In this Stockhead series, investment manager James Whelan from VFS Group offers his insights on the key investment themes and trends in domestic and global markets. From macro musings to the metaverse and everything in between, Whelan offers his distilled thoughts on the hot topic of the day, week, month or year, from the point of view of a professional money manager.

I spent some time over the weekend thinking about North Korea.

Remember North Korea? They were great days.

The late ‘Winter of 2017’ when Trump would fire off some tweets, North Korea would fire off some rockets, and gold DID ABSOLUTELY STUFF ALL (deep breaths, Jimmy).

99% of the time, it works every time

I had a client (who is almost certainly reading this) who I would happily and mutually describe as ‘skittish’.

They would text me at funny times of the day asking me whether we should exit everything in the face of an actual nuclear war.

My response was very simply that if there was NO nuclear war then markets would carry on in their usual trajectory (mostly up).

However, if there WAS a nuclear war then do you really think you’ll be logging in to your platform to check how your SMSF is doing?

Or would you more likely be spending what time you have with your kids and wondering how the world will survive?

Exactly. Investing based on worst case scenarios will send you broke 10 times before you get it right, and even when you get it right you’ll hate yourself when you do.

99% of the time be bullish.

The Ukrainian situation has no set path or timeline. There’s no model for this. However, there is clear evidence that there is serious money going in and out of major indexes based on headlines of peace and war.

Macron makes a phone call, futures are up.

Troops staying in Belarus, futures are down.

I need to reiterate my overarching message for the last week or so that if this thing wasn’t a thing right now then the thing we’d all be talking about would be another thing.

(Ed note: bemused about that sentence structure? Read The Theory of Thing and it will all make sense.)

Things that matter

What is that other ‘thing’? It’s this (inhale):

It’s the US Fed’s messaging about raising rates in the face of +7% inflation, and the fact the US market still trades on +20x while the nonsense stocks held by the “Heroes of Free Money Investing” are tanking and will tank more as redemptions sweep in and there has to be forced selling which begets more redemptions.


So don’t sell stocks based on a potential Biden/Putin summit succeeding or failing.

Instead, invest on indicators like this:

Those pesky Zoom meetings (yes, this actually happened to Cathie Wood)

Or this:

A major airliner pulling the big birds out of storage after two years is a more certain event then the news coming out of Ukraine.

I cannot invest in airlines but if, IF you think that the globe can start turning again and the tourist trade is undervalued there’s a few ETFs that cover that:

The SonicShares TRYP ETF is interesting — a global airline, cruise and hotel ETF.

It trades in the US and has 4-5% holdings in things like Carnival Corp, Delta, Marriott, Royal Caribbean and the like.

There’s just one thing that’s getting in the way of international travel and it’s kind of a biggie because it’s about a potential conflict in one of the largest countries in Europe.

So again it brings us back to not taking any action on things that are directly (or indirectly) related to what’s going on in the Ukraine. Markets hate uncertainty.

I mean, there’s not letting the noise of a conflict affect your long term investing, and then there’s being straight up reckless.

Quarterly outlook

OK, so let’s amend the rule a little: exiting the market because of a potential conflict isn’t a great idea.

In times of war, markets usually come off and are then bought quickly as the realisation of the stimulating effect of conflict can have on companies within indexes.

Gold should keep showing good colour and follow strong technical areas. Russia has seriously bolstered its gold reserves.

I prefer the ETF Securities GOLD ETF for my exposure to the metal.

It’s listed on the ASX, and provides for low-cost access to physical gold via the simple, liquid mechanism of a stock exchange.

Inflation and the Fed will remain a “thing” for the next few months.

Even if we are at peak inflation, we still need the data to prove that and the data is usually looking backwards a month.

So if February data is down off the January peak, then we need to see that again in March and confirmed in April.

If the Ukrainian situation can drag along for long enough, then it may give the Fed enough coverage to get their messaging right on how they’re going to deal with it effectively and for the market to digest it accordingly.

If Ukraine is over quickly (and peacefully) then eyes turn back to the situation we cared so much about two weeks ago and that’s not good for growth stocks.

Either way, you don’t want to be in that end of the market.

Muddy waters

The best I can say now is that the outlook is muddy.

I said it before but markets hate uncertainty so only look to invest in areas with some certainty.

What does that mean? It means don’t get all the way out of the market because of a nuclear war threat. Get out of growth stocks because the cost of money is going up.

It also means staying long Value for the same reason. But having an allocation to travel stocks because of the reopening. But staying away from travel stocks because of global conflict. But being long gold because of global conflict.

Clear as mud. Easy.

Want to know what’s certain in the crypto space?

They’re coming for you and your apes…