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Use These Assets to War-Proof Your Portfolio

Use These Assets to War-Proof Your Portfolio
By Adam Sharp
Date March 4, 2022
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What a week it’s been. My God. 

The good news is that I don’t think we’re going to see a direct military conflict between the U.S. and the EU against Russia. And the same for a no-fly zone.

It’s too risky. Putin has made it clear that Russia’s nuclear weapons are on high alert. A no-fly zone would be direct war. It means bombing air defenses and patrolling the skies. Nobody is going to risk it. It is impossible at this point.

Thankfully, President Biden’s team has been clear on this issue so far. 

So the big question becomes: how will direct pressure be applied by the U.S. and allies and by Russia, respectively?

US + EU Economic Artillery

The U.S., EU and allies are bringing out the big financial guns. Most Russian banks have been sanctioned, and some of Russia’s overseas central bank assets have been seized.

Russia’s currency, the ruble, is down about 30%. Russian equities in the U.S. have collapsed. RSX is the largest Russian ETF that trades in the U.S., and  it’s down from a recent high of $33 to around $5.40 today. New creation orders of shares have been suspended. I don’t know how this plays out.

Currently on my U.S. online brokerage you can only sell RSX, not buy. That’s worth noting, because someone has to be on the other side of the trade. So who is the buyer? I don’t know, but I did happen to see an interesting article in Bloomberg this morning.

Goldman Sachs is primarily asking for corporate debt from the likes of Evraz Plc, Gazprom PJSC and Russian Railways that matures within the next two years, and has made bids for Russian sovereign notes…

With all that is happening, I deeply regret my past articles where I spoke positively about investing in Russian stocks. I didn’t see this war coming. For me, it’s too late to sell – so I will just ride it out. This “sell only” option also weirds me out. It reeks of an asymmetrical trade.

Of course, there is a chance Russian equities will be delisted in the U.S. But that’d be another big step. And it could make U.S. markets look less attractive to foreign corporations.

This is just a tiny part of the giant sanctions package applied so far by the EU and U.S. Both sides have also shut off access to airspace for commercial flights. 

Russia’s Energy Leverage

Russia provides a staggering amount of gas and oil to Europe and the Middle East. It’s something like 40% of European natural gas usage.

Without Russian energy, the situation in Europe and beyond would get very dicey.

At any time, Russia’s state-owned natural gas export monopoly, Gazprom, can shut that flow down. This is why the sanctions that the U.S. and EU applied didn’t target the banks that Europeans use to pay Russia for energy, such as Sberbank.

It seems certain that Russia will wield this power aggressively. It is the country’s largest economic lever.

These economic warfare measures seem likely to combine and create some very nasty inflation.

Bitcoin, Gold, Silver, Startups and… U.S. Energy?

For a long time, my inflation playbook has remained the same. Bitcoin for upside potential. Gold and silver for safety. Precious metal miners for a little bit of both. 

And startups for long-term growth. 

I just added a bit of U.S. natural gas to my portfolio. I think the idea is worth exploring, and I am digging into the topic. 

U.S. energy production is about to get a lot more important. Capital will naturally flow into the sector now that oil prices are spiking. This is good, as we clearly need to produce more gas and oil here.

We don’t know how long the warfare – both economic and real – will last. But it could be a prolonged affair.

I am also closely watching China, which will likely be a key behind-the-scenes player.

In the meantime, I will continue to desperately hope for a diplomatic solution. But it doesn’t seem too likely in the near-term. 

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