Its Right to be Bearish

There is an old saying that bottoms are an event, while tops are a process.  Fear is a much stronger emotion than greed (the new kids call it FOMO).  The action so far in 2022 is showcasing that, as the downtrend has been choppy, and this rally off the bottom for the last 2 weeks is catching a lot of investors off guard, holding too much cash.  They are right to be nervous, but its never a straight line when transitioning from a bull market to a bear market.  Tops are much choppier and take longer to play out than bottoms.  Tops are flatter, with prices hitting the upper end of the range multiple times before finally going down for good into a bear market.  During this topping process, investors actually get less bullish even though prices are trading in a range for several months.  For example, investors are much more bearish now than last November, when the S&P 500 was trading at 4600. 

There is a misconception about investor sentiment and psychology.  Most contrarians view a lack of bullishness as a positive and a sign that there is room for investors to get more bullish.  That assumes that the crowd as a whole are dumb and don't have a clue about fundamentals, and blindly get more bullish as prices go higher.  But investors as a whole aren't idiots, and are definitely smarter than they were even 10 or 20 years ago.  In the past, macroeconomic fundamentals were considered the most important variable for the stock market, when it was actually monetary policy.  The market now knows that the most important variable for the stock market is Fed policy.  Then comes fiscal policy, which is a distant second.  

Investors actually are sensing that this is not a good time to be in stocks.  This is based on the simple assumption that a hawkish Fed looking to do a bunch of rate hikes in a hurry after a huge move higher in stocks in 2021 is not a good thing.  And that's the correct view, even though it doesn't look so correct when stocks are screaming higher like they have for the last 2 weeks. 

 It was great time for stocks for all of 2021, as the Fed was way behind the curve, doing massive QE while CPI was printing 7% month after month in the biggest fiscal pork stimulus bonanza in US history.  Powell screwed up big time, although he'll never admit it,  mainly because he put his own political situation ahead of the facts, which he brushed off as transitory.  Now the Fed is so far behind the curve and the economic cycle that they don't have enough time to tighten sufficiently before the economy completely rolls over.  You will likely get lower inflation prints in the 2nd half of the year (ex food & energy) due to the weaker economy and less fiscal stimulus, not because of the Fed's tightening.  The Fed should already be at their so-called neutral rate of 2.5%.  

The Fed is so late that they are early.  That's right, they are so late to tighten that they won't be able to hike as much as they want before the crap hits the fan.  And no, the Fed will not be hiking when the stock market is going down a lot and the economy is quickly slowing.  Right now, the economy is past the peak but still in the gentle downslope part of the economic cycle.  When the leftover stimulus is mostly exhausted and higher rates and QT begin to curb speculative activity, the downside of economic cycle will gain momentum and at that point, the Fed will freeze, and then make a dovish pivot.  Similar to what they did in early 2016 and in early 2019.  This time, they will stop hiking rates not because inflation is under control, but because they don't want to take the blame for tightening the economy into a recession.  

You see, the Fed's main goals are not to maximize employment and have price stability.  They want to:  1. Protect themselves, to not receive any blame, so always doing what is politically popular (right now fighting inflation is politically popular)  2.  Keep goosing asset prices higher as long as there is no political pushback from high inflation caused by loose monetary policy.  

The Fed could care less about high inflation if it wasn't so unpopular amongst the public.  But since people actually don't like it when their purchasing power goes down due to excessive monetary stimulus, the Fed has to react to that.  If people didn't care much about inflation, the Fed wouldn't care either.  They are academics, but political academics.  There is no such thing as Fed independence.  That's a joke.  The Fed is like the 4th branch of the government.  

Sold the rest of my SPX longs, too early again, looking to have dry powder to buy into a pullback.  It looks like another one of those classic run for the hills rally towards previous highs.  Its been just over 2 weeks since the bottom before the FOMC meeting, but it feels like its been so much longer considering how much ground the SPX has made up.  Its only down 4% from all time highs.  There will be great opportunities on the short side, but you have to be patient and can't rush to get short.  It takes time for the herd to get their fill of stocks, and considering how low the net equity exposure is, it will take at least another month or two before it will be safe to short.  

