Not Putin on your thinking cap.

 

When Nobel prize-winning economist Friedrich Hayek spoke of “the local knowledge problem” -- that 200 million heads are better than one -- he had a different iteration of Russia on his mind. But a tyrant’s flaws, regardless of the age, are in is his inclination to drink his own Kool-Aid and think himself wise for it. Putin, it seems, is brain-crippled by isolation from robust rationale debate. Also, he’s a jerk.

 

In today’s Wall Street Journal, guest editorialist Walter Russell Mean said: “There are two mistakes we can make about figures like Mr. Putin. One is to underestimate their talent for troublemaking if they don’t get what they want. The other is to believe that by giving in to their demands we can quiet them down. The West has made both mistakes with Mr. Putin in the past. We must try to do better now.”

 

Okay, but now what? In this audio clip, Janet Engels, Head of the Portfolio Advisory Group – U.S., and Tylar Lunke, Senior Manager of the Portfolio Advisory Group’s Managed Portfolio Strategies team, discuss the rise in commodity prices and its potential impact on already-high inflation. Will this alter the economic growth outlook for the year? In our view, the range of potential outcomes has widened. They also highlight market reactions to previous economic “growth scares.” Listen here (about 14-minutes).

 

Charting the Week:

 

EU payments to Russia for natural gas (see chart below from Bruegel): “According to Javier Blas of Bloomberg, at the start of the year, Russia was earning $350 million per day from oil and $200 million per day from gas. On March 3, 2022 Europe paid $720 million to Russia for gas alone.”

 

 

U.S. oil imports (see chart - left) originate much more from Canada than Russia, even before sanctions. But roughly 60% of Russia's crude oil and refined-products goes to OECD Europe.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

But it’s a Relatively Small Direct Financial Impact: The chart (left) shows that, taken together, Russia and Ukraine account for about 3.5% of global GDP in purchasing power terms and only 1.9% in dollar terms. Even if the war reduces Russian and Ukrainian GDP by 10% and 30%, respectively, this year, this would only shave one-third of a percentage point off of global growth.

 

The charts, if I had them, tabulating the human toil would be much more emotive of course. But it’s good to know the financial data so as to not give in to excessive reactions.

 

In this week's wrap-up:

• Economic stakes of the Russia-Ukraine conflict –As the economic front expands with sanctions, we look at the investment ramifications, including a potential “growth scare” and what that could mean for equity markets.
• U.S credit markets under pressure - With Fed rate hikes looming and European geopolitical tensions intensifying, selling pressure continues to mount on U.S credit markets. We provide our thoughts on the fixed income landscape.
• Regional highlights: Canada continues to benefit from higher commodity prices; EU proposed bold plan to reduce Russian energy reliance; china sets ambitious GDP target.

 

Full Report Here: Global Insight Weekly

 

My heart continues to feel the weight of this war heavily, and I know I’m not alone in thinking I should be over there physically helping somehow, doing something more as so many other brave souls are.

 

Enjoy your weekend. Life is precious and short.

 

Mark