China will strengthen its position via Russia. Now the United States has to assert itself as a global leader not only in the allocation of financial resources and trade but, in dealing with a nuclear-armed tyrant and a totalitarian regime on a global stage.
A big uncompromising response now is the most likely strategy to settle these dramatic issues – and if it leads to regime change in Russia, that helps everyone, especially the Russians. The US and the EU need to grow up and start acting like global leaders.
The breadth of the economic and market impact will depend on what types of sanctions are applied by the West. It’s likely such measures would further target a combination of Russian banks, investment, and trade (such as through barring Russia from the cross-border SWIFT network), and potentially, energy. In response, Putin could also retaliate through the energy sector, as well as through cyberattacks on the United States and Europe. The situation is fluid to say the least. I approach these things thinking like a chess player. What is my opponents to best move? What is my best move, or least worst move, in response? And so on… the whole board not only includes Ukraine, but also Estonia, Latvia, and Lithuania, as well as China and Taiwan. If the West is unwilling to do anything meaningful except give passionate speeches, that is definitely a cue for China to be more aggressive.
What did we learn this year? Well, not too much. Observing is not learning. Acting is. But we’re not going to do that. A call for action is sufficient, as long as someone else does it. That much we’ve learned. Pandemic Time What used to take several years now takes a fraction of that –…
Financial markets are imbalanced and lack liquidity in crucial sectors, even historically stable and predictable markets such as the global bond and currency markets. Investments are slanted in one direction more frequently and the markets are vulnerable to big price swings as a result. These large global markets are not immune to ever more lopsided trades creating extreme volatility. This occurs even when a small change occurs in positions, sentiment, or news. Even the world’s most liquid markets, US dollar currency trades and US Treasuries, are seeing skewed positioning resulting in surprisingly large shifts in prices and Treasury bond yields.
The market now leans too far one way or the other, and that imbalance will be forced to reverse more powerfully and unpredictably.
A National Investment Authority, an idea gaining traction among the administration, would be responsible for “devising, financing, and executing a long-term national strategy of economic development and reconstruction.”
This is not the job of a government; this is the role of the free market. The market does this quite well, and government does this quite poorly. An NIA is another way to bring misery and inefficiency.
Policy reflective of central planning, socialism, or industrial policy brings misery to all. This discredited philosophy that tortured so many in Eastern Europe and Soviet Russia seems to be getting more traction today bewilderingly. It leads to nothing more than bureaucratic idiocy, waste, and disregard for any consumer needs.
Investors expected that the Fed would not only end its bond buying program, but many believed it would also raise interest rates. While the Fed did agree to taper its bond buying, essentially decreasing its $150 billion monthly bond buying program by $15 billion per month, ending the program in 2022. However, the Fed kept interest rates the same and clearly signaled that it would not raise interest rates anytime soon, and almost definitely not until the taper of its bond buying was completed – in other words, not for at least one more year.
Investors who had been betting on the Fed raising interest rates wagered on the yield curve flattening for Treasuries. Therefore, they invested in short-term Treasuries believing those would outperform longer-term Treasuries, as well as 10-year and 30-year bonds. Instead, we are seeing the opposite happen. Short-term bonds are dropping in price and yields are approaching their highest levels since March 2020. Meanwhile, prices for long-term bonds have climbed. This same phenomenon is happening for government bonds that only in the United States, but also in the UK, Canada, and elsewhere.
There are warning signs that the stock market is transitioning from some form of reality to misguided euphoria. The S&P 500 is up almost 10% in the last 30 days. However, this broad optimism doesn’t seem to be matched by many forms of fundamental reality.
Earnings are barely moving, and profit margins are under pressure from higher wages and rising product costs. However transitory one imagines supply chain constraints and lack of available workers, the situation has certainly extended much further than most predicted.
Central bank independence and fiscal responsibility matter, even though the Western world is acting as if these rules no longer apply. Well, perhaps. But the world has given us three examples where the consequences are extreme when these basic foundations of economic policy are ignored or violated.
Failures are essential for success. The NASA flight director, Gene Kranz, who is famous for the Apollo 13 quote, “Failure is not an option” has been misunderstood. Mr. Kranz did not mean “don’t fail.” He meant was that there will be a solution, think boldly and courageously because, while the solution may not be obvious to you now, you will find it eventually.
Accepting failures is not accepting failure.
Failures – trial and error, unforeseen roadblocks, creative thinking, visions, and revisions that a minute will reverse – lead to insight, innovation, creativity, and unforeseen breakthroughs. That’s success.
Failure is when you stop.