Same goes for going long on Treasuries.  It feels like its still a bit too early to get long bonds because I still hear many people skeptical that the Fed can do so many rate hikes that are priced in.  Only when that skepticism turns into true fear that the Fed is serious about hiking 50 bps clips at each meeting, will you be able to finally get the weak hands out of the bond market.  Then it will be a safer spot to get long.  Until then, its a waiting game. 

Gutless "Hawk" Powell and Honey Badger Stock Market

The reaction to the news tells you a lot about a market.  The stock market is no longer the bear's punching bag.  Its punching back at the short sellers, who have aggressively sold bad news since the start of the year.  

On Monday, Powell reinforced his all talk, little action credentials.  The only thing that's changed from Wednesday to Monday is the SPX, which was about 200 points higher on Monday than last Wednesday.  If Powell seemed so concerned about inflation and was comfortable with hiking 50 bps, why didn't he do it last week?  He's been talking hawkish all year, but the reality is that the Fed funds rate is still 25 bps.  Its a joke. Gutless.  He's brave and will talk a tough game, but when it comes time for hawkish action, he does the bare minimum.  That's why so many are so skeptical about those Fed dot plots, which is just another way the Fed tries to act self-important, even though their forward guidance is useless.  Just 6 months ago, the Fed was predicting continuous QE and the first rate hike in 2023.  Completely wrong. 

Powell is excruciantingly slow in hiking even as he talks tough, like he's the next coming of Paul Volcker.  He made an obvious policy error, and inflation is out of control, but people still think he's doing a "good" job, because stocks are much higher over the last 2 years.  I wonder if the people who hold no stocks and are getting squeezed with higher inflation think he's done a good job.  

Anyway, on Monday, we did get a knee jerk move lower on the hawkish rhetoric from Powell, throwing around potential 50 bps hikes like Putin throws around nuclear bomb threats.  And yet the next day, the SPX squeezed higher above 4500 and even after yesterday's pullback, its still higher than pre Powell hawk talk levels on Monday.  And that's despite the bond market trading extremely weak and crude oil surging higher.  

Across that negative backdrop of weak bonds and surging oil prices, stocks are like the honey badger, they just don't care. Its been 10 days since the bottom last Monday, and the SPX has rallied almost 400 points from last week's low to this week's high.  The stock market is clearly showing that the big boys are underinvested and putting on equity exposure quickly, so as not to be left behind just in case there is a no looking back rally, which keeps grinding higher.  

There is nothing that motivates buying more than career risk, and getting destroyed by the S&P 500 while holding cash, as the market surges higher.  Even if the fundamentals don't justify buying at these levels, that doesn't matter.  Hedge funds are short term players, they can't think about the long term if they underperform so badly that they can't get to the long term if they face big redemptions.  

So considering the plentiful signs of an intermediate term bottom in stocks, continued weakness in bonds, and unreal strength in commodities, what is the plan?  Right now, the best play is to be long stocks, even if in the 2nd half of the year, I expect another waterfall decline.  The hedge funds are very underinvested, and with the strong rally in the face of bad news and bond market weakness, I can see the SPX going up to at least 4600, and perhaps even 4700 in April.  I did sell most of my longs on Friday, so I am one of those underinvested investors.  I will be looking to buy any weakness in the coming days, although I am not sure it will be coming.  

The speculation is starting to heat up as AMC and GME and other meme stock favorites are running hard, but I wouldn't consider that a contrarian signal yet.  We've had so much doom and gloom for so long, its going to take several weeks of grinding up action to get the majority back on board.  This looks like one of those extended countertrend rallies in a topping phase that tricks investors into piling back into stocks despite the deteriorating fundamentals.  Like the May to July 2000 rally, like the August to October 2007 rally (Look at a historical SPX chart to see what I mean).  

