How to trade World War III
109: Which assets to hold for the big show
This weekend, through various sources it has become quite obvious to me that the War in Ukraine is metastasizing into a serious series of events that could spiral out of control at any moment.
In a layout similar to the campaign you might mind in Battlefield 3 or Call of Duty, Iran, Russia, NATO, the United States, China, and a host of other countries including the petulant North Korea, have all signaled that they are baring their fangs and ready for where global conflict leads next.
We’ve seen a troubling build up of military forces in neighboring countries, both NATO, and former Soviet States along with proxy efforts by allies on both sides including Iran, China, North Korea, Belarus, and other usual suspects.
We’ve received a lot of questions about how to trade armed conflicts and while we’re not experts at trading, we have substantial experience studying international relations, conflicts, and game theory so likely can be additive to any theses, analysis, or thoughts you already have on how to make money if things, how do we say, pop off……
Chaos is oftentimes opportunity.
We’ve touched on our thoughts and analysis of this conflict in several Arb Letter pieces already so if you’ve missed them feel free to go back through our archive when you have free time, are using the toilet at work, or commuting.
And while we will be releasing an exciting intro to options trading post this week for paid subs in partnership with OptionsSwing, I wanted to summarize where we stand globally in regards to the War in Ukraine as I think we’ll see some escalations this week that give us clarity into how this conflict is going to impact all of us.
The S&P 500 is down nearly 25% on the year, global currencies have been throttled by the US Dollar’s strength, and many of the Covid darlings including tech, innovation, and hyper growth names have come tumbling down to earth (SPOT, NFLX, PTON, SHOP, TSLA, et.).
Retail has largely been wrecked, 401Ks are decimated, and many families globally have cut back on expenses, don’t have enough food, or suffer from the energy crisis.
Conversely - energy and other sectors that saw an immediate boost in demand due to the supply chain havoc caused by the War in Ukraine have performed very well — making folks who hedged or took positions in these names rich over the last several months.
The goal today on this boring Fall Monday is to give you all an idea of the honest read on what’s going on and what’s likely to happen, and provide you with the basic financial framework to take advantage of any escalated developments or new directions this conflict takes.
There are still sectors, industries, and names to buy that will outperform if this conflict continues or worse, escalates.
Today we’ll walk through:
The global playing field right now
Risk of escalation, including nuclear
What happens next in the War
Potential ways to play this in financial markets
Bull Cases, Bear Cases, and our stock/industry/asset picks for wartime
We’ll go over 20 or so options you have for investing in war and conflict assets after walking through our overview of where we stand.
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One of the interesting things about the War in Ukraine is that it has been one of the most documented military conflicts ever in human history due to technology and the availability of personal cameras, drones, go-pros, and other mechanisms for recording combat footage.
Not since our conflicts in Iraq and Afghanistan have we been able to see firefights, tanks exploding, drones dropping grenades on soldiers in foxhole, and more from the safety of our homes.
Let me make one thing perfectly clear about the War in Ukraine — we still do not know why the US is so staunchly funding and supporting Ukraine. Ukraine served as the ideal pivot for US media headlines from Covid and the pandemic.
Sure it’s a way for NATO and the United States to wage proxy war on Putin with military support, funding, and economic sanctions, but there’s almost certainly more to the story.
Given the Biden Administration’s involvement in Ukraine before the war, in which the President’s son was making deals with the Ukrainian gas company Burisma, I don’t think it is far fetched to assume there are economic motives and likely some money laundering schemes going on at some level, not just with the Biden’s. but with international and US government officials.
Now that’s not the sole reason behind the conflict, but we also know the CIA has a heavy presence in the country and has been there for some time and we also know that Ukraine is a rather corrupt country. Mix that all together with the billion upon billions in aid that we continue to give and you have quite an interesting little scenario developing.
It’s really anyone’s guess as to whats going on beneath the surface.
But on the geo political front, it is clear why Putin is there. He is fighting against a stubborn and committed proxy force.
My fear however, is that this sideways way of fighting Russia is going to allow for a disproportionate response from Putin.
The playing field right now
It’s not Western propoganda to make the determination that the Russians have not fared as well as they thought they would in Ukraine. Their first series of offensives were stubbornly repelled by Ukrainian defense forces who had received years and years of training from the CIA, European NATO nations, and US special forces.
Russian morale is very low, unrest is growing at home due to the series of drafts and mobilizations by Putin, and a lot of the equipment that is being given to soldiers and used is too old to be effective.
The tactics the Russians are using are getting more and more desperate — with recent missile attacks on Ukrainian cities, the key mobilization surrounding Putin’s annexation, and even a recent drone strike on Kyiv.
Earlier this month, a sabotage element took out the Kerch Strait bridge, a crucial pinpoint for the Russians allowing them to move transports, troops, and supplies in and out of Crimea
Most recently satellite imagery shows a backup of Russian supplies and the use of a crude ferry system while the bridge is inoperable.
The Kerch Strait attack on the heels of the Nordstream sabotage event was a large symbolic victory and a middle finger to Putin.
The international community pressure is mounting on Putin as well — recently Lithuania, Latvia and Estonia all called for special tribunals against the russian leadership for war crimes and indecencies in the conflict.
Top defense officials attended a NATO meeting in Brussels on October 13, 2022, to discuss the various courses of action being taken in response to Putin’s warpath while also trying to implement steps and measures to avoid escalating the conflict. Despite this, NATO held a nuclear training exercise Thursday that the Russians did not take kindly to.
“Kyiv is well aware that such a step would mean a guaranteed escalation to a World War III”, he told the state TASS news agency.
“The suicidal nature of such a step is understood by NATO members themselves.”
—Deputy secretary of Russia’s Security Council, Alexander Venediktov