Five Financial Observations Since The Start Of The Ukraine War

Russia has invaded Ukraine. Unfortunately, there's nothing much you or I can do except give our moral and financial support to the Ukrainian people and organizations trying to help.

If you're looking for a donation idea, check out World Central Kitchen, which is providing warm meals to Ukrainian refugees. Let us hope there is a quick end to the unnecessary bloodshed.

If you haven't realized it by now, black swan events happen all the time. They happen so often we might as well get rid of the term altogether. Please try and adopt some humility when it comes to investing and life overall.

Financial Samurai was born out of a black swan event, the global financial crisis of 2008-2009. Therefore, this site's DNA will always contain a cautionary strand or two. If you've ever lost a lot of your money and your livelihood, you will never want to repeat that experience again.

As an ongoing student of finance, here are five financial observations since the start of the war. These financial observations may help you better protect your way of life.

Five Observations Since The Start Of The War

Financial observation #1: Cryptocurrencies are not a defensive asset under normal circumstances

There has been some debate regarding whether cryptocurrencies like Bitcoin and Ethereum are defensive assets. One idea is that as the U.S. dollar loses its purchasing power, cryptocurrencies will eventually rise up and replace it. The thing is, the USD has appreciated since the pandemic and the war began, not depreciated.

Below is a chart of how Gold (gold line) and Bitcoin (blue line) performed once the invasion began. The red circle shows how Gold surged in value while Bitcoin plummeted in value. Once risk appetite returned, due to a relief rally that the invasion had finally begun, Bitcoin started surging in value while Gold started losing value.

Cryptocurrencies are not a defensive asset - a key financial observation since the Russian / Ukrainian war began

Don't buy cryptocurrencies to hedge against a downturn. Buy cryptocurrencies for upside beta during risk-loving times. Gold works as a much better hedge during times of uncertainty.

However, the Ukrainian Russian war is an exceptional event. Few believed a war would happen. Fewer still believed so many sanctions would take place so heavily and swiftly. Once Russia got cut off from SWIFT, the international banking exchange system, Bitcoin surged. The demand for crypto went up because the Ruble, the Russian banks, and the entire stock exchange collapsed.

Below is a chart asking whether Bitcoin is a risk asset or safe haven by tracking its correlation to the S&P 500.

Bitcoin a risk asset? Comparison to S&P 500

Finally, here's another chart that highlights how Bitcoin's price movement is highly correlated to the NASDAQ's price movement. If there was a time for Bitcoin to outperform, it would be during heightened geopolitical risk, high uncertainty, and high inflation. But it is not outperforming yet.

Bitcoin price is highly correlated to the NASDAQ 100 price

Financial Observation #2: Uncertainty kills the market

Fear of the unknown is one of the biggest negatives for the stock market. The greater the speculation about a Russian invasion of Ukraine, the more the stock market sold off. Only when the invasion actually occurred did the stock market finally turn around and rally.

Besides the fear of an invasion, here are other uncertainties that may hurt stock market performance to varying degrees:

  • Concern over the magnitude and the number of rate hikes by the Fed
  • Fear over the outcome of a presidential election
  • Concern over who will be nominated to the supreme court
  • Fear over the impact of a new deadly virus
  • Worry over a new tax hike or change in tax policy
  • Concern over a reduction in government benefits
  • Fear World War III might ensue

The more we know about an outcome, the more we can take steps to deal with the outcome. However, to really benefit, you need to take action before the result is known. In other words, you need to take risk.

When it comes to investing, there is never a 100% certainty any result is known. As a result, we always need to think ahead and practice predicting the future.

Financial Observation #3: Extremely powerful and wealthy people are willing to detonate their finances for their ideology

We may think the Federal Reserve and other central banks are the most powerful entities that can determine the direction of the stock market. However, in reality, men like Vladimir Putin are more powerful than them all.

Putin was willing to destroy the Moscow stock exchange in order to go to war. On Thursday, February 24, 2022, the day of the invasion, the benchmark MOEX Russia Index closed 33% lower, erasing $189 billion in shareholder wealth. Meanwhile, the S&P 500 closed up 1.5% for the day.