It seems to be more like 2007, mainly because investors seem more cautious and are aware of the downside risks, much more than they were in 2000.  So giving this rally a couple more months to play out, and by May or June, it should be a good spot to either get long bonds or short stocks.  UST 10 yr around 2.60% would be a very good long term level to get long, as there is a lot of resistance at that level.  Also, leading indicators are also rolling over and I doubt the Fed can get off too many more rate hikes before they start getting scared again as growth slows and they get scared of their own shadow as the 2-10 yield curve probably inverts.  But until then, stocks look like the place to be. 

Overextrapolating

Humans have a tendency to think about the present and extrapolate it into the future.  In the investment world, this tendency is reinforced by month to month performance tracking of hedge funds, mutual funds, etc.  No one wants to lose money in the short term, which leads to herd behavior and short term thinking.  When the herd is running away from stocks in a rush, driving prices lower, fund managers can't pretend like they are managing their own money and just hold their positions and wait for the storm to pass.  They have to worry about short term performance, about losing too much money because that could lead to redemptions.  So they have to sell some of their holdings, just to slow the bleeding, even when they don't want to. 

The war in Ukraine is a perfect example of an exogenous event which has made investors revise their global view and overextrapolate.  Not only about the economic side of things, but also the geopolitical side.  Economically, now most expect the war to cause inflation to rise and growth to slow, especially in Europe, due to the side effect of Russian sanctions.  Geopolitically, suddenly people think there is a pre World War II setup where you have the Allies and Axis powers, getting ready for war, this time with US/EU/Democracies on one side and Russia/China/Non-democracies on the other side.  

I disagree with that view.  But I feel like I am in the minority, with most people now expecting more wars and conflicts between the 2 sides.  There is a lot of inertia when it comes to geopolitics.  Especially when the current situation is close to the equilibrium.  The overwhelming advantage that the US/EU/Democracies have from an economic and military aspect makes it a lopsided contest, and Russia and China know this.  Sure, they are nuclear powers but before nuclear weapons are used, financial/economic warfare through sanctions and restrictions will be leaned upon, and those heavily favor the side with the bigger total economy and the one with the global reserve currency.  It only took a couple of weeks and the Russia economy is already in free fall because of the sanctions.  Holding the financial levers in a global war is a huge advantage.  

After financial/economic war, then comes a hot war using conventional weapons.  That also gives a big edge to the Democracies due to the US investments in the military. Technologically, from a militaristic standpoint, the US is the best. You can say what you want about incompetence in the US government, which is valid, but the US military through massive spending and investment over the past few decades has put them clearly at the top.  Its not a force that Russia and China want to antagonize into a world war.  There is a clear deterrent effect of the US military buildup which prevents a hot war between superpowers from getting started.  

I see some of the 15 minute geopolitics experts who are opining that because Putin gambled and invaded Ukraine with bad information, that Xi will do the same thing with China.  They are 2 very different countries.  Historically, Russia has started a lot of military conflicts.  China has not.  China has usually been on the receiving end of other countries' aggression.  Unlike Russia, which has some imperialistic ambitions, China seems more concerned about its economic position, and ensuring that it has a steady supply of natural resources to keep growing to become a first world country. 

So what about all the talk about China invading Taiwan?  China invading Taiwan is different than Russia invading Ukraine in the sense that there is no way the EU/US will put on heavy handed sanctions on China like they did to Russia.  It would be suicidal, because of the amount of Chinese exports that they depend on for their economies.  And the difference between China invading Taiwan and Russia invading Ukraine is that Ukraine is right on the border with EU countries that are also NATO members.  That immediately rings alarm bells for the EU and its allies.  Taiwan has no such borders.  And most countries don't even recognize Taiwan diplomatically as a country, like they do with China.  And with Xi set to be reappointed as Chairman for life this coming fall, I don't expect any risky moves like a Taiwan invasion before then.  So if it does happen, it probably happens in 2023 or later.  

