Our hearts and prayers go out to those that are affected by the war in Ukraine. It is tragic but it exists, and we must navigate the economic and market environments it has created.
Equity markets are still struggling to finds equilibrium and footing given the Russia-Ukraine war and the associated spillover in commodities and economy. It has been a rough start to the year. The largest issue is the substantial uncertainty in the continuing warfare and knock-on effects.
- Oil and commodity prices have skyrocketed given Russia’s central role
- Risk of escalation of war beyond the Ukraine border
- Inflation and economic impacts of these collectively
Over the past few months, we have exercised greater caution in our investment process and following the math has helped to navigate the news flow.
More than anything the surge in energy prices (both oil and natural gas) is the greatest head wind for the economy and inflation. This situation has been by the weakness of the policies pursued over past few years both in the US and Europe:
- Limit drilling (more US)
- Eliminate nuclear power plants, leading to increased reliance on natural gas
- ESG = prioritizing green over fossil fuels when the infostructure to support it is underdeveloped
And now some strange initiatives are being pursued:
- Seeking deals for Venezuela and Iranian oil = enriching “corrupt” regimes
- Ban imports of Russian oil and natural gas = “cut the nose to spite the face”
All of these have added up to the vulnerability we face today. Geopolitical conflict seems to start oil and money. The situation is ever evolving and at a rapid pace. We continue to be cautious and follow the strategies that helped navigate us through other rough markets. Please do not hesitate to call or email. I look forward to talking to each one of you.