If you have 58 GW NPPs with an average age of about 40 years and you want to build the next two or three decades 14 NPPs with around 24 GW, then we are talking about managed decline, not more.
in light of the possible shutdown of the natural gas line from russia, maybe all those wind turbines in germany are not so bad after all. maybe a better option than new nat gas facilities. it is nice when a nations energy is sourced from within, not imported from other states.
I was convinced this was a “done deal” (War and death will happen) when Lt. Col Vindman was on a foreign news service and called it a foregone conclusion. That was really all I needed to hear.
I am still betting that Biden will throw Putin a bone and stop it tomorrow. Maybe Biden will make a declaration that “I will not allow Ukraine to become a member of NATO”. Easy to do since they were not going to become members during Biden’s time anyway – and since Putin breaks promises all the time, who cares what “we” promised him. Maybe Biden will offer the signing of a non-aggression pact between US/NATO and Russia promising that neither will ever attack the other. Similarly meaningless but great theater for both audiences.
baker who was ghw bush’s sec of state told gorby “not one inch eastward” when gorby was giving in to putting germany back together.
clinton immediately renged.
A.,
Actually that is not what Baker said and also he did not say it to Gorby. He said that NATO troops would not be put into the former East Germany after Germany reunified, and that has not happened. This was said to Gorby’s foreign minister, Shevardnadze. At the time, the Warsaw Pact still existed, so the idea that NATO would be having Poland join was simply absurd and out of the question, something conveniently forgotten by all who misquote this supposed promise.
BTW, Putin once a promise not to have Ukraine join NATO “ion weiting,” even though Russia promised in writing to respect the sovereignty and territorial integrity of Ukraine in 1994 when it gave up nuclear weapons. But, hey, that was Yetltsin, not Putin, so who cares?
Brent over $95 today. That is clearly due to perception of increased probability of invasion. I think that probability is up. It looks like a bottom line is Putin is seriously deluded on certain matters, such as thinking he will be welcomed as a “liberator” if he invades. It increasingly looks that he hacked off Xi in Beijing with his bizarre behavior, with Xi actually believing in a more-or-less rules-driven world order PRC can operate within, with some exceptions.
Best bet for timing looks to be Feb. 20 at end of both Winter Olympics and Russian exercises in Belarus. I am hearing that Russian media claiming US troops in Ukraine. This is a very bad sign, even as people in Ukraine itself still less nervous than lots of outsiders. I hope they are right.
Oil prices have been ramping up on Ukraine since last summer. Yeah, while the media was ignoring it, Putin has been slowly building up forces since the spring of 2021. he has created another oil bubble in the US. Factory orders for mining are soaring in the midwest. Much like 2017-18. The price discipline was good. It looks like 90 not 80 is needed for expansive production increases………and yes, there is a lag between reported increases in production and actual extraction. This isn’t 1970 anymore. This is a wealth transfer from the coasts to flyover country. Wages are booming in midwestern manufacturing centers as they can barely keep up with demand and the government is only catching up.
KSA may have to push for a quick resolution to Iran negotiations to help get more supply on the market. Most countries do save millions of barrels of oil and the KSA is no exception. Talk about SPR pfffftttt.
Gregory,
Curiously there are rumors of a possible Iran deal in the works. But KSA is not the crucial player in this, barely even a player at all. Whatever made you think that?
Credit market spreads are widening progressively, but it’s not clear how much of that is political, how much economic, how much financial.
https://fred.stlouisfed.org/graph/?g=M0rr
(Doesn’t reflect today’s trade at the time of posting.)
Financial stress measures not yet bothered.
https://fred.stlouisfed.org/graph/?g=M0sD
(Doesn’t yet reflect this week’s prices.)
Corporate spreads narrowed and the VIX fell as the 2nd Iraq war got underway. No big increase in financial stress in 2014 when Russia invaded Ukraine. The Fed, poor debt underwriting, energy shocks and pandemics seem to cause more market stress than those pesky military actions. Financial markets aren’t very good at measuring human welfare or political wisdom.
claims of usa ‘paid mercenaries’ in donbas area been going around for quite a time now…..
i had discounted it, but the other guys see the cia behind everything, and they are probably right.
Huge jump in frac spreads, +11. Up to 275. That’s 1 over the pre-Xmas 2021 record. Was expecting a little faster rebound (end of JAN). But still…shows getting back to work.
https://www.youtube.com/watch?v=g6-gHrZ1gVc
By my (no reason it has to be true, but I’m not the only one who uses it) thumb rule of 2:1 oil-directed rigs versus all (oil and gas) spreads, we ought to have 550 rigs running. But we only have 516. Still pretty close to 550 and the 2:1. I would not sweat the DUCs too much. They aren’t going to have spreads sit idle (expensive) so they’ll just add rigs as needed (or slow down the spread increases.) But, really we’re close to the magic 2:1.
As if there are not a bunch of Russian forces in the Donbas republics. Indeed, it is easy to forget that the initial takeovers of government faxilities in both Luhansk and Donetsk was carried out by “Russian tourists,” with locals only taking official charge some time later.
People have been talking about Urals oil getting couple bucks lower prices last couple weeks (versus normal diffs to Brent). Buyers don’t want to get stuck if there’s a disruption. (So, surprise, they have to price it a little cheaper and then someone picks it up.)
There is a three-ring foreign policy circus going on right now. Putin is testing the U.S. resolve and China is watching while Iran is a step closer to its turn. If Russia makes a minor incursion to the Dnieper River and the U.S./NATO response is the equivalent of “naughty boys”, China may take it as a sign that Taiwan is fair game at that time.. Meanwhile, Iran is close to weapons grade uranium enrichment and already has medium rand missiles fully tested. Iran’s would like to test both of them on Israel and maybe Saudi Arabia’s oil fields.
