Podcast Episode 41: Hoping for Peace | Conflict in Ukraine

The conflict in Ukraine. It has captured the hearts and minds of all of us. Unfortunately, on top of the very real humanitarian crisis, there are practical concerns that, in our responsibility to our clients, we have to talk about. Hopefully, this conversation with Colin & Josh will remind you that they’ve got your best interests in mind, at every step.

Episode Transcript

BARENAKED MONEY PODCAST: EPISODE 41

Hoping For Peace | Conflict in Ukraine

Announcer:
You’re about to get lucky with the Barenaked Money podcast. The show that gives you the naked truth about personal finance. With your hosts Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners, iA Private Wealth.

Josh Sheluk:
Hello, everyone. Welcome to Barenaked Money with Colin and Josh. Today it’s a bit of a somber episode, we have some discussion on current events which are all kinds of brutal for human kinds, the Ukrainian population we’re thinking about them right now, and thinking about everything that’s going on in the world, which is not the way that we want to be talking about things. And really just in general, something that is bigger than finance right now is going on out there but being the financial commentators that we are, we’re here to acknowledge that the pain that people are feeling on a very human level and progressing with our discussion and what it means for the financial world. So we’re thinking of everybody out there that’s affected by this, but we have some financial stuff to talk about today on with Colin.

Colin White:
Yeah, we do. And again, I always I’m afraid of coming off glib or we don’t get when we’re talking about these things, but yeah, there’s all kinds of terrible things going on and we completely acknowledge that and feel for that. But our role in the world is to help people manage money and manage their finances. So there are financial implications to what’s going on. So this podcast not withstanding that horrible things going on in the world is going to focus on decision making around your finances in these times. And hopefully give you some perspective and give you a little bit of hope on that side of things. And we’re here for you.

Josh Sheluk:
Yeah. So let me just start with a bit of a recap with what we’ve seen. If I could do this in a couple it’s going to be pretty incredible like we’ve seen financially.

Colin White:
I can’t wait for this, Josh. You have 30 seconds, go.

Josh Sheluk:
So stock markets. Stock markets have been what I’ve called a bit haywire right now. So on the morning of the actual incursion, for example, stocks has started the day down about three percent and ended the day up about three percent. So if anybody thinks they can figure out the stock market thing on a short-term basis, give me a call because if you knew that the market was going to start down three percent and end up three percent, the day that the invasion actually happened, that would be really good information for us to have. Us here, we don’t think we can do that.

Colin White:
No, but, and hey, listen, there’s a job offering for you. If you think you can nail this stuff, we want to talk to you. Now, keep in mind we will be skeptical, but you should contact us.

Josh Sheluk:
Yeah, that’s right. So the stock market’s been a little bit all over the place. I think it’s interesting because the anticipatory nature of markets I think is rearing its head again as it always does. The market is forward looking, we’ve said this multiple times. So when Putin started lining his troops up along the border, markets started getting a little bit skittish. They probably went down a little bit because they were worried about that. When Putin started talking about some of the stuff in the media, they probably started getting a little bit more skittish and markets went down a little bit more.

Josh Sheluk:
So people knew that this was a risk and people knew that this could happen, and investors knew that this could happen and so markets positioned themselves for this risk ahead of time. And I think that’s why you’ve seen a little bit of a flat response from stock markets in general. And when I say flat, I think it’s been up one day to down one day up one day down one day. It hasn’t moved that much since the actual invasion has taken place, but it’s been up and down along the way. It’s been a bit of a roller coaster.

Colin White:
We often talk about how the market prices things in, but this is a really sketchy slope to get on because again, you’re trying to measure the global consensus or the consensus within the market as to everybody gets to vote with their dollars. Is the market accurately priced for what’s going on? So I think part of what you’re seeing is when things it’s priced for uncertainty. And if people get a bit more certain, then things can move in a direction. But as long as that uncertainty is overhanging things and people are changing their mind, it’s difficult for the market to find direction in the short term.

Josh Sheluk:
Yeah, that’s right. So bonds, what have bonds done? Bonds have been up and down as well, but I think what’s interesting and what’s always a good reminder is high quality government bonds, those by developed countries like Canada, the US, Japan, some of the European countries, these bonds have gone up in value. They’ve gone up in price since this incursion actually happened. And that’s because they are low risk ways to get a little bit of return on your money. And so whenever we tell people, whenever people ask, why do I hold bonds when they’re paying one and a half percent interest or two percent interest, this is why, because when things go crazy, when things go haywire, people go to those safe investments, they go to those bonds more often than not. And that’s why you’ve seen them go up in value over the last few weeks for sure.

