Needless to say, we are living in a dangerous world. For a long time, many of our “allies” who have lived under our protection have felt free to go their own way, often mocking the U.S. and ignoring their treaty obligations. Suddenly, though, reality has hit many of our “allies” and we are seeing them begin to once again arm against the slings and arrows of an outrageous world. The nations who mocked our former Presidents’ demands that they live up to their treaty commitments are increasing their military budgets (for weapons and not, as previously, higher retirement pay) and joint consultations.
Before we take a look at this further thought, I must say that in my humble opinion, this crisis with Putin and Russia will not go away soon. There is no easy way out for Putin; if he crushes the Ukraine, there will be a difficult and bloody occupation which will impact the world economy for the foreseeable future. If he is overthrown, which is a possibility, there will be a period of instability in Russia and the cost of rebuilding will be huge. This means that for the foreseeable future, the markets will be in turmoil. Depending on your risk tolerance, time frame, financial stability, etc., you should decide and watch your course of action.
Some will flee the market and put their money in cash (and lose out due to inflation) or bonds (which will provide some protection). Some will buy into the market in the belief that in the end, as in the past, the market will recover and move forward. Some will put monies into annuities which, while illiquid, can provide downside protection. Some will depend upon diversification, which is a combination of all the above. In short, there is no one easy answer; as always, saving and investing depends upon your own personal paranoia.
WHAT WILL OTHER COUNTRIES DO? Let us look at some of the players and see what their actions might be:
CHINA: After drawing close to Russia, China is probably rethinking their options. The Russian bear is not doing so well and China does not want to be like Imperial Germany in 1914, tethered to a corpse (the Austro-Hungarian Empire). China will most likely be a back channel for Russia to survive most of the sanctions, but China does not want to be seen as being too close to Russia. China is also watching how the world reacts and determining its options regarding Taiwan. The current leadership of China is determined to regain Taiwan, but if the West continues to act strongly as they are now, it may force China to wait for the world to come back to center.
GERMANY: The age of Merkel is dead and Germany, which has focused in the past on good relations with Russia, is moving in a new direction. Watch for a stronger German military and more aggressiveness regarding to non-financial leadership. This will be of concern to many in Europe, but it will happen and needs to happen.
FRANCE: President Macron will continue to push for a “European Army”, but this will meet with resistance from the new German leadership. Macron would love to have France take a leadership position, but that is an oxymoron in reality. Instead, watch for a more aggressive stance towards the immigrants that have the highest birthrate in France. Macron does wish for France to be European and not Middle Eastern.
THE U.K.: The invasion is a break for the P.M. as it will allow him to get attention away from his own problems, especially as the threat from Covid recedes. Watch for a stronger military and a renewed interest in the Pacific.
THE U.S.: Ah, here is the rub. With inflation, a pro-Green policy at the cost to the U.S. consumer, weak Democratic leadership, increased calls for military spending aimed at the Pacific and a more robust NATO, President Biden faces terrible challenges. My understanding is that after his State of the Union address, a member of the “Squad” will give a rebuttal. This is the clearest demonstration that the President does not have control of his own party and that he faces a disaster in November. If that disaster occurs, his last two years will be very long indeed. He can still pivot, especially on the energy front, which would make a major difference, but I am not optimistic. Unless I am very wrong, he is simply the wrong man at the wrong time, at the wrong place. I understand why many voted for him, but that is where emotion can lead one.
All of this points to a changing world, one which will be unsettled possibly for 2-5 years. Now is the time for all of us to watch ourselves, our spending, our investments, etc. much more closely. This does not mean chasing the market or running and hiding, but it does mean not acting on emotion, but on the best information available to us on a constant basis.
Thank you.
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