Second Order Effects of the War in Ukraine



Our family had a great time visiting Spokane and Spokane Valley, WA and Coeur’d Alene, ID over the President Weekend.


The snow on the Silver Mountain was just right, and the lines were short.


The lift ticket was only $70 and you also get to gondola ride!... you can’t find any place this cheap on western Washington.


My legs were shot after two days of snowboarding, so I took a break and network with local commercial brokers and property managers…


They told me things that get me really excited about Spokane…

• Spokane installed traffic lights on freeways on-ramps the first time… bad traffic = more population • Amazon is building their second distribution center to serve the population boom. • A lot of people moving to Spokane still working for their companies in the Bay Area or Seattle or other places. • $75M are poured into capital improvement…like the Riverfront Park unveiled last year!


According to the national association of realtors, Spokane is the third most attractive destination for West Coast movers, following Phoenix and Dallas.

Realtors.com also ranked Spokane #3 in its Top Housing Market 2022… here is a quick summary:

Located near the Idaho border, Spokane takes the No. 3 spot on this year’s list. With the Spokane River running through the city, residents can take part in an abundance of waterfront activities, while less rain and more sun than nearby Seattle means the best of warmer months and winter fun. With easy access to amenities, restaurants and nightlife in downtown areas like Riverside, Spokane offers homebuyers both the luxuries of a bigger city and a relatively low cost of living, including more affordable housing, than nearby Seattle, Portland and Tacoma. It has a concentration of well-ranked public schools, including Libby Center and Wilson Elementary, making it an attractive option for young families – perhaps those settling down after attending one of the many surrounding universities like Gonzaga, or Whitworth.

I’ll be looking in Spokane for multifamily opportunities with decent cash flow and upside.


Lastly, my heart goes to the citizens of Ukraine and Russia, and only wish the war would end soon…

I also wrote about the potential implications of the conflicts in today’s newsletter below.

Have a good weekend everyone!


- Henry

What’s on My Mind this Week

I am still forming my thoughts on the invasion of Ukraine and what is the wider implications on interest rate, markets, and food and energy security.

I am not qualified to talk about the economy and geopolitics… But a man can have his own opinion :)

If you are still reading this, let me preface I get things wrong… a lot...

What are the tail risks to this conflict?

The world still largely runs on oil and gas, and Russia is the third largest energy exporter…

Even if energy is carved out from the economic sanctions, with western companies pulling out… who will maintain the extraction, refinery, and smooth operations?...

What will the impact on global energy production and prices?

We already heard $5/gallon at the pump at some parts of the US…

Since energy is also a major component of the CPI, inflation will only runs hotter even if supply chain bottlenecks are getting resolved...

I see a strange parallel to World War II inflationary period…


During COVID, the world sees supply chain shortages and huge wage growth due to shortage of labor…

The world government and central bank massively devalue their currency by issuing debts…

In WWII, we also had a massive inflation driven by supply shortages (war time production), wage growth (men are sent to fight in the war), and massive debt (how else to fund the war?)…

On top of this we might be at the brink of an energy supply shock like in the 70s… and I hope I am wrong…


The scariest thing is what might happen to food production…

Russia and Ukraine combined exports 25% of global wheat supply…

We are almost certain have to write-off some of this year’s planting season… and the world only has a few months of inventory...

Fertilizer is also a byproduct of natural gas refinery, and fertilizer prices has gone up more or altogether banned from export (eg China already banned phosphate export).


I am deeply concerned about the possibility of a shortage in Europe and other parts of the world dependent on imports…

Even if that's a very low possibility...

All of these don’t bode well for the markets… We are only about 15bps from yield inversion…


But the market has a strange way of interpreting bad news…


Would the Fed eases off the gas pedal on raising rate and/or quantitative tightening…?


Since the Fed reacts to today’s inflation data, I would say they will still raise rates in March.

Would they back off in 3Q? … it really depends on how the war will play out and the CPI...


If it gets really bad, the governments will do more monetary easing and/or fiscal stimulus … and that's positive for hard and real estate assets…

It’s not all doom and gloom because the world has the resiliency and respond to these challenges…

If you ask most people back in March 2020, most would not predict a sharp rebound just a year later…


I would continue to invest while cautiously watching, and the structural tailwind for real estate has not changed.


- Henry

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