Economic Impact of Russia's War | Schaftlein Report

Economic Impact of Russia's War | Schaftlein Report
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Guest: Dave Brat – Liberty University Dean, School of Business
Topics:
1) Russia and Belarus produce 40% of the worlds ingredients such as potash - Ammonia, nitrogen and phosphates are also used in fertilizer which is soaring up 30% this year - this and more leads to significant increase in food prices
2) The risk to both developing and developed countries of the possibility of a global food shortage crisis looms as the cost to make food rises
*Supply chain bottlenecks are likely to worsen - Wheat is up 60% since February
3) A negative feedback loop is starting with chaos in commodity markets leading to chaos in the real world as conflicts increase - It potentially compounds and gets worse
a. Anticipation of chaos can lead speculators to price in that risk and escalate risk premiums and costs
b. Historically as cost of living increases across the globe, governments are replaced or collapse
c. We are seeing another refugee crisis in eastern Europe - What other risks are pending?
3) Additional sanctions are being considered against Russia - 40% of all Russian trade is with the EU - China is 17%
*Could Russia become more reliant on China as the western countries move away from doing business with Russia?
4) The Federal Reserve has lowered the 2022 growth projections to 2.8% - In December they were saying 4% growth
*Just like inflation, their projections have been off lately
5) The 10-year-note is now yielding 2.38% reaching its highest level in 3 years, up 50 basis points in about a month - The 30-year-Note is at 2.59%
*Mortgage rates are back above 4%
6) With Inflation still running hot, the Fed is openly telegraphing a 50 basis point increase at the next meeting - What are the implications?
7) The Fed is also considering reducing its $9T balance sheet - Will they do this simultaneously with raising interest rates?
8) What is the possibility of a 2022 Recession with all of the above items taken into consideration?
9) It appears the current strategy of NATO and the U.S. is a protracted stalemate in Ukraine bleeding the Russian economy and supplying just enough military equipment to keep the war going? 10K dead Russian soldiers and 16K wounded? How long can this be sustained?