This Is How the War Ends

Dear Outsider,

Last week, the stock market was as volatile as ever.

Even crypto had violent swings that would make your head spin.

And then Wednesday, something big happened and stocks responded positively.

For the first time since the Russian invasion of Ukraine over a year ago, Chinese President Xi Jinping and Ukrainian President Volodymyr Zelenskyy held a phone call.

According to the BBC, Zelenskyy reportedly said the call was “long and meaningful.”

It makes you wonder...

Is the Russia-Ukraine War coming to a close soon?

And if it does, how will the stock market react?

In late February, the Ministry of Foreign Affairs of the People’s Republic of China released a 12-step plan to end the war. The plan includes respecting the sovereignty of all countries, abandoning the Cold War mentality, ceasing hostilities, and facilitating grain exports.

Could this be the beginning of peace talks?

It’s probably too soon to know.

The China-Ukraine phone call sounds good on paper, but experts are skeptical of China’s intentions and ability to broker a peace deal. As The New York Times reported, “China has grown particularly close with Russia and shares the Kremlin’s goal of upending a world order dominated by the United States and its allies. American officials have said they believe Beijing has seriously considered sending military aid to Moscow for its war.”

Now it looks like China has no intention of doing that. Before the war, China and Ukraine were getting close. China was the largest importer of Ukrainian barley, corn, and iron ore. Not to mention Ukraine was a top supplier of arms to China. But Russia’s become reliant on China since the war. According to Chinese customs data, in 2022, Russia exported over $110 billion worth of goods to China, an increase of more than $30 billion over the previous year. Russia might be worried about the economic blowback if China steps in.

For proof that Russia may be running out of options, it’s taken to crank-calling high-ranking officials. According to Bloomberg, Russian hoaxsters posing as Zelenskyy successfully held a phone call with Fed Chair Jerome Powell during which they talked about the economy and other matters. Someone over at the Fed finally spilled the beans this week that “Chair Powell participated in a conversation in January with someone who misrepresented himself as the Ukrainian president... It was a friendly conversation and took place in a context of our standing in support of the Ukrainian people in this challenging time. No sensitive or confidential information was discussed.”

Let’s hope that’s true. I think a lot of us would like to have a conversation with Powell right now.

And if the war comes to and end, based on historical data, U.S. stocks would likely soar.

Post-War Blues

Stocks perked up after the China-Ukraine phone call and rose nearly 3% across the board in the following days.

So if that’s any indication of how stocks will do once the war is over, I’d say they’ll go to the moon but then drift back down.

If we look at just the Dow in WWII, we can see that as America entered the war, the market hit a bottom in early 1942 and went on to rise until hitting a peak in May 1946 (chart courtesy of Macrotrends):

If you tried to time the market during this period, you’d have experienced extreme volatility, as major events like German victories, Pearl Harbor, and D-Day caused the market to swing up and down.

As you know and as you can see in the wartime chart, timing the market isn’t important; it’s time in the market. You’d have been better off buying and holding while reinvesting capital gains and dividends.

On average, war and geopolitical conflict create short crashes followed by a recovery. In the case of WWII, stocks recovered and then sang what Barton Biggs calls the “post-war blues” from 1946–1949.

The most important market-moving event will be the signing of a peace treaty between Russia and Ukraine, brokered by China. It could open up a the world’s economy and create a boom time. Famed investor Charlie Munger spoke about the importance of forgiveness for the markets:

The world learned what happened after World War I, when we demanded that Germany repay. It was chaos and hyperinflation. The result, of course, was the rise of Hitler. And Hitler could have been more successful than he was; his kids or family members could still be in power today, had things gone just a little differently. You don’t ever want to do anything to push an economy to collapse. Terrible things result.

Now think about this. During World War II, Japan tortured our soldiers to death. They marched them around. The Germans put people in ovens. Just awful. And what did we do after the war? We gave them money to rebuild. We said, “Let bygones be bygones.” The result was a magnificent global economic system and a win for human rights.

We could all take a page out of his book...

How the War Ends

But compared with all the past armed conflicts, there’s something different about this one.

It won't end through diplomatic jargon.

There's a different type of soldier on the battlefield finally bringing an end to the senseless fighting.

I'm talking, of course, about robots.

Autonomous tanks, transports, fighter jets, submarines, drones...

These are the war machines that will define combat for the next hundred years...

Robots will fight our wars while investors make a potential 9,900% in the coming years.

And there's one sub-$4 company we're watching right now that’s at the center of it all.

It's going to save thousands of lives, if not millions, by deploying robots into war zones to support our troops...

Get the stock pick here.

Stay frosty,

Alexander Boulden
Editor, Outsider Club

After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing. Check out his editor's page here.

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