This is the first time since 1987 that a selloff of this magnitude has hit a market worth more than $50 billion. In the aftermath of the Black Monday crash that year, Hong Kong’s Hang Seng Index tumbled 33%. The worst single-day drop over the past century in any market of any size was Argentina’s 53% slump in January 1990, when the country was battling hyperinflation and a mounting economic crisis.

The MOEX Russia Index now trades at roughly 2X forward earnings, down from 5.4X at the start of 2022. The earnings multiple of the MOEX reflects the risk premium required for investors to invest in such a market. The more power that is concentrated in the hands of a few unpredictable people, the riskier the market.

With Russia now facing tremendous sanctions by the West, the Ruble also depreciated by 50%+ as well. Even with a hike in Russian interest rates to 20%, few want to hold Russian assets anymore. The Russian discount will likely last for years, if not forever. Be careful of home country bias investing!

Therefore, you should probably continue to overweight developed countries with highly functioning democracies. After witnessing how well the U.S. has performed since the start of the pandemic, I will keep 90%+ of my investments in America.

Financial Observation #4: Compared to stocks, real estate is an oasis during a war

If you own both stocks and real estate, think about the amount of time you spent worrying about your stock portfolio versus your real estate portfolio during the onset of the war. Be honest with how many times you checked your stock app and logged into your online brokerage account before and after the invasion began.

Now think about how many times you thought about how your real estate portfolio was doing. If you are like most people, you probably worried much more about your stocks than your real estate.

It's only if you own real estate in a country that is being invaded will you begin to worry. Depending on if the invading country wins and how aggressive they are, you could lose your property rights under a new regime change.

If you tend to be a more anxious person, stocks may not be for you. You must come up with an appropriate net worth exposure percentage so that you aren't feeling distraught with the urge to panic sell any time there is a big downturn.

If you've been feeling particularly jittery or moody during this latest geopolitical event, then you should probably lower your stock exposure. On the other hand, if you've gone about your business without feeling any stress, then you should probably increase your stock exposure. Know thyself!

Personally, I dislike the way stocks make me feel when they sell-off. After spending 13 years working in equities for two major investment banks, I've already had more than a lifetime of stock market rollercoaster rides. Therefore, I have a greater percentage of my net worth in real estate rather than in stocks.

Financial Observation #5: Big intraday reversals haven't proven to be good omens

When the Russian invasion began, the NASDAQ began the day down 3.29%. It then ended the day up 3.36%. The S&P 500 started the day down 2.59%. It ended the day up 1.5%.

Historical times when the NASDAQ had a +5% intraday reversal from the open - crazy financial observation

There were plenty of 5%+ NASDAQ intraday reversals during the 2000 dotcom meltdown and the 2008 global financial crisis. I was around during the 2000 tech bear market and there were so many false hopes. Therefore, have a lot of skepticism about the latest turnaround. There will undoubtedly be more volatile times ahead.

Below is a good historical chart showing the historical drawdowns since 1980. 10% – 20% corrections are quite common.

Historical drawdowns in a bull market

A War Could Ignite A Bull Market

One scenario worth thinking about is whether Putin actually helped stop a bear market from forming. This might sound ridiculous. But hear me out.

During a recession, governments tend to spend and print more money to get their economies going again. For example, on May 6, 1935, President FDR issued executive order 7034, establishing the Works Progress Administration (WPA). Over its eight years of existence, the WPA put roughly 8.5 million Americans to work, helping America get out of the Great Depression.

During a war, there is heightened military spending that creates employment and additional economic activity. More money may be spent on innovation and technology. However, there is obviously a cost to many other industries. Therefore, the jury is out on whether this war could reignite an upward momentum in stocks again. The only evidence we have so far is the relief rally in the U.S. stock markets since the invasion began.

However, here is how a war might actually help the stock market:

  • Makes the Fed second-guess their rate hike plans, which could help spur further borrowing
  • Attracts more treasury bond-buying, which helps put a lid on rising interest rates
  • May reduce consumption froth and reduce inflation as more people hold cash and spend less
  • Encourages other nations to collaborate, creating more opportunities for international trade
  • May eventually motivate more people to spend their money on goods and experiences, which helps boost economic activity and corporate profits

Stubbornly High Inflation For Longer

Given Russia is a top-three producer and exporter of oil, energy prices will likely stay elevated for a while. As a result, inflation will likely also stay elevated, at least until the war's worst ends.

