As I expected, Russia plans to fully absorb Ukraine by force to further Putin’s goal to reconstruct the USSR. I expect Putin to use Stalinist-type tactics, such as murder of political opponents, “newspeak” propoganda a la “1984,” and extreme brutality against civilian demonstrators and insurgents (i.e. machine guns, not billy clubs).
The harsh sanctions against Russia will target Russia’s main source of income – energy exports.
https://www.wsj.com/articles/oil-price-surge-threatens-u-s-g…
**Oil-Price Surge Threatens U.S. Growth**
**With prices at $100 a barrel, households and the economy are set to take a hit, economists say**
**by Josh Mitchell, The Wall Street Journal, 2/24/2022**
**...**
**With prices topping $100 a barrel for the first time in nearly eight years, the commodity is set to squeeze American households, push up inflation, dent the economic recovery and create a new headache for the Federal Reserve as it moves to raise interest rates....**
**American households devoted nearly 4% of their living costs to gasoline in December, according to the Labor Department’s consumer-price index. Gasoline prices are one of the biggest drivers of inflation over the past year....higher prices would reduce GDP growth by about 0.3 percentage point in 2022 — “not insignificant in the context of an economy already being weighed down by a higher inflation environment...”** [end quote]
METARs “of a certain age” will remember the stagflation of the 1970s. Oil prices rose due to OPEC. At the same time, inflation rose out of control due to easy Fed monetary policy and high government spending. The stock market tanked in 1973-74. The Federal Reserve raised interest rates sharply in 1980 to quell out-of-control inflation, triggering the long recession of 1980-2 which had persistent high unemployment.
The U.S. economy today is at a delicate inflection point. With inflation rising, the Fed is planning to tighten monetary policy beginning in March. The rise in energy prices is both driving inflation (forcing the Fed’s hand to tighten) and also threatens to slow real GDP growth. This may be trending toward a “zugzwang” situation where any move makes the situation worse.
All the asset markets are in a historic bubble due to ultra-easy Fed monetary policy. Bubbles are prone to pop. A slowing economy on top of rising interest rates will undermine the rationale for high stock prices.
I closed out some of my stock positions on Monday in expectation of Putin’s blitzkreig.
The METAR for the next week is stormy. And it’s just the beginning of a seasonal trend change.
Wendy