We are getting some headlines about Russia and Ukraine making progress in peace talks.  Its the rational outcome for both parties.  Only through a peace agreement will Russia be able to get the West to lift sanctions, winning the war and occupying Ukraine is losing economically and politically.  Putin is not crazy, like many think, he just has bad information from incompetent sycophants who tell him what he wants to hear.  If he knew what would have happened before the invasion, he probably wouldn't have invaded.  So clearly taking an off ramp before his economy goes even further down the toilet is the rational choice.   

As for Ukraine, if they don't reach an agreement with Russia, they'll have to probably withstand another couple of months of artillery bombardments with the West making token donations of weapons and aid until Zelensky and his government get taken out by Russia, dead or alive.  Any deal that isn't totally egregious is better than doing nothing and eventually losing the war.  Ukraine cannot win the war militaristically.  They are totally outgunned, outmanned.  Sure the Russians also are taking significant losses, but their military can bleed for quite a while before they run out of manpower and firepower.  Ukraine cannot win a war of attrition, they just don't have the capacity.  

Of course, if neither side is willing to compromise to get a deal, then wars continues, but the pressure on both sides is building with each passing day to make a deal.  The alternative is worse for both sides.  

We have an FOMC meeting today, I see that many are expecting 25 bps and a hawkish statement and press conference.  So the bar is a lot lower than the last meeting, when many were still not so sure about Powell's stance.  They know now that he's taken a hawkish turn, so the expectations are more aligned with reality.  I actually think the FOMC meeting isn't that important right now, its not really a variable, its a constant and that is 25 bps for each of the next 3 meetings, taking the Fed funds rate to 0.75-1.00% range.  After that, it becomes a variable again.  I don't put much weight on what Powell says because he seems locked in for the next 3 meetings, and the balance sheet runoff is probably going to start either in June or July.  

The market cares about the war much more than this FOMC meeting.  Hedge funds have not been derisking like this (near spring 2020, early 2016 levels of net equity exposure) just because they think the FOMC will be hiking rates for the next few meetings.  Its from the unknown and economic doomsday scenario that they picture with a long dragged out war where Russian sanctions eventually result in much higher energy and food prices, and thus lower overall global growth.  

Still holding long, see some stiff resistance at SPX 4400, and strong support around SPX 4150-4200 area which has held the last few times down.  Bond market weakness is a definite negative, but I'm not sure how much of that is selling ahead of the uncertainty of the FOMC meeting, and how much is from a view that inflation will remain higher for longer due to the side effects of war.  If it is more the latter, that's not a good sign, because I expect commodity prices to be quite high for longer even after the war is over.  That's the biggest fly in the ointment for the stock market bull case.  But despite that, I still see a market that's oversold enough and de-risked enough to rally for 1 to 2 months from these levels.  A bear market rally of sorts, a counter trend rally that surprises a lot of investors. 

Of course, if you get peace and Russia leaves Ukraine, that event itself would get the animal spirits flowing for at least a few weeks, if not months.  I still view this as the middle of the topping phase, I don't expect a protracted downtrend until more rate hikes are behind us and investors are more complacent.  Right now, so many are cautious out there because of the war that when the war ends, a lot of money will be put into stocks, and its going to take more than a week or two, considering how much the funds seem to have sold down. 

Commodities Going Parabolic

During the past 3 weeks, since the beginning of the fears of a Russian invasion on Ukraine to actual war now, you have seen a shift in the mood from possible supply shortages if there is a war to pricing in a supply shortage for the next several months in crude oil, natural gas, metals, and grains.  The supply shortage coming from Ukraine unable to harvest and export grains is natural, and will be there until the war is over and Russian troops leave.  That is why the move higher in wheat looks much more sustainable than the move higher in energy.

