by Gary Alexander
March 8, 2022
I admit that in my predictions for 2022, I never expected Putin to invade Ukraine, since I thought he was a Russian chess master who would learn from history and operate in his own long-term best interest, perhaps by forcing a pro-Russian vote in Eastern Ukraine, but not by staging a violent invasion like the 10-year Soviet occupation of Afghanistan, a failure he must have noticed as a young Soviet KGB agent.
What’s the likely outcome now? The daily news is jarring, so I find it useful to look back for perspective. Over the decades, I have devoured several books covering Napoleon’s invasion of Russia and the later equivalents in Hitler’s invasion of Russia, then Russia’s 10-year (1979-89) occupation of Afghanistan – plus our own 20-year quagmire in that same unforgiving land. For those who want a deeper dive, I highly recommend Leo Tolstoy’s War and Peace for a fictional foray into 1812 Russia, or Stalingrad by Vasily Grossman about that 1942 siege, well told in a superb new translation by Robert and Elizabeth Chandler.
Today’s defenders in Ukraine (and Afghanistan) have the same grim determination the Russian people had in their 3-winter, 900-day defense of Leningrad (1941-44) and their 2-winter, 500-day stand in the rubble of Stalingrad (1942-44). It may take two years, but Putin will not only lose Ukraine to stalwart Ukrainian defenders, by guerilla warfare if necessary, but he will likely be tried for war crimes.
In World War II, “The Red Army’s determination not to retreat a step farther arose spontaneously among the rank-and-file soldiers at the same time as Stalin issued his draconian ‘Not One Step Back’ Order of 28 July 1942” (according to Robert Chandler in his introduction to Stalingrad). And now the courage of Ukrainians under the death-defying leadership of President Volodymyr Zelenskyy has revived that spirit.
A century of Russian history can be split into three generational benchmarks – each on today’s date:
- On March 8, 1917, the Russian Revolution began when peasants clamored for bread and took to the streets in Petrograd (the Russian capital, now known as St. Petersburg). Supported by 90,000 strikers, these protests led to an overthrow of the Czarist regime and a relatively liberal democracy led by Alexander Kerensky – but only for a few months, before the Bolshevik revolution in October.
- On March 8, 1950, the Soviet Union confirmed what we already knew – they had the atomic bomb, thanks to German physicist Klaus Fuchs, who worked on the Manhattan Project then gave our nuclear secrets to the Soviets. In January 1950, Fuchs confessed he was a spy. On March 1, a British court sentenced him to 14 years, of which he served nine, after which he fled to East Germany as a hero.
- On March 8, 1983, President Ronald Reagan (via speechwriter Tony Snow) first used the phrase “Evil Empire” in reference to the Soviet Union. It was a term he borrowed from the popular Star War series (begun in 1977). The President’s aides and career State Department diplomats urged him not to use such an inflammatory term, but Russian dissidents silently cheered on the Gipper’s gumption.
- On March 4, 2012, Vladimir Putin “won” the Russian Presidential election with 63.6% of the vote, despite widespread accusations of vote-rigging, so he has now been President 10 years. Like China’s Xi Jinping, who assumed office later in 2012, Putin and Xi are now effectively “dictators for life” in two “former Communist nations” that are pretending to be democratic (Russia) and capitalist (China).
Today’s news is sobering – all news seems serious, in the moment – but what worried us the most 10 years ago, in March 2012? Was it Putin’s or Xi Jinping’s “elections” – or Obama re-election? Not really.
I went back to March 2012 editions of Marketmail, and found big concerns that now seem trivial, since what concerned us in the past often looks trivial in the rear-view mirror. (Maybe that’s true today, too?)
In the Marketmail of March 26, 2012, I wrote of Wall Street’s biggest worries: (1) Our shrinking domestic oil supplies and (2) a fear of China slowing down. We also worried about (3) a Greek debt crisis. Two years later, I wrote, “The first problem was quickly solved by the fracking revolution, while China only ‘slowed down’ to 7.6% GDP growth; and when was the last time you worried about Greece?