Below is a good chart from the Federal Reserve that highlights six episodes of post-WW II elevated inflation. After each period of elevated inflation, there was a collapse in inflation prices as market forces went to work.

six episodes of post-World War II inflation

There is also a rising concern for stagflation, which is the simultaneous increase in inflation and stagnation of economic output. However, the default assumption continues to be that inflation will eventually abate within the next 12 months while economic growth continues as we exit the pandemic.

Personal Consumption Trends

After two years of higher-than-normal saving, investing, and working, I plan to spend more money over the coming 12 months, not less. My intention to revenge spend is high as we get back to normal. The typical U.S. consumer has “excess savings” accumulated since 2020.

Although it now costs over $100 to gas up my car, I will still drive my boy to school during the weekdays and drive to tennis matches on the weekends. Purchasing an electric vehicle will have to wait until 2025 when my current car reaches 10 years old. I only drive about 4,500 miles a year.

Thankfully, the northern hemisphere is entering warmer seasons, which should mean lower home heating bills. We don’t use much heat here in San Francisco because it seldom gets below 50 degrees.

A pandemic and now a war are good reminders to not take life for granted. May there be peace soon.

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Readers, what are some other financial observations you have had since the war began? How are you thinking about your finances, your livelihood, and your future? If you want to receive my posts automatically through e-mail, sign up here. If you want more nuanced personal finance content, you can sign up for my free weekly newsletter.

About The Author

42 thoughts on “Five Financial Observations Since The Start Of The Ukraine War”

  1. Peter Zeihan is a geopolitical strategist whose basic thesis is that globalization as we know it is ending and the world is dividing (or devolving rather) back into zones that will thrive or not based on the strength of their regional geography, industry, military, energy, demographics, etc.

    His possible “winners” include the U.S. (plus frenemy Mexico), France (and to a lesser extent U.K.), Argentina, Turkey, and Japan of all places. His losers include Germany, Russia, China, Canada, and others. Take it with a fat grain of salt but he did call the Russia-Ukraine conflict (and subsequent financial iron curtain) years ago.

    Regardless, the lesson is that world history isn’t based on our ideals, emotions or how we would like it to be. Invest accordingly.

    1. Makes sense. But why would China, Germany, and Canada be losers? China is growing quickly and Germany has a legitimate democracy with strong industries.

      I believe the U.S. continues to get stronger out of this. More foreigners will want to buy our assets, especially property. More foreigners will want to migrate to the U.S. to work and raise a family. During a time of war, the strongest and most well-run countries stand out the most.

      1. China and Germany lose because they’re export economies highly dependent on the US military to protect global trade. The US is retreating from this role. Canada loses because it’s an inferior yet more expensive version of the US economy while Mexico is complementary to the US. China, Germany, and Canada are also rapidly aging relative to the US and Mexico.

        The US emerges as one of the best options from this holistic perspective. Like you said, foreigners recognize the relative value of the US and buy our real estate.

        Not saying I buy this thesis wholesale but always good to hear contrarian perspectives outside the financial world.

  2. Dominic Kivni

    Is it really fair to say that real estate is more stable than stocks, or is that just the illusion provided by illiquidity (just like private equity vs publicly traded companies)? As an example, for most people the majority of their net worth will be a single family home that they live in. There’s 3 publicly-traded REITs (INVH, AMH, and TCN) that just hold single family homes, and theoretically their values should be even more stable than just 1 house because of portfolio diversification, so their values should be rock solid steady growers. And yet if you look at their charts vs the S&P 500, they’re just as volatile.

    To me, what that indicates is not that real estate is inherently more stable than corporate equity, but the format of small pieces of ownership that are quickly and easily tradeable in highly liquid markets inherently results in volatility, whether it’s a small piece of real estate holdings or a small piece of a company.

  3. Ms. Conviviality

    Financially, things are looking good. Two weeks ago, I received a significant pay raise which put me into the six-figure earner club. This additional income will help speed up the progress on goals that were set years ago: building $300,000 investment portfolio, completion of Airbnbs, and launching online business. I’m very diligent keeping to our budget so inflation has been felt but at least the raise more than offsets the impact. With the pandemic, it felt prudent to have one year of expenses in cash. The savings and pay raise are making me feel even more confident in ramping up the side hustles and getting the money flowing in sooner rather than later.

