One of the concerns for investors is how markets keep powering higher despite all of the geopolitical turmoil: The grinding Syrian civil war that has spilled into Iraq, the clash between Israel and Gaza, the Crimea annexation and now the confrontation between Russia and Ukraine.

That thinking gets the issue precisely backward. The proper question to ask is, “Why should investors care about geopolitics?”

That may seem counterintuitive, but if you delve into history, you will discover that markets have more or less found the normal turmoil of geopolitics to be irrelevant. The reasons for this are varied, but consider these factors:

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Category: Investing, Markets, Psychology, War/Defense

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Why should investors care about geopolitics?”

  1. ByteMe says:

    Turmoil is a trading opportunity, if you can envision where the end game is going to be. Very often, well-run profitable companies are caught up in the rush to the exits when something unexpected happens, and that provides a great entry point for acquiring a longer-term investment.

  2. Willy2 says:

    - The Arabic oil embargo was PRECEDED by an economic “slow down” in the US. Read Gary Shilling’s book “Age of deleveraging”. It came on top of an economic slowdown. He predicted the economic slowdown of the early 1970s.
    - You ARE cherry picking !!!
    – After the early 1930 low the stockmarket rebounded yes but the stockmarket went lower from mid 1930 to mid/late 1932.
    – In 1937 the market got overbought and went down before the stockmarket picked again in the 1940s.

    - When a market is in a robust uptrend then nothing will stop the market but when a market is vulnerable then the slightest touch can derail a market.
    - After the embargo against Russia was imposed russian interest rates & consumer prices started to go higher. Not good for the russian economy but the embargo also did/will hit european producers.

    • Admin says:

      I think Barry is referencing Geopolitical events, not recessions.

    • VennData says:

      And you cannot prove a decline in markets predicted anything. Like an oil embargo. These are just events with a probabilty, also hard to get arithmatically exact, that need regression models to arrive at a probablistic estimate.

  3. Willy2 says:

    - Agree. Markets shrug off wars etc. when they’re strong but when markets are weak then the slightest piece of bad news can derail the market.
    - Investors should care about geopolitics. E.g the embargo against Russia led to higher russian interest rates & higher consumer prices. But it also meant lower economic growth in Europe.
    - The oil embargo in 1973/1974 came only one or two months AFTER the US economy slowed down. (Source: Gary Shilling). NOT the other way around !!!!!
    One B. Ritholtz IS cherry picking.
    - The stock market peaked in early 1930 and recovered but from say mid 1930 the stockmarket went lower again up to mid/late 1932.
    - The stockmarket soared in 1933 up to 1937 but tanked after 1937, before picking up again in the 1940s.

    • Liquidity Trader says:

      I think you are almost there — the point is its already int he price, hence you can ignore the event itself.
      The recession is why the geo-politics is irrelevant

  4. rd says:

    There are always geo-political events going on. One of the nice things about being in North America is that we have a big moat. That makes it hard for armies to swish back and forth across our borders like what happens frequently (twice per century typically) in Europe. As a result, our markets are impacted more by how it impacts our economy, which is unpredictable, than the actual events themselves.

    If a really big geo-political event occurs (say nuclear war) then it doesn’t really matter as there probably wouldn’t be a market anyway (think Russia 1917, Berlin 1945, etc.).