The world’s commentary about finances and the Ukraine war is filled with alarm:
“the cusp of an economic singularity …”
“imminent economic disaster…”
“global famine scenario…”
“the most important pivot in history…”
“could face oil prices of over $300 per barrel…
“the end of the dollarized world economy…”
Unfortunately, the economic reality justifies the tone. It announces the arrival of a painful period of stagflation.
The Ukraine war’s spiking of energy prices is widely known and evident at the gas pumps. But prices are spiking all across the commodity complex, for foodstuffs, fertilizer, and industrial and strategic metals as well. We have written about them as the Ukraine war has unfolded.
Bear in mind that sharply higher food and energy prices also threaten civil unrest beyond the war zones. The Arab Spring that toppled governments and created insurgencies across the Islamic world was triggered by economic stagnation.
But there are other risks to the functioning of global finance that are just as alarming as energy and commodity price shocks.
Foreign banks are holding a reported $100 billion of Russian debt on their balance sheets. Russian sovereign debt has already been downgraded to junk status. A Russian default will spread damage across the financial landscape. No country will be insulated from the consequences as nervous international banks curtail normal lending, cut corporate credit lines, and as derivative losses of unknown magnitude spread.
But that is only one avenue to a general liquidity crisis. A falling stock market is another.
From Bloomberg, a story headlined, “Morgan Stanley and Citi Strategists See Equities Storm Forming”:
Downside risk remains most acute over the next 6–8 weeks, Morgan Stanley’s Michael Wilson wrote in a note to clients. We are firmly in the grasp of a bear market that is incomplete in both time and price.
Separately, Citi strategists led by Jamie Fahy said a global gauge tracking analyst estimates of corporate profits has turned negative for the first time since September 2020. This is a potential “game-changer,” eroding their conviction on the prospects of risk assets, they wrote.
Earnings delivery is “paramount” at a time when liquidity is being sucked out by central banks across the world, the Citi strategists said. Removing this support could leave some indices floating on air.
Be aware of the risk that the Fed and other central banks will try to meet these liquidity threats with new rounds of money creation, solving nothing and only compounding our growing crisis. The formula is simple: continued inflation + an economic slowdown = stagflation.
In the meantime, for those of our friends and clients that have ridden this stock market wave of Fed liquidity, it makes sense to lock in any profits you may still have and secure them in gold, the obvious safe haven and profit opportunity in periods of stagflation.
As we have pointed out repeatedly, the stock markets have been levitated for years by Fed money pumping. But don’t wait. As Wolf Richter, WolfStreet.com, points out, the stock market is already coming unglued, one stock at time:
This stock market – meaning the stock jockeys, the trading algos, the hedge funds, and what is generally called Wall Street – was just brutal about how it pushed one stock after another to ridiculous highs after the Fed’s money-printing scheme flooded the land with liquidity, and the over-liquified crowd swooped in on any and every meme, no matter how ridiculous, and caused these stocks to spike by 200%, 300%, 1,000% and more, in the shortest amount of time…
What we’re looking at is how the greatest stock market bubble ever is coming unglued stock by stock, rather than all at once.
Don’t sit still for the loss of purchasing power due to inflation. And as the air comes out of the stock market, don’t ride it down and expect to make it all back eventually.
In the last stagflation decade, the 1970s, the stock market lost almost half its value in less than two years. Yet, it took almost 20 years for it to recover in real terms. Remember that if the market falls 50%, it must recover 100% in order to break even.
Sorry, but that is the way it works. Protect your principal in times of instability with gold, the measure of all things monetary.
Now is your chance. Let’s not forget that the financial fallout from the Ukraine war is still coming. Let us provide you with a free one-on-one consultation to help you protect your retirement.
The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.