    After 18 years as an internal auditor and in the role of audit manager for the past 4 years, it’s about time I made 6 figures. The pay raise was prompted by 1/3 of the office resigning for better positions. Yeah, they had to increase pay before others jumped ship and make it fair otherwise the new hires would be making more while in positions with less responsibility. After the pay raise I saw an Instagram ad stating that only 11% of women make more than $100,000 working for someone else, versus 23% of men. I should feel fortunate for my pay but I know I can make a lot more working for myself. 2023 is going to be a totally different life!

    Regardless of the higher income, I’m going to stick to my plans and am happy the universe is helping me get to the FI finish line faster :)

      1. Ms. Conviviality

        Thanks, Sam. Your blog introduced me to FIRE and set me on this journey 5 years ago. I feel like we owe you a nice steak dinner, perhaps when we’re visiting for the book signing.

  4. The Alchemist

    “Extremely powerful and wealthy people are willing to detonate their finances for their ideology”.

    Hmmm. This applies not only to Putin, but to a great many people in the West. ESG, anyone?

  5. Aaaaand you spoke too soon.
    As of today, Bitcoin is clearly a defensive asset.
    It is currently outperforming gold week over week during 1 of the largest macro events of the last 20 years.

    1. Some of the highest beta stocks, like bombed out tech growth stocks, went up today. It was risk on with the Nasdaq up.

      There’s also a potential rush to crypto from the Russians since they’ve been cut off from SWIFT. So you’re right! This surge in Bitcoin price is an unexpected event. Let’s see what happens when it’s risk off again.

      1. *There is a global rush to crypto since the Russians have been cutoff from Swift.

        41 basis points day over day on QQQ is risk on vs bitcoin ripping up 15%+?

        The world is coming to a collective realization over the last 2 weeks that:

        1) Canada seized financial accounts and cut off traditional banking access to participants in the trucker protest. In the West of all places.
        2) Russia was kicked out of SWIFT. Which obviously would make other countries nervous about taking wrong think actions at the wrong time…
        3) Russian stock market dropping 50% in 1 day and absolutely wrecking civilians
        4) Crypto is the only thing outside of the traditional banking system. It is, in fact, the ultimate insurance when you can hop skip across any border with your seed phrase memorized. Gold at the border? Confiscated. Gold in your residence when the war starts? Invites violence. Paper gold in the stock market after your currency plummets and foreign redemptions are closed off?

        1. Most are good points. Just not comparing Russian stock performance to crypto performance. Obviously the Russian stock market was going to get crushed. I added a new chart comparing Bitcoin and S&P 500 performance.

          As a long time investor, including in Bitcoin and HUT (since 2018), I have seen a lot of different scenarios play out. So I’m going to stay on the more conservative side and expect the unexpected.

          How long have you been investing in cryptos and what is it as a percentage of your net worth? Mine is still in the low single digits. But I’m also relatively risk averse because I don’t want to work.

    2. its a defensive asset if the world has cut off your banking system and your currency has plummeted and there are bank runs and youve shut your stock market down and youre days away from hyperinflation. currently that profile only fits 1 country on earth

  6. Hi Sam,
    long time reader here from Poland (Ukraine neighbor). Good points in your article, especially valid from US perspective. You can be thankful for living in a freedom and stable country. Most ppl in world don’t have such an opportunity… anyway few observations from my side. As having 30% of portfolio in polish equities (even with some Ukrainian companies, which were down >40% in one day) last days were very volatile. My portfolio ~300-400k USD is very small from US perspective, but in Poland I’m in 1% richest ppl.
    1. Best hedge appeared to be short futures contracts. They worked very well to cover losses on stocks.
    2. imo also crypto hedge worked very well, especially, because it’s valued in USD + it offers easier maintenance costs + it’s tax free in Poland (until you exit to fiat).
    3. In such dynamic days like these ones if you are very close to affected regions, managing portfolio is very hard. When events come in many cases it’s too late to make action (overnights opening gaps on stocks, huge spreads etc). If you are not prepared then it’s too late.
    4. Geo diversification is most important imo, not because of correlations between assets, but mostly for having assets in different – more stable jurisdictions.
    4. In such times there are more important things than managing portfolio. It’s better to read some prepper’s hacks etc + help other people. Right now every day about ~100k people from Ukraine is coming to Poland and we are looking shelter for them etc…
    5. Investing in real estate mostly it’s easy, but when black swan happens, then you can lost everything. Imagine you have most of your real estate in California and then there is an earthquake (which will happen someday…). Starting of russian invasion was like an earthquake for many Ukrainians.

