Welcome back to Dry Powder, I'm William D. Cohan.

Thanks as always for following my work here at Puck. For today's column, I spoke to Bill Ackman, among others financial eminences, about how hedge funds and big banks, such as Goldman Sachs and JPMorgan Chase, are grappling with—or, perhaps, profiting from—the financial fallout of Russia's horrific and unprovoked war on Ukraine.

For more on how the Russian invasion is reshaping the global economy, do yourself a favor and read my partner Eriq Gardner's new reporting on the looming legal battle over all the multinationals pulling out of Russia—and the global insurance companies that cover them. As Eriq notes, the availability of insurance informs the willingness of financial institutions to lend on the front end for new projects. But you can't adequately price risk on a going-forward basis without an honest reckoning with the immediate past.

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“When the Lines of Fear and Greed Cross”

On Wall Street, the horror of Russia’s invasion of Ukraine has become a uniquely dark investing opportunity.

One of my favorite Wall Street expressions surmises that the real action in the financial markets happens when “the lines of fear and greed cross.” That’s certainly where we are at the moment: The combination of the Russian invasion of Ukraine, the corresponding efforts by a number of Western nations to choke off the Russian economy, and the prospect of the Federal Reserve raising interest rates to slow down inflation in the United States has sent the stock and bond markets reeling so far this year. The S&P 500 index is down 13 percent year-to-date; the Nasdaq is down nearly 20 percent. The yield on the average junk bond is now 5.7 percent, according to the Federal Reserve Bank of St. Louis, up a whopping 31 percent from the start of the year. That means anyone who bought a junk bond at the beginning of the year is likely sitting on a substantial mark-to-market loss. 

Even the supposed safe haven of Bitcoin is unreliable, down 12 percent so far in 2021. As I’ve been predicting for a while, we’ve clearly moved beyond the state of irrational exuberance in the financial markets to one of shock. We’ve transitioned from “risk on”—another one of my favorite Wall Street terms of art—to “risk off.” 

Even the most sophisticated investors are freaking out, or are scared shitless. Take, for instance, Bill Ackman, the billionaire hedge fund manager, and his Sunday night Tweet thread essay. Ackman, who turned $27 million into some $3.6 billion during three weeks in early 2020 by betting correctly that the markets would crash (and then swiftly recover) with the onset of the Covid pandemic, is comfortable making bold, sweeping, public pronouncements in an effort to motivate policymakers to take action. His concern now is not the pandemic, but rather the Russian invasion of Ukraine. Like his previous comments about the pandemic that culminated in a 28-minute diatribe on CNBC, he isn’t holding back. Although this time, he tells me, he’s not making a special financial wager on the outcome...

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