Well, not really, as they are in full view (I am ignoring a third one which involves US domestic politics and should not be discussed here):
- Russia is throttling down the fuel supply to Europe as winter approaches. Already, the cost of some classes power in Europe - exacerbated by the reduction in hydro power caused by the draught - is approaching an order of magnitude higher than a year ago. Ukraine has started a well-publicized counter offensive, which they claim is the beginning of their pushing Russian troops out of Ukrainian territory.
They have been assisted in this effort with massive quantiles of military assistance from the US, UK and EU as well as increased hardship for the population of the UK and EU as well as a far more subdued level (despite the political stress it generated) in the US.
It is important that this effort produce tangible significant results over the next month or two, otherwise, it is my feeling that the population of Europe will be unwilling to go through a harsh winter with little ability to provide heat “the good old fashioned way”. In that case, Russia will be in a position to dictate terms to end the war. If, on the other hand, Ukraine’s military is successful and begins to look like they are about to enter Crimea - which Russia has annexed - I suspect the war will become even more devastating to Ukraine’s cities. The net result is that, best case for Ukraine, is that Russia will pull back to its pre-war border and continue to hold Crimea. “Productive” regime change in Russia is simply wishful thinking.
For those who have forgotten to track another timeline, Ukraine’s next national election is scheduled for Sunday, March 31, 2024.
- The Chinese economy, either the second or first largest in the world depending on which fingers you are counting, continues to remain in chaos due to their chosen methodology of dealing with “Zero COVID” in the face of the much more transmissible Omicron strain, financial upheavals caused by the meltdown of their real estate bubble and a significant drought causing a reduction in the availability of hydro and nuclear power. This affects world markets on a number of levels; loss of productivity, a market eagerly buying discounted Russian oil/gas, breakdown in supply chain, potentially irrational behavior by a government looking to distract its population, etc.
It is obviously over-simplistic to blame any portion of our government for “creating” inflation based on the above market and fiscal forces. That said, as other nations are feeling its effects, we too feel the inflationary pressures caused by the distortions the two factors listed above are causing. It is also easy to project a drop in manufacturing as supply issues along with inflation causes unexpected levels of price increase. From an equity standpoint, this immediately affects miners, shipping companies, manufacturers - shortly followed by retailers and so on. While higher interest rates will slow down the “puffing up” of the economy, our domestic population has grown accustom to purchasing on credit and support against default by the federal government over the past couple of years and clamping down on inflation may pit the Fed against the realities of politicians which have to promise a chicken in every pot in order to get elected.
It is important that the Fed address the “expectation” of inflation as that can cause a distortion in procurement habits which makes it a self-fulfilling prophesy (by front loading purchases to be paid for with devalued dollars).
We are not isolated from what happens across the world and have to be prepared for, and acquire protection from, “unexpected” actions.