Colin White:
In our world where we’re managing money on a discretionary basis, it gives us some dry powder. So if we identify something in the market as an opportunity that can be the source of money that we could make an allocation with. So it’s not again, to Josh’s point, it’s not remarkable or exciting the rate of return implied and those kind of investments. But when things get, that’s when you start to see the value of having them in the portfolio. These are stormy seas and this is your ballast and it can play a role for sure. And to talk from behavioral finance for a moment, again, if the market is dropping eight or 10% in your accounts going down four or five percent, because you have that bond component. Yeah, for many people there’s value in saying, wow, I’m not doing nearly as bad as the overall world. So that’s the role that aside of your portfolio can be playing for you right now.

Josh Sheluk:
Yep. Now moving on to commodities because I think commodities have maybe been the most haywire, they’ve been going up pretty consistently since this invasion actually happened and all these sanctions have been imposed. So the commodities I’m talking about mostly gold has gone up quite a bit. Gold often is seen as the hedge. It’s sort of like what happens if paper currency is no longer useful? I’ll use my gold chips that I have which may or may not be the case, but that gold tends to be a bit of a safe haven as we call it. Oil’s been a big one, I’m sure you’ve seen it in the pumps. Oil’s gone up quite substantially. It’s gone up by five, 10% a day in some cases. And the risk there is Russia exports about 11% of the world’s oil supply. So that’s a big deal.

Josh Sheluk:
That’s a big deal because it’s affecting us here at home in terms of our actual our day to day finances. Natural gas is another one. We may not have seen as much of a price impact here, I’m not 100% sure on that, but certainly Russia is a massive exporter of natural gas to most of Europe, a lot of Europe anyway. And again, big implications for them over there because this is how they heat their houses for power, their homes and their day to day. So higher energy prices for sure are adding to some of the inflationary issues that we’ve had over the last little while.

Colin White:
Yeah. And just to address some of our audience, I do know there’s people out there who are gold buggish. Gold hasn’t gone to $5,000 an ounce for those who maybe used to be a gold bug and lost track of it and go, oh, they just had gold’s going up. Maybe it’s doing what we thought it would do. So just to give you some context, you could go back to let’s see on my chart here. In 2011, gold was $1,859 an ounce. And today it’s trading at $1,932 an ounce. So again, gold is indeed up in the most recent period. Josh is right as he often is. But again, to you people out there who were dusting off your old theories about gold and going, oh, now I’ve been proven right. Easy, just take a breath, we’re talking in the last month to call it, there’s been a little bit of movement in gold, but we haven’t ascended to the levels that maybe some have foretold from the scrolls.

Josh Sheluk:
Yeah. Commodities they’re going up. That doesn’t mean they’re a good investment. And actually with commodities, you want to be a little bit a counter cyclical with a lot of these things. Usually when they’re doing really well, that’s the time to sell them, and when they’re in the door [drums 00:09:19] like oil was for example a couple years ago right around the start of the pandemic, that’s when you want to buy them. You got to be very counter to everything that’s going on with commodities to make money consistently in that game. And I would say it’s almost impossible to make money consistently with commodities just because are so volatile, so unpredictable. And there’s so many forces outside of your control that are driving those things, outside anyone’s control.

Colin White:
Yeah. And again, one of our recent webcasts we had client asked the question about people taking advantage and all our oil companies artificially in inflating the price of oil. It’s a commodity these very little pricing power or accept perhaps for… So you’ve got one large organization that’s capable of moving world oil prices. And then you also have the different countries with their strategic reserves. There’s a whole bunch of forces that are manipulating those prices for their own purposes. And by manipulating, not necessarily meaning nefariously. But again, individual companies don’t have a whole lot of purchasing power. Trying to predict the mood of OPEC or what their long game is, or what various countries may do with their strategic reserves from a geopolitical standpoint, really make those the oil for sure a difficult thing to chart graph and or project with any certainty that you can invest in.

Josh Sheluk:
Yeah. And just to complete the circle here, some of the agricultural commodities like wheat going up quite a lot as well. You see some of the metals, palladium I think is the big one that people are talking about. I don’t know what the hell I use palladium for, but I’m sure I use it somewhere, probably this microphone that I’m using right now. But Russia is a big exporter of palladium. So there’s a number of disruptions right now. And some of it is likely trickling into your pocketbook in some way, shape or form, a lot of it is-

Colin White:
Josh I heard a truly terrifying outcome of the disruption of the agricultural exports from Ukraine. I don’t know if you’ve been reading the same newsfeed, but somebody was saying that there’s going to be a shortage of beer. So I’m really hoping that’s not accurate because tongue firmly planted in cheek. Wow, that’s terrible.