The supply shortage coming from Russia due to embargoes and sanctions is artificial, and can be circumvented through exporting to non-sanctioning countries such as China and India, when possible (crude oil), although for natural gas exports, there isn't the infrastructure to export it to China or Asia through pipelines or as LNG.  

There is an assumption that Russia won't be able to export most of their normal 5-6 M barrels/day of oil due to Western sanctions.  But Russia still has the capability to export it, although at a steep discount to non-embargo countries.  Since crude oil is fungible, in that case, there is no supply disruption, as China/India will be substituting non-Russia crude imports with cheaper Russia crude imports.  The US can make warnings all they want about China buying Russia commodity exports, but they can't do anything about it, and it actually helps the White House, because China importing Russian crude helps to keep crude oil prices from getting completely out of control.  

 As for European natural gas supply coming from Russia, it looks clear that Europe can't take the pain of not importing Russian nat gas, no matter how bad it looks politically.  Because it will be even worse when natural gas prices go so high that it requires demand destruction from high prices, which is a politically painful way to match supply with demand.  That's why Germany has refused to put an embargo Russian natural gas. 

There is now a consensus belief that there will be an extended global crude oil shortage, and a European natural gas shortage.  But that's assuming an extended, drawn out war between Russia and Ukraine, and no deal between Ukraine and Russia.  Those are questionable assumptions because Russia has taken control of most of the south, and is steadily advancing towards Kiev, and with their artillery firepower and Putin being committed to taking over Kiev barring a peace deal where his demands are met.

If Putin takes over Kiev, the war is effectively over.  If he makes a deal with Zelensky, the war is over.  The likelihood of one of those things happening within the next 30 days is much greater than 50%, IMO.  The war coverage is clearly biased for the Ukraine side, just from people wanting to root for good vs evil.  But the reality is that US/EU are not interested in going to war with Russia over Ukraine, and without their direct military help, Ukraine is massively overpowered and will be overwhelmed by Russian forces.  Its a matter of when, not if.  

Zelensky is starting to waver on his firm stance of refusing to compromise on certain issues when negotiating with Putin.  He may be seeing the writing on the wall, and is between a rock and a hard place.  If he acts rationally, he would accept the deal from Putin and remain in power, give up trying to get into NATO/EU, although with the dark cloud of Putin hanging over Ukraine, but not directly taking over.  Taking the deal from Putin is not a get out jail free card, it's basically just kicking the Russian can, but he's buying time and avoiding regime change.  If he decides to keep fighting, eventually he'll lose to Putin, get taken out dead or alive, leading to more destruction and a humanitarian disaster from artillery fire in the coming weeks and months. 

Stating the obvious, the Fed and ECB are not what's keeping this market down.  Investors are reducing equity exposure because of the uncertainties of futures sanctions and second order effects of effectively shutting off a big part of Russian trade out of the global economy and explosive moves higher in commodities, fearing that tips the economy towards a possible recession.  

If we get a resolution to this war, the market will go much higher than current levels, given how much hedge funds have taken down net equity exposure, and how much fear there is in the market.  This level of fear is not sustainable for long.  Its not an equilibrium situation, because eventually those that wanted/had to sell have already sold.  

Still long, and nursing losses, but I just don't see a big economic impact from high commodity prices that many believe.  Spending on fuel and wheat is just not a big part of consumer spending in the US/EU.  And the extra money that they do spend just gets recycled to commodity exporters who will have more money to buy financial assets. 

Nuclear Risk

The VIX is pricing in nuclear war risk, as the realized vol is badly lagging behind implied vol over the past 4 trading days.  Overnight VIX levels are trading at 33.8.  A VIX of 32 implies daily 2% moves.  Since last Friday, the SPX has moved the following:  -0.24%, -1.55%, +1.86%, -0.53%.  If you are counting the current level of the futures, the SPX is down a little over 1% this week.  

The divergence between realized and implied vol eventually converges to its historical level, which is around 3-5 VIX points.  Right now, over the past 4 days, that IV to RV premium is hovering around 15.  These kind of bloated implied vols are usually present around big events, like a 2020 Presidential election.  This time, the event is something that is everyone's biggest fear:  nuclear war.   