    1. Nice to hear from you. The country investing bias is interesting, where we invest mainly in where we live and work. After this latest geopolitical event, I suspect more international capital will flow to U.S. equities, real estate and more.

      Let’s hope for no earthquake. But if there is one, to hope our buildings stand up. Most did during the 1989 earthquake, and building has gotten stricter and stronger since. Finally, thank goodness for insurance!

      All the best

    2. Well, a portfolio of 300k is more than 95% of americans have as well, so you should feel good about your dedication.

  7. Some concurring thoughts leapt right off the screen at me.

    “Extremely powerful and wealthy people are willing to detonate their finances for their ideology.” Yup, look at what Xi is willing to do to China’s economy to stay in power and ensure that no one can challenge that. He’s taught a lot of folks that that China is not an investable environment.

    “I will keep 90%+ of my investments in America.” A long-standing axiom for me. It’s not that I’m all “buy-American” etc., it’s just that having my wealth where the rule of law is in place is a good thing, and having it close is not a bad thing. Most especially, being able to easily invest inside the US is not an option for everyone, but it is most certainly a huge privilege for those of us that are citizens here.

    And ya, I may miss opportunities by not playing with crypto, but that’s okay. There are other opportunities and they are ones where I don’t have to worry if my earnings are even worth anything at all. I also may miss some really good opportunities in other countries. But that is also okay, I don’t have to worry about some murderous thug with actual blood on his hands (Poisoning Putin and Concentration Camp Xi, to name two) waving an arm and making my investments disappear, earnings and all.

    1. Such scenarios are so sad, aren’t they? Just because we were born in America, are American citizens, or get to live and work in America, we’ve got it so much better.

      Look at Yandex, the Google of Russia getting crushed right now… back to where it was 10 years ago. Getting destroyed due to the actions of a few individuals is extremely unlucky.

      I cannot believe Putin wants to live in a cut off Russia, like North Korea. Now, millions of his people will suffer.

      1. Putin’s been pushing the envelope a long time now. No matter what he did, the worst he seemed to get was a reset button from Hillary Clinton. So he’s been doubling down ever since. It never occurred to him that he could go way too far in one easy step. Like Saddam Hussein before him, he’s probably having a very hard time getting his head around the response to his most recent atrocity.

        I used to teach management and leadership at a major university. We called this the “Leave Alone Zap.” It refers to when people’s performance (or behavior) gets worse and worse and there are no repercussions for it. Then — ZAP! — all the repercussions hit at once.

        People, even murderous KGB tyrants, expect a graduated response. Yet the Leave Alone Zap is a common management technique, just not a good one, for obvious reasons.

  8. Putin’s invasion of Ukraine saddens me greatly but what sickens me even more are the crocodile tears now being shed by the US and Western Europe. In the past 8 years over 14,000 Ukrainians have died in a military conflict in eastern Ukraine. Yet not one of those nations even remotely condemned Ukraine for its actions nor even cared about the Minsk accords. Quite to the contrary they supplied weapons. Support for Ukraine as defined in the mainstream media is actually choosing one side of Ukraine over the other. Lasting peace will not be achieved without recognizing the suffering of ethnic Russian Ukrainians. From their perspective the Russian invasion is an act of self defense. By all means stand with Ukraine, but stand with all Ukrainians. I welcome any and all ideas as to how to accomplish this goal.

    1. Russian attacked Crimea and right now bombarding Kharkiv civilians where almost 100% speaks only Russians. Putin and all his supporters are the only ones responsible for for starting war in 2014 and spreading it to the whole country in 2022. I am really proud that US, European Union and almost all western country united and finally decided to stop this madman.

  9. Since the war began, it has reminded me of how grateful I feel to live in the United States. Also, it has been interesting to see people fretting about the high gas prices. What confuses me is that I see people on the news talk about how they don’t make a lot of money and have to spend hundreds of dollars on gas. However, they’re driving brand new SUVs. It always confuses me. If someone is on a limited budget, why are they driving a brand new SUV? Why not a used sedan or a smaller vehicle that doesn’t require so much gas?

