This transcript has been automatically generated.

Josh Sheluk: There’s one geopolitical event that they have remarked in the last sixty some odd years that has led to a bear market. Any idea which one that was?

Kathryn Toope: Welcome to Barenaked Money. The podcast where we strip down the complex world of finance to its bare essentials with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.

Josh Sheluk: Welcome to the next episode of Barenaked Money. As usual, Colin and Josh here to try to keep it real for the audience. And today, I feel like we’ve done this podcast before, Colin. I was thinking setting up the room. We must have done something exactly like this Just makes me think of rush hour, the movie rush hour.

Colin White: That’s exactly. Exactly. Well, it’s become topical again because, you know, bombs are falling from the sky and things are blowing up and there’s a lot of trauma in the world again and and people often look for answers when it comes to what does it mean. And, again, I I can’t state loudly enough or strongly enough that it is absolutely human tragedy when we get to this point and things like this are going on. And, you my heart bleeds with everybody else’s for the for the trauma that’s been inflicted on a whole bunch of people all over the world, and it’s just a terrible thing.

But the reason that we have a podcast and we exist in the world is to give people financial answers. So I thought that we probably should revisit the conversation about what war does to markets and economies and and all that kind of stuff because there’s a lot of uncertainty when when things are blowing up seemingly randomly. And this is largely a self inflicted wound because these are people making choices. And what does it mean? So, Josh, I did some research.

Yes. I did the research for this one. I I am the one with the list this time. I’m not sure our listeners are ready for this, but I’m going to throw to you some dates. Should I blind them?

Should I tell you why the date is significant, or should I just ask you to to comment on the market conditions around that time?

Josh Sheluk: Okay. Well, I would say send it to me blindly, and I’ll see what I can do to to impress people.

Colin White: Alright. So beginning 10/07/2001, if you had to go back to your your your data banks of I don’t know. Were you in junior high school then? Or

Josh Sheluk: Still in elementary school, I believe, that time.

Colin White: Excellent. K. Yeah. So your advanced market knowledge of the world from a stock market perspective and economic perspective, very early February, just after 2000.

Josh Sheluk: Yeah. So you said October 2001. Right?

Colin White: Mhmm.

Josh Sheluk: K. So we were about a month after 09:11.

Colin White: Mhmm.

Josh Sheluk: And we were mired, I would say, probably about in the middle of one of the, longest sustained, most painful drawdowns in equity markets in the last fifty years.

Colin White: There we go. There you go. See? So you were paying attention in elementary school. You were you were unconsciously competent.

Well, that date was the date of the beginning of the war in Afghanistan, which was said to be a retaliation for 09/11. And, you know, so that was a very major and scored as one of the most expensive military conflicts, you know, from some in the year from the year 2000 forward in The Middle East. That was one of the biggest spends that we did. So what do you think, Josh? Was it the war in Afghanistan that was the major shaper of the markets from that date in 2001 for the next five years, or were some of the other themes that were playing out maybe more impactful on what happened to the stock market over the next five years?

Josh Sheluk: Now I know tech bubble had already burst by that point, and we’re kind of, again, mired in a prolonged downturn for markets. And the economy actually, from my recollection, held up decently well. But the stock market did quite poorly over several years. And again, I think much more related to and maybe exclusively related to the valuations and the bubble bursting there in the 2000 period of time, and not so much related to any conflict. But I guess you could probably parse it a little bit differently if you thought that you needed to.

Colin White: Well, no. I I I think that’s absolutely inaccurate. I mean, the bubble bursting makes us sound like it was cutting. There was leaking bubbles, you know, and leaking balloons all over the place, you know, from 2000, 2001. So and it did lead to a market pullback.

So the the one year number is negative. Right? So one year after the invasion of Afghanistan. I’m not sure if that’s what called it, but if you call the invasion of Afghanistan was significantly negative. But there is a positive five year number, So you were able able to make it back over five years.

So, I don’t think you could blame the invasion of Afghanistan on the market situation at that time. There were some very, very major political stuff playing out at that time. But, again, like, we were at war, there were casualties coming home on the regular, and that was a prolonged war that lasted well over a decade. Actually, almost two decades. Yeah.