Josh Sheluk:
It’s a really good thing. Our partner, Richard owns a brewery. That’s all right.

Colin White:
We get something on the inside.

Josh Sheluk:
So a little bit of the view from Russia because this is where I nerd out a little bit and I find that just purely the finance side of things is extremely interesting. The world has sanctioned Russia in a massive way and in a way that I wasn’t aware that it even could in a lot of circumstances. So what’s happening in Russia itself while the stock market… I don’t know how much it’s down now, but we’re talking about massive draw downs in the stock market. Just for the record, there’s almost zero percent exposure from our clients to the Russian stock market directly. So that’s not an issue for most of us here in North America. What a big issue for Russians, for sure. The ruble their Russian currency also getting devastated. It was down about 30% in one day earlier this week versus the US dollar.

Josh Sheluk:
And what’s interesting here is this devastation of the Russian currency is really imposed by foreign central banks. So all these foreign banks have basically said, we’re going to freeze all of the Russian Central Bank and prevent them from getting access to them. So just a very high level explanation of what’s happening here, companies are leaving Russia in droves, people, citizens, if they can they’re leaving Russia in droves. They’re taking their money out because they’re very concerned about what’s going to happen there economically. And anytime you start converting your Russian rubles into US dollars or something else, that’s going to drive the price of the Russian ruble down the value of the Russian ruble down. So that’s what’s happening, you’re seeing a massive decrease in the value there.

Josh Sheluk:
Now most central banks, when this happens, they intervene in the market and they’ll start selling some of their us dollars that they have at a US bank and buying Russian rubles to stabilize things. But because all of the Russian Central Bank’s assets are frozen, not all of them, but about two thirds of them globally, I’m talking about $400 billion that are frozen. They can’t intervene in the market like they normally would, so their hands are tied. So it’s one very interesting way for me where these sanctions are actually having a pretty profound effect on what’s happening there in Russia.

Colin White:
And I love when Josh geeks out and I like it better when I geek out and I go in a different direction than Josh goes, because let drop some knowledge on you Josh. Because my mind went to, yeah, these things are all terrible and in the current state we’re devastating the Russian economy, but Josh, do you know what the GDP of Russia is?

Josh Sheluk:
I did hear that, I believe it’s 11% of the world’s total GDP. Is that right?

Colin White:
Alright, we’ll see, I don’t know what in that terms, but do know in absolute terms. So the GDP for Russia is 1.483 trillion US dollars. I have a follow question, Josh. Do you know how big the Canadian GDP is in absolute terms?

Josh Sheluk:
2.1.

Colin White:
1.643 for 2020.

Josh Sheluk:
Yeah.

Colin White:
So walk around in that for a second. The Canadian economy on a GDP basis is actually larger than the Russian economy. Canada doesn’t have as many tanks as Russia has. So because my mind goes to all right, they have all this financial pressure on them. I’m going well, how big a deal is that? How big of a country is it really from a… No. How big is the monster we’re attacking?

Josh Sheluk:
Mm-hmm (affirmative).

Colin White:
Their economy again, based on GDP, which is only one measure and there’s probably 18 different ways to measure it, is smaller than Canada. And they’ve got significantly more people. I’m willing to go way out on the limb and say, yeah, this is very material to the quality of life for the people within Russia. And I don’t know how they’re going to be able to sustain what they’re doing for any period of time.

Josh Sheluk:
Yeah.

Colin White:
But I’ve drifted into the world of conspiracy theories and asking questions that really don’t have answers and lead you to think I’m drawing a conclusion when I’m not really drawing a conclusion. Literally I’m just asking a geeky question right now.

Josh Sheluk:
Yeah. And that geeky question assumes that the person with the puppet strings there actually cares about the people of this country.

Colin White:
Yeah. Well, I heard a funny expression when it comes to Russia, because everybody always talks about how low quality that their military is in many respects. And that’s part of what’s coming out of this war, but quantity has a quality all of its own. So you’re right, they don’t necessarily care, air quotes, about their people. But if there’s enough of them upset then that can be the cause of change within the country. But no, I look at it because for my own purpose just trying to gauge the sustainability of the current situation. And I really, because of what Josh talked about, I hadn’t heard the figures to how many of the because the figure 600 billion in reserves has been thrown around. I didn’t hear 400 billion of that’s basically been frozen. So yeah, that’s ratcheting up the pressure quite a bit and they don’t have a whole… Again, they don’t have as much as I thought they might with regards to even the perfect conditions, how big this economy is.