The market got a big scare when a Ukranian nuclear plant got hit and a fire broke out.  Eventually the fire was put out, but you still have the leftover nuclear jitters and of course weekend war risk, which is now being priced in as the futures sink pre-market.  

During the past 4 trading sessions, the divergence between the Eurostoxx and SPX has been dramatic.  Europe is making lower lows, and has broken the Thursday 2/23 Russian invasion panic low, while the SPX is still trading above 4300, well above last Thursday's levels.  A lot of risk is being priced into European equities, and much less is being priced in for the US.  It seems like the US stock market is considered a relative safe haven for risk-on flows, less affected by the repercussions of the war than Europe.  

We are still chopping around in the 4300 to 4400 range over the last few days, almost like a mirror image of the chop that we saw between 4280 and 4430 in late January.  This time, the fear is more palpable, although the realized vol is less.  If the market stabilizes and stays within this 4300-4400 range, the VIX will naturally drift lower as the IV-RV relationship converges to its historical relationship.  

On Wednesday, Powell all but put 25 bps rate hike in stone for March, but seems to be considering the aftereffects of Ukraine, which probably takes out 1 or 2 rate hikes he would have probably pushed through if there were no geopolitical risks out there.  Marginally lower rates and less aggressive Fed talk should keep the Fed from blowing up this market in the intermediate term.  But if the market rebounds too much, then I can definitely see Powell going back to hawk Powell mode. 

I am seeing a steady flow of elevated ETF put volume relative to calls throughout this week, as investors get more hedged.  We have a big options expiration in 2 weeks, so there will be a lot of put deltas that will either evaporate to 0 if the market goes up or stays still.  Barring nuclear armageddon, dealer hedging flows (delta, vanna, charm) are a net positive for the next 2 weeks, and should provide steady SPX buying, and the flows will be even heavier if the VIX starts to go down. 

Lots of things are in favor of the bulls at the moment, even as it looks scary right now.  Well hedged market, bullish options flows (barring nuclear war), reduced fast money net equity exposure, and lots of fear.  

Given how much fear there is in the market, I expect an extended rally from these levels over the coming months, as investors slowly increase their equity exposure as they put the war behind them and focus on less "scary" things such as inflation and Fed rate hikes. 

Is Putin Mad?

Its easy to get caught up in the Russia/Ukraine news and market implications, but every 15 minute geopolitical expert has pined their views over and over, so I'll give you mine a bit later in this post. 

I was listening to a Quoth the Raven podcast yesterday, with guest Ben Hunt.  He was talking about the Ukraine war, and how prices/valuations are determined by stories, and one of the stories that the market often repeats is when it faces an obstacle, and volatility increases and prices go down. But eventually, the market overcomes the obstacle, and during that process, stock prices go up.  

That made me think about the obstacles for the market in 2022.  First, it was the Fed turning hawkish, starting with the Fed minutes from the December meeting released in early January, which started this downturn.  And it continued as the market kept pricing in more rate hikes and stock jockey central bankers like Bullard giving his 2 cents and talking more rate hikes, multiple hikes.  Bullard even got specific, saying he would like the Fed funds rate to be at 100 bps by July 1.  

In the middle of all this, the market was thrown another obstacle, the Russian invasion of Ukraine, which many suspected for several weeks before it eventually happened, despite denials from Putin the whole time.  People were mocking Biden for scaring the market by saying that Russia was getting ready to invade, and it wasn't happening right away.   

As the negotiations between Putin and the EU/US kept failing, and the US intelligence kept repeating news about more and more Russian troops at the Ukraine border, the market was sensing a war could happen any day.  And with any bad news, it usually comes out overnight, and the futures tend to have a kneejerk selloff, and it did last Thursday.  And it did it again on the Russia central bank asset freeze/SWIFT ban, stoking up counterparty risk fears, and talk about another Lehman 2008 / Covid March 2020 moment on Sunday overnight/Monday morning.  And yesterday and today, another one with crude oil surging higher as Russia can't seem to sell its oil, even though oil falls outside of the scope of the sanctions.  