That played out for a long period of time And and the two and over that twenty year period, the markets did okay, I guess, would be would be the conclusion with a couple of notable differences. So you can take one off the list. We invaded Afghanistan. The market didn’t come to an end. Yeah.

Josh Sheluk: Well, I I think the main point there, I just wanna make it very clearly, is that the market was already in a very significant drawdown before before nine eleven and before that in incursion happened. So that’s why I I’d say pretty convincingly that that is not that the market drawdown or the fact that the returns were negative a year out from that that Afghanistan invasion, it has nothing really to do with the invasion itself. Itself.

Colin White: What you’re saying is there’s other things that influence the markets, not just armed conflict. Is that what you’re saying, Josh?

Josh Sheluk: Yeah. I think we can make that point probably time and time again, and I think we will.

Colin White: Alright. Well, let’s try to be more entertaining about it next time. Alright. Next date, 03/20/2003.

Josh Sheluk: Was that the day that Iraq was invaded?

Colin White: Oh, Josh, you’re so smart. You’re just showing off.

Josh Sheluk: Well, I did do a little bit of preparation

Colin White: for this. Oh, was oh, you didn’t trust yourself to be completely naked. I get it.

Josh Sheluk: No. But but I think markets at that time, So 2000, 2001 and 2002, I believe the S and P 500 was down three consecutive years, which is a pretty unusual feat. And so 2003, we are just coming out of that that three year downturn. And I believe from o three to 2007 or so, markets were were pretty good during that stretch of time. So again, here’s here’s another one where probably there was a lot more happening markets than was related to the war in Iraq.

And I would expect this time around that results were quite good one years out, maybe not five years out because then you run into the the great financial crisis.

Colin White: Yes. Absolutely. But, I mean, let’s let’s just put this in a little bit of context. So in 2001, Afghanistan was invaded, and we stayed there for twenty years. And then 2003, Iraq was invaded.

We stayed there for a while. So just to fast forward to today, the concern is, oh my god. What if, you know, this goes on for twenty years? Like, that’s one of the concerns. Yep.

Oh, we’ve done that. Like, that that that that wouldn’t be new. You know? And, you know, would it be again, I I can’t say it enough. On a human level, would that be terrible?

Absolutely. Is this something that we should hope doesn’t happen? Absolutely. But if your question to your financial guys is, does it matter economically? Probably not as much as all the other things that are gonna play out.

You know? And I think that those are two similar conflicts in that part of the world, much larger nature than what’s going on right now that did persist for a long time. And as the the guru Josh has pointed out, you know, he’s quoting a whole bunch of other things that affected the market at those times that was more impactful. So but we’re only two on the list of the five largest things that happened. Oh, you’re not gonna get this one.

03/15/2011.

Josh Sheluk: This this was specifically a war, was it?

Colin White: Yes. Yes. It actually has the war in the title of it.

Josh Sheluk: Okay. 2011. Syria? I’m just guessing. I don’t know.

Colin White: Josh, just stop being so so humble. Yes. The Syrian civil war broke out Okay. On 03/15/2011. I think this adds to the the the tapestry of what we’re looking at because this was not a US or NATO led issue.

This was just a purely regional conflict. So this one has a bit of a different stank on it. You know? It is there’s different players and for different reasons and is just part of that, you know, the the dis disruption in that part of the world. So that began with anti government protests.

The Russians were deeply involved in that one, and it persisted for quite a period of time. And I just wanna make sure. So what what is your take on the markets in 2011?

Josh Sheluk: Well, I know 2011, because I remember I was working in the industry at the time. We had a pretty disrupted fall at that time. And actually, was I was working at a discount brokerage at the time, an online brokerage. And I worked there, I think from January through the August, I believe it was. Part of that summer was extremely volatile.