    1. “We buy things we don’t need with money we don’t have to impress people we don’t like”

      -Dave Ramsey

  10. Hi Sam, you and other readers can support Ukraine by transferring money to people in need ( search google “how to support Ukraine”) and spreading information about war. I see that European Union is really strong and tomorrow the will going to disconnect Russia from SWIFT system. Thanks for your article.

  11. i dont believe that the current invasion or the 2008 financial crisis were black swan events if your definition of a black swan event is one that is unpredictable and sudden. we knew back in december that russia was going to invade. we were literally getting position updates regarding troops and equipment. in 2006, there were numerous analysts warning of a huge housing bubble. it was a time of stated income/no doc loans, with Countrywide being the poster child. people were doing cash out refis like nuts and DTI ratios were huge. we all saw these things, not only on various charts but also empirically, seeing our friend who makes 40k buying a 500k home and then pulling out 60k 5 months later. even bill mcbride of calculatedrisk called it in 2005. maybe the only thing we didnt publically see were the CDOs filled with toxic assets. when china takes taiwan, i hope you wont consider that a black swan event. why do you think TSMC is building factories in the US and Japan? just regular ol expansion? they know china is coming. these are only black swan events if you arent paying attention.

  12. Agree about times like these being a good gut check on asset allocation. I just retired and am at 50/31/12/7 equities/real estate/bonds/cash. So far feeling good and not panicking which is a good initial test on handling market stress while retired. I moved a little out of bonds and cash last year to pick up more real estate when inflation picked up. So willing to make moves when things change but didn’t see this shock as an event demanding action.

  13. Obviously, one of the silver linings of the financial crisis was the creation of Financial Samurai.

    1. Hah! Appreciate that Scott.

      Nothing like disaster, fear, and despair to finally do something you’ve put off for a while! I originally planned to launch FS in 2006. But life got in the way after b-school.

  14. Mark Kuipers

    Any advice of trying to time the market and to react to current events is almost always wrong. When do you get out…when do you get back in? You’re much more likely to be wrong than right.

    I really enjoy your essays, but the last few about Ukraine are off the mark.

    1. Thank you Mark. My observation could definitely be wrong. So if you can explain to me exactly which observations are wrong and what your observations are, I think everybody will benefit as we’re always learning.

    2. Which observation do you think is incorrect? Are you reading the right post? I don’t see advice about getting in and out of the stock market.

      Maybe contribute some thoughts instead of just saying someone’s observations are wrong. People really see what they want to see.

      I thought the intraday reversal was especially insightful.

  15. I stopped reading the news regularly a couple years ago because it gave me unnecessary anxiety. I sure picked a bad week to check in to my News app to see what’s happening in the world. The best I could do was tell myself, the politics and events happening in the world are out of my control and to focus instead on what I can control.

    So I’m using this time to pay down some debt, put some capital to work during the dip, and focus on my own to do list.

    Really solid insights in this post Sam. Nobody else out there writes like you do.

  16. Great article, Sam. I love point #4 (intra-day reversals can be a negative sign). It’s easy to get wrapped up in the emotion of short-term volatility, leading some to make poor long-term investment decisions. Stick with your plan, keep an eye on rebalancing, and avoid the noise. Managing your investments is a marathon, not a sprint. Act accordingly.

  17. Sam, another great article. Loved the insight on stocks and real estate. I checked my properties’ value on Zillow (I know accuracy is debatable) everything was up, rentals cash flowing, not a real concern in the world on that front. As for my Simple IRA, I didn’t even bother to log in this week. Just chuckled as the Dow was down 500 one day, then up 800+ the next…
    Of interesting note, I received two texts, one from my 15 year old and one from 19 year old daughters concerned about the potential for WWWIII. I guess the GenX in me took over, and I told them not to worry as this all felt remarkably like the 80s and a potential slip back into a Cold War era.
    Anyways, your Financial Samurai site is the best thing out there. Thank you Sam.


    1. Thanks Jim! It’s always good to worry a little bit… but not too much that it debilitates us from taking action.

      As one saying goes, “Only the paranoid survive!” But that’s not a healthy way to live life at all.

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