Josh Sheluk:
Yeah. It’s really interesting. It’ll be interesting to see how it plays out. And it’s also all kinds of tragic for the Russian people because a lot of them I don’t think want this either and they’re being put in pretty dire financial stretch right now. So that’s sad in its own. What we’ve done is as we always do try to put this into perspective. Again, purely from a financial point of view, we can’t really put the human aspect of things into perspective at all. But from a financial point of view, these types of events have occurred in the past. Big geopolitical conflicts have occurred in the past multiple times.

Josh Sheluk:
Some of the research that I’ve been reading over the last couple weeks has provided more than two dozen examples since World War II of these types of geopolitical events. What we see typically, not always, but typically is a short term pullback in stock markets. So material noticeable short-term effect, but it’s usually pretty short lived and usually the recovery happens in not too long of a timeframe after. And usually it’s in hindsight anyway can be seen as a buying opportunity.

Colin White:
Yeah. And the other thing to remember, and again, because curiosity is part of it for sure. Wanting to make sure that we take a look to see if there’s anything to glean from history. That’s not necessarily complete because this isn’t happening and we have this event breaking out at a time when inflation is resurgent, interest rates are moving, GDP growth is going as Josh would say gang busters? And congratulations for not using gang busters in this podcast.

Josh Sheluk:
No, this is the haywire podcast, the gang busters-

Colin White:
Oh the haywire. Josh in his word of the day. But no, this event’s not happening and I think that it would be difficult to draw the conclusion that this event is going to completely wipe out the effect of an inflationary period, and interest rate moves, and GDP growth across the globe. I’m not in a position to say that I think this is going to overshadow all of that. So these things are all going to work together in concert to provide the outcome that happens. And this is where we’re really add commentators. Good commentators are going to pick a theme and beat the snot out of it and say, obviously the market’s going too because of Russia.

Colin White:
We’re not those people. We’re going to say, yeah, these other things are playing out and there’re going to be forces that play these reasons to be optimistic because again, the car lots are still empty, people can’t still of cars and the supply chain is in still fixed so there’s lots of economic activity that’s pending waiting for things to get better and that’s going to happen sometime. But it also goes back and completely reinforces our, I don’t know, it’s big enough to call it tagline, but the way we talk about things, keep your short term money short term, keep your long term money long term.

Colin White:
This is another living breathing example of why we come at it that way. Because again, we’re going to talk about it here for some more time and it’s entertainment value only, but at the end of the day, we’re not going to be able to draw a conclusion to tell you, obviously, this is what we’re going to do in the next 30, 16, 90 days. So here’s the five things to protect your portfolio. It doesn’t lend it to that. That’s not the real world. It’s exciting, but it’s not the real world.

Josh Sheluk:
Yeah. And just in case people are thinking right now, that’s great, you looked at past history, but none of those events as significant is this one. Let me give you a reminder of some of these events, Pearl Harbor, Cuban Missile Crisis, Gulf war, Iraq war, Crimea which is basically the same thing on maybe a lesser scale that happened just eight years ago or so. So I’d say a lot of these events that we have looked at are greater in magnitude than this event, not to try to put the relative suffering on any type of terms, but certainly implications for global geopolitics. Some of these events in the past have been more significant for sure.

Josh Sheluk:
So again, not to say that every situation’s a positive one for markets within six months or anything like that. There have been some day negative peers of time. It’s definitely struggle to get through, but on the whole, on average, generally markets have gone up without too much time to waste in between.

Colin White:
And one of the other things that gets more powerful as the world unites in one direction, you go back to 2008 with the monetary crisis when the G20 got together and everybody nodded up and down and said, yeah, we all have to do the same thing. The Russia is uniting the world a little bit. I don’t know if you’ve caught it Josh, but Switzerland picked a side.

Josh Sheluk:
Oh no.

Colin White:
How far in the weeds do you have to go for Switzerland to pick a side. Germany reversed decades of policy, doubled their defense spending and exported arms. The meeting took like 28 minutes. When a country the size of Germany acts that quickly and decisively, there’s an argument to be made here that the globalization is coming back because we’re pulling together pretty hard against this aggression that Russia has started. So this switch with the things it blows me away.