Like we talked about this last week and this year so far being volatile. Well, there was moves like plus or minus 3% in a morning that reversed to plus or minus 3% in the afternoon at that time. And we I was at a discount brokerage, I could just watch it tick up and down all day and remark with my colleagues at how crazy it seemed at the time. So the market, it was a pretty negative year for at least at one point for markets. Again, that was more, I think, related to the European debt crisis than anything specific to that conflict.

Colin White: So you’re saying there was another factor other than the armed conflict that influenced the market?

Josh Sheluk: Seems to be a a trend or a theme here, Colin.

Colin White: Well, it’s just contextualizing things. So that’s all we’re doing is contextualizing things. So then you’re never gonna get this one. I’m confident I’m gonna stump you. 09/21/2014.

Josh Sheluk: 09/21/2014. Yeah. I’m not gonna get that one.

Colin White: I I

Josh Sheluk: I can’t even get

Colin White: This one didn’t even come to mind, but it is one of the top five conflicts in The Middle East since 2000. The Yemeni civil war. Okay. Houthi takeover of the Saints. The Saudi led military intervention began on March 25 or 2635.

So another civil war breaks out, and this is, you know, the Saudis involved with the Houthis, which are, again, two factions in the region. So, I mean, let’s just take a look here. These are just the biggest ones. So we went 2001, 2003, 2011, 2014. You know?

So you can’t swing a cat really without running into another conflict. Keeping in mind how long we were in Afghan we were in Afghanistan for a lot of this. Right?

Josh Sheluk: So And that this is specific to the Middle East

Colin White: Yes.

Josh Sheluk: I guess since this the turn of the century, basically.

Colin White: Yeah. Yeah. That’s and for no other reason than I figured that was their target rich environment. There would be lots for us to chew on. Yeah.

So if you had to go back to 2014 and the five years hence, what comes to mind to you for as far as market forces that played out over that time period? Obviously, like the Yemeni the Yemeni civil war because you didn’t even remember it.

Josh Sheluk: Yeah. I right. Yeah. How dare I? I don’t really, from 2014, remember anything remarkable at that time.

I think it was early twenty fifteen, if I’m not mistaken. There was a bit of an oil shock at that time. I think on the negative side, I remember because that’s a year we were in Miami and I think there was a bit of disruption there for a short period of time. Chris

Colin White: was trying to disrupt things.

Josh Sheluk: Yeah, yeah. But I recall the 2014 to really 2017, 2018 period of time to be pretty pretty pretty uneventful, I guess, in in the scheme of markets as it goes. Yep.

Colin White: Yep. And then we we jump forward to 10/07/2023, which was the Israeli conflict began. So, you know, the market since 2023, I mean, again, we’re still doing okay from a market perspective.

Josh Sheluk: Yeah. I mean, it’s been resoundingly positive, I think, over that two and a half year stretch since 2023.

Colin White: Yeah. And listen. And then this kind of ignores all of the Iran dropping missiles on Israel, Israel dropping missiles on Iran, all of the bombings of Iran, and, like, this is just the top five list. You know, the there there’s a there’s a timeline there of a whole bunch of more. But it’s interesting in your answers, and this is what I was expecting.

If I give you a five year time period after an event and ask you what affected the markets, This is not the armed conflict. Like, that’s that’s not gonna dominate the market for the next five years. That’s going to be a footnote to what else goes on during that five year period. And, you know, people are afraid of a a long protractor war. We’ve had those.

You should be afraid of it. It is miserable. Is is it gonna bring the global economy to its knees? It hasn’t. Like, we’ve we’ve we’ve been through that.

So I I don’t as much as this is terrible and I keep I’ll keep saying that because I am a human being, and there’s unknowns here for sure. There’s been a lot of unknowns in that region for the last twenty six years. You know, there’s been a lot of conflicts that have spiraled. There’s been a lot of conflicts where a bunch of players jump in and, you know, like, right now, we’ve got Israel going into Lebanon. Right?

And, well, again, that’s terrible, but it’s not new. There there’s this the constant cauldron of of conflict that’s gone on there. And, again, I’m not smart enough to understand why, but I can’t find any evidence and market it in the markets. I mean, the only I went back and took a look over those events. The the enduring freedom in 2001, the one year return was strongly negative, but that was in a really bad market And displaced this storm in 2015, the market was down 1%.