At this point, it seems like a total mess, but if you look at the SPX chart, while the news seems much worse now than it did in late January, we're basically back at those late January price levels of SPX 4280-4400.  But now, sentiment is much more bearish, there's been more time for fast money fund managers to reduce their equity exposure, and you have the market much more prepared for further downside.  The news flows seems much more horrible, but here's probably the most important difference:  bond yields are much lower, especially the last 2 days as the market is now pricing in a less hawkish Fed and ECB with all the geopolitical uncertainties.  Lower bond yields are a positive, a less hawkish Fed and ECB are a positive, even if it only lasts a few months. 

So you have less hawkish central banks even with oil surging way above $100.  Bond yields are much lower.  And investors are much more bearish.  Yesterday, I was listening to CNBC Halftime Report, and 2 of the guests were both looking for the market to chop around these levels, even looking for a retest of last week's lows, but they expect that the market will eventually go higher after a few weeks, after the Fed raises rates.  Its seems they are not fully invested.  Well if they are going to wait for the bad news to stop, or for the market to stop caring before increasing their risk exposure, then they'll have to pay higher prices for the certainty.  

Eventually, there will be a resolution to the war, Russia can't fight forever.  They can't even produce most of the military equipment and weapons without importing high tech parts from the EU.  They'll eventually run out of conventional firepower.  So they go nuclear after that?  Putin going nuclear basically assures the end of his regime, and he knows that.  There is already so much global backlash at Putin due to the Ukraine invasion, imagine how much worse it will get if he uses nukes.  The whole Western world will be looking to eliminate Putin from power, dead or alive.   

Really that's the only uncertainty left for this market, whether Putin goes nuclear or not.  And that's a black swan event, but there is no incentive for him to do that unless he wants to go out with a bang.  But based on how scared he is of Covid and how far he literally distances himself from those around him, I don't think he's looking for a death wish.  Even as delusional as he is, he knows that going nuclear will be the riskiest move he's ever made, with a substantial probability that it ends his regime.

Many are saying Putin is a mad man, unpredictable, and apt to do crazy things.  He's not mad, he's just out of touch with current events.  His inner circle are a bunch of yes men who don't give him an accurate view of what's happening.  He invaded Ukraine because he thought it would be easy, the world wouldn't really care, and would let him take it without consequences, like the other small wars that he fought before.  And even with sanctions, he won't change his view, unless he feels his reign is in jeopardy.  He was so secure that he would stay in power, that he didn't even consider the risk that a Ukraine invasion could possibly backfire and potentially lead to his downfall.  

I don't know how much he's going to invest in the Ukraine war, but at this pace, he won't be able to go on for long.  Eventually they'll run out of conventional weapons and military equipment.  Unless China steps in to provide it to him.  Don't think Xi will want to do that, considering how much the world is against the war.  Plus, China is a net importer of energy and commodities, so this war is hurting them economically.  Unlike other dictators like Xi and Kim, Putin doesn't have the same logistical capabilities to get his population completely under control.  If the war drags on and the Russian economy falls into a depression, there could possibly be uprisings or a coup. 

I have a full SPX long position and just waiting out the turbulence.  Bond market strength is a positive, and its a much bigger factor than crude oil prices rising.  Financial markets are a rich man's game.  Higher oil prices negatively affect poor people, not rich people.  Bond prices affect rich people, not poor people.  Higher oil prices are a stock market negative if and only if it makes the Fed more hawkish.  Based on the moves in the bond market, it appears that the market is sniffing out a less hawkish tightening cycle due to the Ukraine war.  That's the most bullish development I see over the past 3 days.  Much more important than any Russia SWIFT ban or Russia default concerns.