War, De-Globalization and Inflation

War in Ukraine has been taking place for over two weeks now and inflationary pressure is at its highest level, with oil prices pushing the benchmark. The post-pandemic economic reality is harsher than expected with inflation not being transitory, as Mr Powell said in 2021. In 2020 the words ‘inflation’ and ‘de-globalization’ seemed like unicorns and the governments started printing money at an alarming rate. The money injected into the economies was meant to stabilize the economies fighting a novel virus. De-globalization was ignored but the world was dividing itself based on epidemiological restrictions and each country acted for itself when it came to valuable resources regarding the fight against Covid19. I emphasize the word ‘fighting’ because now Russia and Ukraine are at war and the world is divided again, in this era of extremities. The unity promoted in the last 30 years seems to wane and nationalist rhetoric seems to take the place of globalization and world development.

In 2020 when Covid 19 was labelled as Chinese and then different mutations took other countries’ names this sounded like alarm bells for a new world order. Globalization started to seem detrimental rather than beneficial for its participants, and therefore governments shifted towards national rather than international agendas. This created bottlenecks in production and transportation, which increased prices. On top of these inflationary triggers we have lower birth rates around the world, which creates shortages in the working population. Not to mention the fact that Covid 19 changes many people’s perspectives about work-life balance, and they started to value their skills more. The cheap work force of the East started to dwindle in the past years and therefore the low wages and prices started to increase incrementally. When the pandemic hit the world and governments gave incentives to people this fueled the increase of prices, which further pushed inflation.

Another step towards de-globalization was taken by Mr Trump in his quest to ‘make America great again’ and cool relations with China. The financial diplomatic shenanigans between the USA and China have sparked the US stock exchange to de-list certain Chinese stocks based on different premises. China in retaliation is not letting auditors check the companies’ books on the basis of them being sensitive information related to China’s national security. This friction between the two super-powers is another bold sign that de-globalization is here to stay for the near future. Finally Mr Putin took the step to invade Ukraine, in order to satisfy Russia’s expansionist views, and this sparked an uproar in the West. One could argue that the West is uniting in front of the authoritarian East, but is it really a unity? The European Union and the US seemed to be united, but only where it suits both bodies, otherwise sanctions vary in some ways. Then China is taking a different direction, and Turkey is in the middle. This reaction during a sensitive war on the NATO borders is more reminiscent of the pre-globalization era rather than the recent reality of the past thirty years.

The war is another kindling agent for inflation as the price of oil is at the highest level in the past 40 years, and therefore the price of other commodities sky-rocketed. De-globalization with its production and distribution bottlenecks is another agent, which keeps the flame burning. All of these catalysts have sparked a downtrend in the markets and world is waiting for a detente. Gold and Silver have been winners in this incident, but the ‘digital gold’ does not seem to have been so fortunate. The main US indices like the S&P 500 and Nasdaq seem to be resilient in front of these headwinds, in the sense that they have fallen no more than 15-20% on the year, after a gigantic increase in 2020-21.

As inflation and war are very good friends, one has to wonder what is a decent strategy for the average retail investor. While one seeks metals as refuge, if you are too late now may not be the time after such a spectacular rise in prices. At the same time during inflationary periods cash is no longer a position since it is depreciating by the day, and therefore your capital is dwindling. You can use your capital for daily trades on the stock exchange for a cash flow and then maybe incrementally buy some stocks/options with a longer term view. Like Buffet says: ‘be fearful when other are greedy and be greedy when others are fearful’.

The media has been feeding this war and inflationary pressure on all outlets and this is spreading a virus of a different shape: fear. One can argue this is similar to the approach during the pandemic, when people were being scared into submission rather than encouraged to be proactive in protecting themselves and others around them. Therefore you should try turning off your TVs and social media for a while and try to be more analytic rather than accepting news as they come. In this modern world informational warfare has been one of the most powerful tools used in a negative way and this led to extreme moves and volatile reactions from populations being pulled in a tug war.

The point to be made in this article is that in order to feel safer and in control you should have the appropriate tools and routine. Read more and analyze the world situation for yourselves rather then through everyone else’s eyes. Understand that the markets react in advance of the general population and this is a useful tool in detangling the chaos that seems to have descended upon us. High oil prices, inflation and war are all transitory as history shows us that we move in cycles. How long a cycle can be this is a tricky thing to time, but if you take each day as it comes when talking about trading, you can find opportunities everyday. Do not let yourselves swayed by the bulls or the bears, just read the charts in front of you and take decisions based upon facts rather than emotions when it comes to trading, and you’ll find yourselves protected by misinformation.

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