Josh Sheluk:
Switzerland picking aside is like your grandma who has never said a bad thing to anybody when she finally blows up and yells at you’re like, oh shit, I really screwed up this time. That’s when you know you did something wrong. So all this comes back to, I think the big question Colin is what should you do. If you’re an investor right now, what should you do?

Colin White:
Again, find something fun to watch. Your head is what you consume. So if you consume this eight hours a day, this is what’s going to be your whole world. Set yourself some limits. Understand that you feed yourself good things. Don’t get wrapped up in it. We’re not talking, I don’t want to re trigger people, but if I pointed other things that people have been caught up in the last little while, maybe I can convince them that this isn’t the thing to obsess about. We’re not talking about coronavirus right now, are we Josh? We’re not talk we’re we’re not talking about climate change, forest fires, floods. There’s lots of things that have gone away.

Colin White:
If you’re just looking at the news, there’s a lot of things that have gone away right now. So keep it in its place. If you’re a client of ours, we got this. We meet once a week to worry about it and if you’re not, I think the number’s somewhere at the bottom of the screen. But if you’re short term money is short term, like the money you need to spend in the next couple of years is where you need it to be and it’s not exposed to this craziness, and your longer term money is longer term to protect against inflation and the other things that we’ve talked about, you’ve done what you need to do.

Colin White:
If you know that math still holds making an emotional reaction to the environment right now, isn’t going to help, sorry. It’s not likely to help. Any action you take right now, it’s like almost a random number generator as to what the outcome is going to be. Whether you get it further ahead or further behind because of it.

Josh Sheluk:
Yeah. And we don’t like investing randomly. It’s not worked out for you over winter, most likely. And I think the thing that’s hard to do is to accept that the current situation is very uncertain and to almost embrace that uncertainty. And this is always the case when you’re investing, the future is a always uncertain. It seems more uncertain right now than it has in a while. But to some extent you have to accept and embrace that. And you said on the webinar last week Colin, unless you are in Putin’s head, you do not know what’s going to happen next. And I would take that to an extension of two or three because one, you don’t know what he’s going to do, two, you don’t know how the rest of the world is going to respond, and three, you don’t know what’s already priced into the market.

Josh Sheluk:
You don’t know how the market is viewing things and how the market is going to respond to anything that happens. So you have to get so many things that are unknowable to try to time this thing properly. If you’re really being tactical and active with your portfolio right now. Just taking a step back, taking a longer term view, taking a breath, being a little bit more patient, say, you know what? I don’t know what’s going to happen next week or next month, and that’s okay because over the long term, things are going to be better. That’s what you need to be thinking about right now.

Colin White:
And again, I always fall back on the idea, the global economy has absorbed this and worse in human history. The global economy’s going to find a way forward. And if you’re betting that the global economy’s going to find a way forward stock market tends to follow the global economy over time. That’s really liable but look how vague that is. And Josh, the point and I was going to jump in if he hadn’t said it, not only do we not know these things that are what’s in people’s heads and what decision to make it’s unknowable, just accept the fact it’s unknowable. And if somebody tells you a certainty that we’ve done this blah, blah, blah, blah, blah, and this is what’s going to happen, that’s entertainment.

Colin White:
Take it for entertainment’s purpose and treat it like a science fiction book where they’re creating a plot of a story, but there’s no way to make shorter term decisions on this accurately, effectively and to your advantage. If you happen to make a short term call that works out, that’s almost worse because now you’re going to think you can do it again and next time you bet bigger. I think we’re going to stay with our short term money short term, long term money long term because we can reliably say that, put that out there and know that’s the best chance of getting to a better place.

Josh Sheluk:
Great. So just to wrap up everyone, thanks for listening. Again, we’re thinking about everybody out there that’s in some way directly or indirectly personally affected by this. If there’s anything that we can do to make your financial lives a little bit better at this point, give us a call and keep well everyone.

Announcer:
This information has been prepared by White LeBlanc Wealth Planners, who is a portfolio of manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealth Inc. iA Private Wealth Inc is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc operates.

Colin White:
We’ve noticed something. It seems there a lot of people who would rather try to figure out their lives with an online calculator than air your finances to a human. Stop doing that. You need to talk to someone who can help direct you, tell you where to start with what you’ve got to make the biggest impact on your future. You can’t figure that out with doihaveenoughcash.com, but you can figure it out by chatting with us. Call us. It’ll be okay, you’ll see.

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