Every other instance, the market’s been positive. And even after epic fury I I I just gotta read this list. Here here’s a list of the events as that came up because the I don’t know who names these these things, but they’re pretty cool. Enduring freedom, Iraqi freedom, inherent resolve, decisive storm, and epic fury. The last one sounds like a really bad movie with Adam Sandler in it or something, but, these these are the names that have been attached to these things.

So I don’t know if that’s a comprehensive enough list for our audience to go back and consider as to the the range, duration, and severity of events that have occurred in The Middle East. And since 2000 until now, the global economy has grown on average quite nicely, and that contains two of the worst market pullbacks, you know, the 2000 pullback and the 2008 pullback, which were far more impactful from an economic perspective than any of these conflicts we’re talking about. So I don’t find any evidence. I submit to the court. I do not find any evidence that the current state of affairs in any material way exceeds the parameters established by the history of the last twenty six years.

Josh Sheluk: So let’s let’s live in a world that doesn’t exist for a second.

Colin White: About this world.

Josh Sheluk: Yeah. Yeah.

Colin White: Or will will I love this world?

Josh Sheluk: Maybe. It’s it’s a simple world, so it might not be too exciting or interesting, but it’s simple. So let’s strip away all of these external economic factors for a second. And let’s say the only factor is the conflict in in our decision making as investment allocator. We still have no idea what’s going to happen.

And I think that’s the footnote to all of this. As much as we can say, yes, there were overarching factors that drove markets through all of these events, even if there weren’t, we still wouldn’t have any real information to act on. And the last few days is a good example. Again, recording this March 4, so a few days into this latest incursion in Iran, and we were really panicked on Monday and Tuesday. And then all of a sudden, there seems to be some communication between Iran and The US, and we’re suddenly not so panicked.

Yesterday, oil was way up. Markets were way down. Bonds were down as well. Stocks were down. Bonds were down.

Today, basically, the entire opposite is happening. U. S. Dollars falling back down to earth. The U.

S. Or oil oil prices have come back down and markets are up, both stocks and bonds today. And all of that turned overnight on one supposed conversation that may or may not have happened. We don’t really know. And yesterday as well, Trump was out there saying, well, we’ll protect any chip that’s going through the Strait Strait Of Vermouth.

And whether that’s practical or possible or not, it’s it’s it’s changing the direction of the market. So I guess the point is strip away every other external factor that are really far more relevant to the direction of economies and markets, and you still don’t really have anything to to make a decision based off of because things can change so quickly.

Colin White: It’s a self inflicted wound. If we wanna stop hitting ourselves in the head with our own hand, then, you know, the damage will stop. So, you know, that makes it uninvestable or unreactable too. I guess there’s a better way to say that. But the other side of the coin is if you’re going to say, I’m not playing the game at all, what we’ve just done is go back and explore history to decide whether or not you really need to try to react anything.

And I think the the evidence would support, no. You don’t. Like so both are true. You can’t. Right?

So you should give up trying, and you shouldn’t. That’s a good combination. Now if I can’t and I should, now now I’ve got a problem. I need to figure out. I need to go back to the first thing and figure out how because can’t can’t be the answer.

But if you can’t do it and you don’t need to do it, then don’t do it. I I I think that’s that ties it up in a nice little ball.

Josh Sheluk: Yeah. Yeah. It definitely does. It’s interesting you mentioned about we could stop this if we wanted to type of thing. And obviously we can’t stop it.

Colin yeah. And Josh don’t have I just don’t didn’t want people to think that we’re we think that we have the hand of God or anything like that. But I was reading a piece earlier today and and it was arguing that virtually every every country on the planet, except for Russia, will be detrimentally affected by like a real. Real limitation of of oil coming out of Iran or The Middle East in general, every country in the world except for Russia. And that includes all the Asian countries, China, Japan, The U.

