We published a piece in the newspaper that deals with issues so important, we wanted to re-emphasize them here. For our non-U.S. subscribers, please note that while certain discussion of U.S. policy won’t apply to you, key points on energy and food inflation will affect you as well. Link to the original article is here. Summary below:
1) Luminae Managing Partner and member of the Deep Knowledge Investing Board of Advisors, Heather Heldman, believes the conflict in Ukraine will continue for several months to several years. She further believes that sanctions will be ineffective at this point in getting Putin to change his course of action. Check out our webinar on the topic here.
2) While many are celebrating the effect of sanctions on Russia, we should be aware that the rest of us will likely be living with the effect of these sanctions for a long time. Russia will not be the only one bearing the costs.
3) Oil prices have gone up a huge amount and have since retreated a bit. Russia is one of the world’s largest oil and natural gas suppliers and exporters. Prices may not settle at the $135 they reached last week, but we’re not going to be seeing 2020 levels anytime soon (barring a horrible demand-killing recession).
4) Ukraine is a huge producer of corn and wheat. The spring planting season is going to be disrupted by farmers who fled the country, or who took up arms to defend the country. There will be food shortages.
5) Russia is a huge producer of fertilizer and they’ve decided to stop exporting much of it. This is going to raise the price of food as crop yields fall. Please remember that fertilizer production requires oil so there’s no cheap way to just start making more.
6) It’s not just grains that will see huge price increases. Livestock eat substantial amounts of grains (especially corn) so meat prices will rise.
7) All of this could push the U.S. Federal Reserve to raise future interest rates more than they had originally expected. This is especially true as the Fed has said they want to be cautious about increasing interest rates into a war-fueled economic slowdown. Chairman Powell is in a no-win position right now.
8) The State of the Union was used to advocate for even more government spending. That would make the situation worse not better.
9) Bonus item not in the original article: We’ve seen reports of bird flu affecting chicken and turkey farms here in the U.S. The procedure is that if one bird tests positive, the entire flock is killed. As of today 4MM chickens and turkeys were killed and destroyed. Best case scenario is that this increases food prices. Worst case scenario is it spreads to humans.
At Deep Knowledge Investing, our goal isn’t to scare everyone; it’s to calmly identify what’s coming and help our subscribers prepare. To that end, we suggest that if you can manage it, now would be a good time to fill your freezer with meat and fish. Buy long shelf-life products like canned food. Staples like coffee, flour, and sugar are nice to have around, and high-quality whiskey or scotch will hold its value as well. If funds are a bit tight, buying some extra basics like rice and beans now can save you some money and prevent panic down the road.
On the financial side of things:
1) Our guide to hedging your portfolio for inflation is here.
2) Our guide to hedging your portfolio for higher interest rates is here.
3) Reach out at IR@DeepKnowledgeInvesting.com if you have any specific questions.
Link to the original newspaper article is here.
We’ve been preparing subscribers for inflation, higher rates, and recession/stagflation for months. The sell-side is great at telling you what already happened. We’re focused on what’s going to happen next. If you want to be better prepared, please consider subscribing.