The world was also worried about stocks in 2012? Here’s my headline in Marketmail 10 years ago:
Happy 3rd Birthday, Bull Market! Will You Survive to Reach 4?
by Gary Alexander, in Marketmail, March 15, 2012
My article from the Ides of March in 2012 began like this:
“NASDAQ topped 3,000 for the first time since late 2000. The Dow topped 13,000, reaching a four-year high. Neither index stands at an all-time high, but March 13, 2012, marks the first day in history that the Dow surpassed 13,000 on the same day NASDAQ topped 3,000. We’re also flirting with a third round number, as the S&P 500 approaches 1,400 for the first time since June 2008, before the roof fell in.”
Next, I quoted two leading Dow Jones publications that said now is “The Worst Time to Buy Stocks.”
“On Monday, March 12, two venerable Dow Jones publications – The Wall Street Journal and Barron’s – printed terrifying articles about the current danger: ‘Why Stocks are Riskier than You Think’ in The Wall Street Journal, and ‘The Worst of Times to Buy Stocks?’ by Randall W. Forsyth in Barron’s, profiling the bearish market research of Dr. John P. Hussman (of Hussman Funds) and Walter J. Zimmerman, Jr.”
“The Journal article favored inflation-protected bonds as a less risky play for retirees, while Barron’s cited Hussman’s five criteria for an ‘Awful Time to Invest.’ (1) The S&P 500 is more than 8% above its 52-week exponential moving average; (2) the S&P 500 is 50% above its four-year low; (3) the S&P’s trailing 10-year P/E is over 18; (4) the 10-year Treasury yield is higher than it was six months ago; and (5) the Investor’s Intelligence advisory sentiment survey shows more than 47% bulls and fewer than 25% bears. These five conditions came together before the terrible bear markets of 1973-4, 1987, 2000-2, and 2007-9. Today’s market matches nearly all criteria, except the last one: On March 13, the poll’s bullish ratio slipped from 47.9 to 43.6, while the bearish ratio remained at 26.6, narrowly outside the 47/25 trap.”
My response to these articles, as usual, was highly skeptical:
“With great respect for these market mavens, this list of five indicators seems like a game of trivial pursuit. With a bank of computers and infinite possibilities for statistical regression, it is possible to put together a long list of retrofitted warning lights (think of Super Bowls or skirt hemline indicators in past decades). These five points over-rate short-term swings while ignoring long-term trends. For instance, the S&P 500 may have risen recently, but that’s only because it was down so sharply last summer. Also, 10-year bonds yield slightly more than six months ago but they are still near historic lows. Also: A 10-year historical P/E ratio is irrelevant if it is currently low. And investor sentiment polls can change sharply from day to day. In my view, we need to look more closely at historical contexts and current conditions than a bank of metrics in a vacuum.…Since 2000, we have seen three huge market-wide collapses in 2000, 2002, and 2008-9. Will we really see a fourth ‘storm of the century’ in a 13-year span?”
In place of these five warnings, I offered “Five Triggers for A Good Time to Buy Stocks,” along with a raft of supporting facts for each (omitted here, for space considerations).
- Strategists are cautious
- Investors are scared (or unconvinced).
- Corporations are buying back shares.
- Global earnings growth is turning around.
- The S&P 500 P/E ratio remains below 15.
My bottom line on March 15, 2012, was this: “Even at a 15 P/E and $119.34 in 2013 earnings, we could see a surge to 1,800 on the S&P 500” in 2013. My closing two words in March 2012 were: “All aboard!”
Here’s what happened next
|Three-Year 63%+ Growth in the S&P 500, 2012-2014
||S&P 500 at Year end
||N/A (base year)
||(2012 to 2014)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Just when Pundits said it was the “Worst Time to Buy Stocks” (March 2012), the S&P 500 doubled in five years
We got 1,800 S&P in 2013, on schedule. Today’s news is serious once again, but I still say: All aboard!