S, Canada, like Europe, especially. We’re all going to be negatively affected. So if there’s that much pressure on things to not be negatively affected, somehow I think that the incentives are strong enough that it’s probably not going to be as bad as as some people were predicting early on?

Colin White: Well, you could tell me incentives also your behavior. Right? And when you have an alignment of incentives, which is what we’re gonna get to at some point, there’ll be a singularity where everybody’s incentives get more in line, and that’s when action happens. That’s how we get out of 2008. All the central bankers got together on the weekend and said, okay.

This is a shit storm. We all need the system to open on Monday. Let’s all do the same thing. So there’s a unanimity of of brought everybody together right now. Again, this is an artificial tempest that’s been brought upon us by one power that or two powers or three however you wanna parse it.

It’s been initiated, but there there’s a bigger room. And there’s gonna be a point where everybody gets to and go, okay. This is too painful. We should stop this. And, again, that’s unknowable.

But I I really wanna go back and double down on the fact that it doesn’t matter. Like, any any five year period, if you take a look at the market and what goes on in the market, there are a lot of things that influence it one way or the other. But, you know, so there’s lots of other things that are playing out that are gonna be far more impactful. And, you know, trying to react to these things. And but it’s it’s it’s funny because we get all all kinds of calls come in from the media at this time.

It’s like, can you explain why gold is down today? Sure. People are less interested in owning it than they were yesterday. Why? I don’t know.

Have to ask them. You know, the the the day to day reactions, the overall market in aggregate is is a mystery and will remain so.

Josh Sheluk: So I looked at a bit of research from our friends at BCA Research that went back to even a more comprehensive list of and it’s not just conflict or wars, but geopolitical events over the past fifty some odd years, even longer than that, going back to the, like, post World War two era. There was I’ll test you, and I don’t expect you to know the answer to this one.

Colin White: Your performance earlier, you’re you’re gonna do this to me after your performance today. Alright. Fine.

Josh Sheluk: What do you mean by performance? Is good or bad? Because I thought I did pretty good.

Colin White: Oh, you did fine. You you missed the Yemeni civil war, which I wouldn’t have done either. So Yeah. Which is is fair. You got the rest of them.

Josh Sheluk: Alright. Okay. So there there is one geopolitical event that they have remarked in the last sixty some odd years that has led to a bear market. Any idea which one that was?

Colin White: A geo I mean, that that’s I’m not sure how to define geopolitical. What would I guess? Geopolitical event.

Josh Sheluk: It is and it is a war. It is a war in their in their words. So but you gotta go back, to the fifties.

Colin White: Oh, back to the fifties. So it wouldn’t be World War two. So okay. So coming out of that, the Vietnam Vietnam War?

Josh Sheluk: So this was the Yom Kippur War, which led to an oil embargo and what they call the first oil shock. So this is back to 1973 and not an area of time that I’m that familiar with, but this event that they can see a line of sight and I could see it too, the line of sight between here’s the conflict and here’s the bear market that follows. But the difference at that time is we, especially in North America, were extremely reliant on and less Canada, but more The US was extremely reliant on oil imports. So you have a massive spike in oil prices, it becomes a pretty big problem. Not only are they, The US, very reliant on oil imports at the time, But the economy was also a lot more reliant on oil than it is today.

And so those two things have quite changed over that fifty year period of time, as you would imagine that they would. The US is now a net exporter of oil. So it’s almost like they’re the swing producer in the world, and they don’t need to be wholly reliant on the Middle East to export oil to them anymore. That doesn’t mean that we’re not affected here in North America by global oil prices, but maybe far less so than we would have been before. And because the economy is not as oil intensive as it once was, we can function under high higher oil oil prices in a better way than we could have backed that.

So couple reasons there that maybe change the the dynamic totally from from some past events.

Colin White: Thousand percent. The other the other thing that has played out, and we’ve commented on this before over the last decade or more, the deglobalization. You know, everybody getting more onshore and more self reliant and, you know, not being as tied into, you know, the global trade. Right? So because this disrupts global trade routes, it disrupts global trade relationships.

