This has been a terrible winter—long and brutal, with lots of snow and gray days. I don’t do winter well, but I normally don’t break until around February, which means I only have to tough it out for a little longer. This year, I broke in December. It’s been a long January and February, and it looks like it may be a long March as well.

This is not to announce that I’m moving to Florida (although the subject has come up at home), but to provide some context for the slowdown we’ve seen in many of the economic statistics. Employment has been the worst hit, but retail sales, housing, and durable goods sales (cars) have also shown some damage. The question has been, as we looked at the data, whether this is an actual slowdown in the recovery, and potentially the prelude to a recession, or just a short-term dip caused by the weather.

Over the past couple of days, we’ve seen the market pop (on Friday), drop (on Monday), and pop again (yesterday). Admittedly, there was some news there—the Russian invasion of the Crimea over the weekend—but still, pop/drop/pop seems a bit strange.

I was talking with a reporter the other day who asked me a very reasonable question: “Is there a rational reason for all this activity?” He clearly didn’t think so, and while I certainly saw his point, I took the side of a rational market: given the Russian invasion, it clearly made sense to take risk off the table, and then (in theory) to move back in when it seemed the invasion was over. In the short term, you can make a reasonable case that the market response was rational.

http://www.youtube.com/watch?v=gJRzl3-4kw8 

The Ukraine crisis appears to be stalled for now, with Putin—having made his point and essentially occupied the Crimea—deciding to hold there, while the Europeans determine how to proceed. This is probably where we will be for some time, and the markets seem to concur, as they have bounced right back. Move along, nothing to see here.

I don’t necessarily think this story is over, but for the moment, let’s return to a longer-term issue that I discussed on Friday, the U.S. budget deficit. The Congressional Budget Office’s projections are below.

Over the weekend, as you no doubt have heard, Russia reportedly executed a military takeover of the Crimea region of Ukraine in response to last week’s pro-Western revolution. Markets are reacting this morning to the immediate fact of Russia’s action. As investors, we need to think about the context and likely outcome of the immediate situation before we respond.

First, let’s consider whether this is a short- or long-term action. For all the talk of bringing pressure on Russia to reverse the situation, the reality is that the West’s ability to exert any kind of meaningful pressure is limited or nonexistent. Without actually committing military force, we cannot effect change. Europe depends on Russian natural gas to heat its homes and operate its economy; Russia remains a major oil supplier to world markets. It’s impossible to cut Russia off economically, since Europe and world markets depend on it too greatly. From a military perspective, it’s the area’s strongest power. There’s no clear course of action for the West.

Add another to the list of “best since 2008” stats (although a better phrase might be “least worst since 2008”). The federal budget deficit for 2013 should come in around $680 billion, down from about $1.1 trillion in 2012.

As a citizen, I can’t help but applaud the drop. We are moving in the right direction. If we consider the deficit as a percentage of the economy as a whole, the improvement is even more substantial, since, in dollar terms, the economy has grown even as the deficit has shrunk. For 2013, the deficit is about 4.1 percent of the economy, down from more than 10 percent at the peak. In 2014, there’s a good chance it may shrink further, to a level below that of economic growth—which means the debt could actually start to shrink as a percentage of the economy. This is exactly where we need to be headed.

I was meeting with our asset management group this morning, and one of the topics of discussion was a strategy that hedges against inflation using swaps instead of TIPs. This is a fairly esoteric topic, certainly more so than I normally cover here, but it got me thinking about where inflation might be going and why. Is now the time to start thinking about this risk?

What is most interesting in the news is usually the dog that’s not barking. Economics and finance are pretty much absent from the headlines today. Instead, front-page articles in the major newspapers cover childhood obesity, NSA phone surveillance, the Ukraine, and seed-company data harvesting.

This is a shame, but pretty typical. Usually, the best place to look for what will be important in the future is deeper in the paper. Tomorrow’s front-page stories come from further back, and today they’re focused on taxes.

Check out Brad’s February 7 interview on Bloomberg Radio’s Taking Stock with hosts Pimm Fox and Carol Massar.

[audio http://theindependentmarketobserver.files.wordpress.com/2014/02/02072014-mcmillian.mp3]

Housing has been doing a back-and-forth over the past couple of days, with a number of stats down. Existing home sales were down 5.1 percent in January, with average home prices falling, and housing starts and homebuilder expectations also showing declines. At the same time, other stats, including price increases, remain very strong. In fact, in 2013, home prices rose the most since 2005. What’s going on?

The big picture here is that we should expect moderation in housing and understand that it’s actually a healthy thing. Within that big picture, we can look at several factors—weather, rising mortgage rates, and lower affordability—to decide whether the expected moderation in the housing recovery is going to turn into something worse.