Why is this happening now? My opinion is that these nations have become emboldened with the perception that the Biden Administration has no stomach for confrontation and will negotiate away the store to avoid confrontation based on the precipitous and chaotic evacuation from Afghanistan where the U.S. operated from a position of power with a mere 2,500 soldiers. Russia and Iran have huge oil reserves and if the U.S./NATO attempted sanctions against Russia, China would see itself as an energy winner with most of the oil Russia and Iran exported going to China while Europe’s energy struggles would increase significantly as natural gas supplies from Russia were shut off.
Bruce,
You are not on top of things, probably too much watching Fox News as usual. Rumors have it that a deal with Iran may be near, even though I had nearly given up on that one. Do please keep in mind that on the Iran matter, if Trump had not stupidly withdrawn from the deal, it would probably still be in place with Iran nowhere near as close to having nuclear weapons capability. He claimed he would cut a much better deal, but instead the previous government fell and a bunch of hardliners came in. His policy was a total failure, probably the worst move of his entire presidency in terms of foreign policy, although the total idiots who think he is great somehow are unaware of this, even as the entire rest of the world knows it, even the Israelis and Saudis now, who kind of supported his move initially.
On Iran both Russia and China support resuming the deal, as do the EU nations and UK, basically everybody in the world, aside from some morons in the US.
Trump was utterly incompetent at foreign policy in so many ways. It is as if he made Bruce Hall Secretary of State!
pgl, you never fail to disappoint… or add something of no value. Trump is still living in your head.
Barkley, I find it interesting that you view U.S. efforts to have meaningful discussions with Iran as a near certainty.
https://www.msn.com/en-us/news/world/iran-nuclear-talks-head-toward-finish-line-but-outcome-is-unclear/ar-AATI0k2
Iran has gotten to the point where they could product a nuclear weapon in short order. They have little incentive to not produce such a weapon as it would provide them huge leverage in facing off against both Israel and Saudi Arabia. We have learned long ago that economics is not a driving factor in the Iranian cabal’s decision making process. They have other priorities. But let’s hope your optimism is justified.
Bruce,
The article you link to says that not only are the serious talks “a near certainty” as you put it, but ate actually happening. What is unclear is if they will conclude successsfully, but the article agrees with what I reported namely that they might, that they are near success although not quite there.
Your argument about how they might like to just go ahead and get a nuclear weapon are one reason the talks might not be a success, although if they really want to just go ahead and get one, why bother with these apparently serious talks? The argument for not getting a weapon is that they get to have some chunk of the economic sanctions they are under ended, and they are really feeling those sanctions pretty severely. The motive to get to a deal is pretty strong.
I note that at the beginning of the year David Ignatius forecast that it was more likely than not that there would be a nuclear deal with Iran but that Putin would invade Ukraine. At that time I posted on Econospeak about “daring to disagree with Ignatius,” whom I take very seriously and thought the odds were the other way: more likely no deal with Iran but that Putin would not invade. As of right now it kind of looks more like Ignatius may have been right, although it could still work out that there is no deal with Iran and no invasion by Putin.
Like Trump had such a strong foreign policy. Did Kelly Anne give you extra bone for rehashing her latest email
“My opinion is that these nations have become emboldened with the perception that the Biden Administration has no stomach for confrontation and will negotiate away the store to avoid confrontation based on the precipitous and chaotic evacuation from Afghanistan where the U.S. operated from a position of power with a mere 2,500 soldiers.”
Spoken like a true Chicken Hawk. Only 4% of Americans support US troops on the ground. Over half think Biden is doing too much. But General Bruce Hall is under the illusion we can send in troops and deter Putin. Of course Bruce has never served in the military. No this Chicken Hawk hides in the basement playing video games pretending he is a brave soldier. And anyone who thinks 2500 soldiers could hold off the Taliban after the Afghan military folded is dumber than a rock.
pgl, as a mind reader, you are an abysmal failure.
I know you haven’t served in the military and don’t understand the application of force, but don’t assume I have had no experience in that realm. You’ve never been a primary target of a nuclear missile, so please don’t presume to lecture me. There are times for direct confrontation and times for de-escalation. but rarely times for capitulation. Biden chose the latter in Afghanistan and now feels he has to appear bellicose and brave rather than de-escalating the situation.
Now just run along to your Neville Chamberlain Diplomacy Chapter & Day Trading Group.
“There is a three-ring foreign policy circus going on right now. Putin is testing the U.S. resolve and China is watching while Iran is a step closer to its turn. If Russia makes a minor incursion to the Dnieper River and the U.S./NATO response is the equivalent of “naughty boys”
Ukraine is not NATO, you start your comment with rookie mistakes. And you do not understand that it may be in the US interest to let Russia occupy parts of Ukraine in order to create a long lasting bleeding (economic) wound. Maybe Biden has learnt from Afghanistan, in contrast to you.
At the stratgic level Russia is losing and has been losing for years.
“There is a three-ring foreign policy circus going on right now. Putin is testing the U.S. resolve and China is watching while Iran is a step closer to its turn. If Russia makes a minor incursion to the Dnieper River and the U.S./NATO response is the equivalent of “naughty boys”
Ukraine is not NATO, you start your comment with rookie mistakes. And you do not understand that it may be in the US interest to let Russia occupy parts of Ukraine in order to create a long lasting bleeding (economic) wound. Maybe Biden has learnt from Afghanistan, in contrast to you.
At the stratgic level Russia is losing and has been losing for years.
If you have 58 GW NPPs with an average age of about 40 years and you want to build the next two or three decades 14 NPPs with around 24 GW, then we are talking about managed decline, not more.