Apparently, nobody’s allowed to go to Spain anymore. You know, things like that are happening. But, you know, the deglobalization, which just means that globes relying less on those global trade routes, It’s another mitigating factor to the fact that something like this could possibly have. But but, you know, it’s again, we’re we’re sitting at at a crossroads where things are unknowable, but that that’s normal. It’s it’s always unknowable one way or another.

Like, we weren’t we weren’t 100% know knowledgeable of exactly what was gonna happen, and it’s happened. And the sun still came up. We’re still doing our thing. And if you go back, again, I I only went back to 2000 because I was trying to keep things I’m I’m assuming our audience skews a bit younger. So, you know, back to anything earlier than 2000, we might start to lose people.

But, you know, there’s been a lot that’s gone on. And but I think all the stuff that affected the market is not related to geopolitical anything or it’s not related to any of the armed conflicts we’ve seen. It’s related to much bigger issues that have affected economic growth and and the markets. So we’ve done our homework. We’ve done our research.

Sit there and be terrified, but there’s nothing you need to do with your money. That part’s okay.

Josh Sheluk: I’m kinda disappointed, Colin. You didn’t bring up the one obvious market that’s been significantly affected by this conflict.

Colin White: I I talking about? I didn’t go on poly market to to take a look. What what what is it? The

Josh Sheluk: South Korean stock market, obviously.

Colin White: Oh, yes.

Josh Sheluk: Come on. Come on.

Colin White: You’re right. I did see that. That was one of those memes that went by and I said that can’t be true.

Josh Sheluk: Yeah. Yeah.

Colin White: Well I didn’t I didn’t dig into it.

Josh Sheluk: One of the biggest losses or the biggest loss that they’ve ever had on the market at one day, down 12% yesterday. So despite the fact that what we’re saying is true, there’s not really a lot of pass throughs of this this conflict to direct impact on markets. What it does highlight as well is if your markets may be way overvalued and has gone up 50% since the start of the year, which is it might just change sentiment enough and change risk taking and risk aversion enough that there could be a negative response nonetheless.

Colin White: Well, that’s fine. So I was asked earlier this week on financial most of the globe was asking me about gold prices and about you know, gold’s off. I said, well, when you have a dramatic run up, you’re fragile. Like, by definition, you’re more fragile. If you’ve had a very recent, very large spike, that is the first thing people look at on doing if they get nervous.

Right? So there’s a fragility of a big move. It’s you know, a lot of people get excited by big moves, they wanna take part in big moves, but there’s a fragility to it. It can be disrupted by the oddest of things. You’re right.

I would not have picked South Korea. Think if you give me all the countries, I probably still would not have gotten there.

Josh Sheluk: Yeah. That they would have been towards the bottom of my list for sure. Out of everyone that’s gonna be significantly affected. Yeah, we’ll see. Maybe tomorrow it’ll bounce back and we’ll, the conversation will be kind of moot.

But I think the whole point of conversation is when you ask, where do I position my portfolio for a quick resolution to this war or a long drawn out war, it’s neither or or both. One of those answers is the right one. Yep. Need to build your port for those sorts resilient under any scenario that happens.

Colin White: Well, or the foreseeable scenarios, and this I would classify as a first this is a future. Like, this isn’t a bug. This is how human beings tell all the differences. This is the kind of stuff that goes on and will continue to go on. Cannot be avoided.

It cannot be mitigated. It’s just part of the the journey. And, again, if you’re if you’re if you’re getting advice to change your portfolio or you feel you need to change your portfolio because of this, you don’t have the right portfolio. Like, this this this should be what it was built for. You know, it it’s okay not to know what comes next.

That’s perfectly legit. That’s okay. You don’t need to know what comes next. Go go pick up a hobby. Go for that last ice skate of the year.

You know? Go throw the ball around with your kid or chase them down the street or go do something fun, but nothing to do here.

Kathryn Toope: If your current financial adviser cannot explain how they and their firm are compensated, that’s problem. They really should be able to answer that question before you accept their advice. And if their answers leave you with more questions than confidence, it might be time to seek advice that aligns with your best interests. Contact us. No strings attached.

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