Ramp Report #4 - War, What Is It Good For?

War, What Is It Good For?

Absolutely nothing.

Russian stocks crashed by as much as 45% intraday on Thursday while the ruble hit a record low against the dollar. By the end of the day it closed down 33.3%.

This was the largest single day decline in Russian history, evaporating 10 years worth of gains and $150B worth of value.

Per CNN, the Moscow market rout was triggered by news that Russian troops had launched an attack on Ukraine, a move that is likely to trigger a new wave of "full scale" sanctions aimed at President Vladimir Putin's inner circle and Russia's oil-dependent economy. A broad offensive by Russian forces targeted military infrastructure across Ukraine as well as several airports. The assault began hours before dawn and quickly spread across central and eastern Ukraine as Russian forces attacked from three sides. Putin warned of bloodshed unless Ukrainian forces lay down their arms. The war raged on throughout the weekend.

Meanwhile the Russian Ruble hit an all time low. Note the massive declines in 2008 and 2014, which were the Russia-Georgia war and the Crimean crisis, respectively.

[Note: As this post was being written late on Sunday night, the Ruble dropped another 30% from chart above.]

The sanctions being discussed also sent oil and natural gas higher, with the former hitting $100/bbl for the first time since 2014 and the latter going parabolic again. Russia supplies more than a third of the EU’s natural gas, and could retaliate to imposed sanctions by shutting off some of those fuel exports.

The news of the Russian invasion of Ukraine sent U.S. stocks spiraling on Wednesday night and were down more than 3% early on Thursday morning. This was a major test of shaking out the weak hands. The Nasdaq was down 3.45% at the low on Thursday and finished up more than 3.3%. The last time the Nasdaq Composite was down more than 3% but closed up by more than 3% was November 13, 2008.

While the S&P formally entered correction territory on Tuesday (-10% from the highs), the early morning Thursday rout sent the Nasdaq into bear market territory (-20% from the highs). Some people use intraday prices. Some people use closing prices. Pick your poison. It’s just another data point.

As pointed out by Ryan Detrick earlier in the week: This is the 33rd correction or bear market since 1980. Take note, they aren't fun and no one likes it, but the return 1-year later is nearly 25% and higher 90% of the time.

While it's "always different this time", many long term investors should consider this a gift, especially if they've been waiting to deploy new capital. It's also completely normal to have corrections like this, as they occur every other year on average.

While the Russia and Ukraine tensions have been high for the past month, it's important to consider how geopolitics have historically affected the markets. Barry Ritholtz covered this in a recent post:

As the old saying goes: Buy on drums and sell on trumpets.

Home Depot-my-god

One of the biggest winners of the pandemic was Home Depot. Of course it was obvious looking in the rear view mirror. Most of us were "locked down" and scared to leave our homes or go on vacation. So what did we do instead? Home renovations. Even myself, I took a week staycation to rip out carpet and put in new hardwood floors from Home Depot.

Overall, Home Depot's Q4 headline earnings were solid:

• Q4 EPS $3.21 (est $3.19)

• Q4 Rev $35.72B (est $34.84B)

• Q4 Comp Sales +8.1% (est +5.3%)

• Sees Year EPS Growth In Low Single Digits

• Raises Quarterly Dividend 15% to $1.90/Share

However, as noted last week, when earnings aren't coming in as strong as expected and they were already priced for perfection, they get punished. Home Depot was no exception. As noted by @cfromhertz, going back as far as Bloomberg data showed on their earnings page showed the Tuesday's 9% decline hasn't happened once in the last 10 years. This just reaffirms how we are in a tough market environment right now.

Follow The "Truth"

Trump's new social app, Truth Social (Twitter clone), hit #1 on the Apple Store on Monday (ironically timed on Presidents' Day). Now we'll hopefully be able to start seeing Trump's "truths" again. Take that Twitter!

It kind of got me thinking about the SPAC he launched last October right around the time I was playing golf in Napa Valley (subtle flex). I honestly hadn't really paid much attention to it after that first announcement. While going parabolic after the news dropped, it ended up bleeding out nearly 60% in the following month before bottoming. Now it's a stone's throw away from new highs and up 800% since the announcement. Meanwhile Twitter stock is down more than 30% since they kicked Trump off of the platform.

I downloaded the app earlier in the week to check it out and was promptly put on a waiting list of more than 500,000 people (bots). Can't wait to hop on there and see the echo chamber similar to Parler.

Gun to head this looks like a great opportunity to bet against this vehicle. I agree with Nikita's stance from the latest Three Cartoon Avatars podcast. This thing is trading at a nearly $3B valuation based on nothing (so far).

Someone who is better at options than me tell me which puts (spreads) to buy and I'll look on Monday.

That's all for this week. Thanks for subscribing and sharing.